Lagos Nigeria, 8 July 2020–Global Credit Ratings has downgraded the national scale fund rating assigned to Chapel Hill Denham Money Market Fund to A(NG)(f); with the outlook accorded as Stable. The rating is valid until March 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Chapel Hill Denham Money Market Fund (“CHDMMF”) based on the following key criteria:
Fund profile: CHDMMF is an open-ended mutual fund, with permissible investments in risk-free Federal Government of Nigeria securities and other short-term financial instruments issued by highly rated institutions. Historically, the fund was registered as a hybrid unitised scheme for almost two decades before it was converted to a money market fund in 2017.
Manager’s profile: Chapel Hill Denham Management Limited is a good brand in the industry, with strong competitive position underpinned by a fairly long track record of over two decades and status as a member of the Chapel Hill Denham Group. CHDM was accorded a management quality (“mq”) rating of BBB+(NG)(mq) by GCR based on evaluation of its market position, financial sustainability, as well as portfolio and risk management framework.
Portfolio quality and market risk: While the fund’s assets were maintained in high quality money market securities for most of FY19, a significant shift in risk appetite was noted in the fourth quarter of FY19. The manager favoured higher risk securities (placements and commercial papers) to compensate for the decline in T-bills yield towards year-end. Resultantly, weighted average credit rating (“WACR”) of the investment Portfolio fluctuated between A+(NG) and A(NG) at FY19 and it is expected to persist over the short-to medium term, except the Central Bank of Nigeria reviews it position in this regard. Nevertheless, the investment pool is considered strong and in conformance with the fund’s investment mandate.
Key fund risks: Liquidity risk is considered low given the nature of securities contained in the fund’s portfolio, which currently comprises largely placements and tradeable government securities. Overall, concentration risk as well as the volatility of return is considered low.
GCR’s assessment of fund rating is largely determined by the WACR, adjusted vis.-a-vis. inherent concentration and market risk exposures of the portfolio. The rating of the fund is thereby lowered by two notches to reflect the inherent risk in the asset mix as at year-end and which is expected to persist over the rating horizon.
A Significant improvement in actual and projected WACR, which is considered to be relatively stable, in compliance with the fund’s policy guideline and relevant regulatory requirement may result in rating uplift. However, a deterioration in asset quality relative to the planned portfolio mix, non-compliance with mandate/regulations, and/or a negative rating action on the manager may impact the rating negatively.
NATIONAL SCALE RATINGS HISTORY
Initial/last rating (April 2019)
Fund rating: AA-(NG)(f)
Senior Credit Analyst
+234 1 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
CHDMMF report (2019)
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for 12 months, or as indicated by the applicable rating document.
Chapel Hill Denham Management Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The fund rating has been disclosed to Chapel Hill Denham Management Limited with no contestation of/changes to the rating.
The information received from Chapel Hill Denham Management Limited and other reliable third parties to accord the rating included the Chapel Hill Denham Money Market Fund’s Trust Deed, Custodian Agreement, the audited accounts of Chapel Hill Denham Money Market Fund for the year ended 31 December 2019, as well as the audited annual financial statements of Chapel Hill Denham Management Limited for the year ended 31 December 2019.
The rating above was solicited on behalf of, Chapel Hill Denham Management Limited. And therefore, GCR has been compensated for the provision of the rating.