Johannesburg, 19 November 2019 – GCR Ratings (“GCR”) has downgraded the Long and Short term national scale Issuer ratings accorded to Rebosis Property Fund Limited (“Rebosis or the REIT”) to CC(ZA) and C(ZA), and maintained the ratings on Watch Negative.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Rebosis Property Fund Limited||Issuer Long Term||National||CC(ZA)||Rating Watch Negative|
|Issuer Short Term||National||C(ZA)|
On May 22, 2019, GCR announced that it had released a new rating framework and sectoral criteria. As a result, the ratings were placed “Under Criteria Observation”. Subsequently, GCR has finalised the rating review under the new Criteria and the ratings have been removed from ‘Under Criteria Observation’.
The rating downgrade reflects GCR’s opinion that we consider there to be a material risk of a restructuring, default or distressed exchange event over the next 12 months.
GCR notes the material liquidity support provided by Rebosis’ funding partners to date, despite financial covenant breaches, which has come by way of continuous short-term facility rollovers. This saw a substantial R5.6bn of maturing debt (out of R7bn due over the next twelve months) being pushed out to February 2020 from September 2019 to align with the publicly announced proposed merger between Rebosis and Delta Property Fund Limited, which is still subject to approvals. GCR believes that the liquidity support from funders will continue as finalisation of the proposed merger is pursued.
Should the transaction not materialise, complete financial control would again rest with current funders, heightening refinancing risks as the REIT does not have access to any additional liquidity lines given its fully encumbered asset pool. Even if management pursues an acceleration of asset sales, GCR do not believe that it would adequately support liquidity of the REIT in the near term, in view of tough market conditions and the lack of substantive progress shown with planned disposals in the past, making it increasingly difficult for Rebosis to repay upcoming indebtedness. This increases the likelihood that Rebosis might engage in a distressed exchange or restructuring discussions, which could result in lowering the ratings further.
The Rating Watch Negative signifies the risk that the proposed transaction doesn’t materialise and that the REIT fails to monetise assets to pay down the high debt levels and improve its capital structure.
GCR could downgrade to the ‘C’ rating level, if a liquidation/ default/ restructure/ distressed exchange scenario is announced or is expected in the short term. This could occur if the proposed transaction does not transpire and the REIT doesn’t show significant progress in its asset sales. The ratings could improve on the back of the transaction or asset sales, presuming it materially improves the capital structure & liquidity in the short to medium term.
|Primary analyst||Sheri Morgan||Senior Analyst: Corporates|
|Johannesburg, ZA||Morgan@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie <email@example.com>||Sector Head: Financial Institutions|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|Criteria for Rating Real Investment Trusts and Other Commercial Property Companies, May 2019|
|GCR Country Risk Scores, June 2019|
|GCR South Africa Corporate Sector Risk Scores, November 2019|
Rebosis Property Fund Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Issuer Long Term||Initial||National||A-(ZA)||Stable||April 2015|
|Last||National||B+(ZA)||Rating Watch||February 2019|
|Issuer Short Term||Initial||National||A1-(ZA)||–||April 2015|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Default||A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Downgrade||The rating has been lowered on its specific scale.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidation||Liquidation is the process by which a company is wound up and its assets distributed. It can be either compulsory or voluntary. It can also refer to the selling of securities or the closing out of a long or short market position.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Loan to value||The principal balance of a loan divided by the value of the property and other investments that it funds.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Property||Movable or immovable asset.|
|Rating Watch||See GCR Rating Scales, Symbols and Definitions.|
|REIT||Real Estate Investment Trust. A company that owns, operates or finances income-producing real estate.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The credit rating has been disclosed to Rebosis Property Fund Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Rebosis Property Fund Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Rebosis Property Fund Limited and other reliable third parties to accord the credit rating included:
- Unaudited results for year ended 31 August 2019;
- Industry presentation for 31 August 2019;
- Detailed facility breakdown and maturity schedule at October 2019;
- Funding extension letters;
- Other non-public information.