Johannesburg, 20 February 2019 — Global Credit Ratings has today downgraded the national scale Issuer ratings assigned to Rebosis Property Fund Limited to B+(ZA) and B(ZA) in the long term and short term respectively, with the ratings placed on Rating Watch, with negative implications.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Rebosis Property Fund Limited (“Rebosis”) based on the following key criteria:
The downgrade reflects Rebosis continued breach of certain debt covenants, counterbalanced by significant support from its funding partners.
The LTV ratio rose to 51.6% at FY18 (FY18: 46.1%), driven by new debt drawdowns and pressure on property valuations. As proceeds for the Grand Central disposal are yet to flow, certain LTV covenants remain in breach, although GCR understands that funding counterparties have provided condonement. Liquidity risk is of material concern, particularly in view of the covenant breaches, with a substantial c.R5bn of debt maturing by end of May 2019. Risk is exacerbated by the REIT’s material funding counterparty concentration, lack of undrawn facilities and a fully encumbered asset pool, whilst asset sales per management’s deleveraging plan have been slower than initially anticipated.
The ratings also factor in the new management team’s current efforts to term out the debt profile with its banking counterparties to alleviate refinancing pressures, while the REIT remains committed to its asset disposal programme to reduce the high gearing. However, GCR does consider the high execution risk in view of challenging environment, which could further delay and limit the extent of deleveraging.
GCR could affirm the ratings following the closing of the debt refinancing and will also consider the progress made to reduce leverage. Failure to term out the debt profile and remedy the covenant breaches could warrant further negative rating action.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (April 2015)||Last rating (June 2018)|
|Long term: A-(ZA); Short term: A1-(ZA)||Long term: A-(ZA); Short term: A1-(ZA)|
|Outlook: Stable||Outlook: Negative|
|Primary Analyst||Committee Chairperson|
|Sheri Morgan||Eyal Shevel|
|Senior Analyst: Corporate Ratings||Sector Head: Corporate Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, Updated February 2018
Global Criteria for Rating Property Funds and Commercial Real Estate Companies, Updated February 2018
Rebosis Issuer rating reports, 2013-18
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|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.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|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.|
|Downgrade||The assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|Drawdown||When a company utilises facilities availed by a financial institution or an international lender there is said to be a drawdown of funds.|
|Gearing||With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|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.|
|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.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Rating Watch||Indicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.|
|Refinancing||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Risk||The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Tenor||The time from the value date until the expiry date of an instrument, typically a loan or option.|
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.
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 credit ratings have been disclosed to Rebosis Property Fund Limited.
The information received from Rebosis Property Fund Limited and other reliable third parties to accord the credit rating included:
- The 2018 audited financial statements (plus four years of comparative, audited numbers).
- Analyst presentations FY18
- A breakdown of debt facilities per counterparty and maturity post FY18
- Loan covenant certificates
- SENS announcements relating to covenant breaches and property disposals
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR downgrades Rebosis Property Fund Limited’s rating to B+(ZA); Rating Watch