Announcements

GCR places Investec Property Fund Limited’s Senior Secured Notes ‘Under Review’

Johannesburg, 7 April 2016 — Global Credit Ratings (‘GCR’) has placed the ‘AA-(ZA)’ ratings accorded to the Senior Secured Notes issued by Investec Property Fund Limited (‘IPF’ or the ‘Issuer’) under its R5bn DMTN Programme ‘Under Review’. The ratings accorded to the Senior Secured Notes are still in effect and remain unchanged until GCR receives updated information, including the Audited Financial Statements, from the Issuer and completes the annual review of the Transaction. The Issuer has the following Senior Secured Notes in issue currently rated by GCR:

  • R40 million, Senior Secured Floating Rate Notes, maturing 13 April 2016, stock code IPF02;
  • R50 million, Senior Secured Floating Rate Notes, maturing 13 April 2017, stock code IPF03;
  • R100 million, Senior Secured Floating Rate Notes, maturing 13 April 2018, stock code IPF12;
  • R226 million, Senior Secured Fixed Rate Notes, maturing 13 April 2017, stock code IPF06.

The IPF02, IPF03 and IPF06 Notes were issued in April 2012, with the IPF12 Notes subsequently issued in April 2015. GCR accorded the rating of the IPF12 Notes and affirmed the rating accorded to the IPF02, IPF03 and IPF06 Notes on 15 April 2015, as ‘AA-(ZA)’ with a ‘Stable’ Outlook. The abovementioned Notes are collectively referred to as the ‘Senior Secured Notes.’ IPF issued three additional tranches of unrated, secured Notes with a total nominal value of R375m (IPF17: R125m; IPF18: R125m; and IPF19: 125m) in December 2015. The unrated Notes are secured by a ring fenced pool of assets which is separate to the security pool for the abovementioned Senior Secured Notes. The Issuer will refinance the IPF02 Notes, set to mature on 13 April 2016, by drawing down under its existing banking facilities.

The Review Date for the rating of the Notes was scheduled for 15 April 2016. The Issuer has advised GCR that it is in the process of finalising the reporting of its financial year end which was on 31 March 2016 and believes that providing these audited results to GCR for the purposes of reviewing the rating of the Senior Secured Notes should be more beneficial for investors. Accordingly, GCR has placed the rating of the Senior Secured Notes Under Review as it is currently awaiting the required information from the Issuer, in order to complete an accurate analysis of the transaction. GCR has been advised by the Issuer that the information should be received during the next few weeks, with year-end results to be released to the market on 19 May 2016. As such, GCR expects to conclude the rating review by 31 May 2016.

RATING RATIONALE

Investec Property Fund (‘IPF’) is a Real Estate Investment Trust (‘REIT’) whose mandate is to procure and manage income generative real estate with potential for capital gain. Listed on the JSE in April 2011, the fund owns a range of retail, commercial and industrial properties. The rating accorded to the Senior Secured Notes relates to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). If the ratings accorded to the Issuer change, the rating of the Senior Secured Notes may also change, but potentially not in the same scale. The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties.

The rating that was accorded to the Senior Secured Notes was derived by applying a notching approach starting from the long term senior unsecured corporate rating of the Issuer. Based on the fundamentals and prospects of IPF, GCR accorded IPF credit ratings of ‘A(ZA)/A1(ZA)’ on the long and short term scale respectively, with a ‘Stable’ Outlook. Based on the ‘Excellent Recovery Prospects,’ a rating uplift of 3 notches was deemed appropriate for the Transaction. For more information on the Transaction, please refer to GCR’s ‘Investec Property Fund Limited R416m Senior Secured Notes New-Issuance Report’ published on 15 April 2015.

NATIONAL SCALE RATINGS HISTORY

Stock Code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
IPF02
13 April 2012
AA-(ZA)
n.a
Stable
IPF03
13 April 2012
AA-(ZA)
n.a
Stable
IPF06
13 April 2012
AA-(ZA)
n.a
Stable
IPF12
15 April 2015
AA-(ZA)
n.a
Stable
 
Stock Code
Last Rating
Long Term Rating
Short Term Rating
Outlook
IPF02
15 April 2015
AA-(ZA)
n.a
Stable
IPF03
15 April 2015
AA-(ZA)
n.a
Stable
IPF06
15 April 2015
AA-(ZA)
n.a
Stable
IPF12
15 April 2015
AA-(ZA)
n.a
Stable

ANALYTICAL CONTACTS

Mark Vrdoljak

Credit Analyst

+27 11 784 1771

markvrd@globalratings.net

Tinashe Mujuru

Junior Analyst

+27 11 784 1771

tinashem@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

  • Global Structurally Enhanced Corporate Bonds Rating Criteria (Oct’15);
  • Criteria for Rating Property Funds (Apr’15);
  • Criteria for Rating Corporate Entities (Feb’16);
  • Investec Property Fund Limited Corporate Rating Report (Aug’15);
  • Investec Property Fund Limited R416m Senior Secured Notes – New Issuance Report (Apr’15);
  • Investec Property Fund Limited R416m Senior Secured Notes – Press Release (Apr’15).

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Capital The sum of money that is used to generate proceeds.
Corporate Credit Rating A credit rating accorded to a corporate entity.
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.
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.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
Guarantee An undertaking for performance of another’s obligations in event of default.
Issuer The party indebted or the person making repayments for its borrowings.
JIBAR Johannesburg Interbank Agreed Rate. A reference rate.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Loss A tangible or intangible, financial or non-financial loss of economic value.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Notching A movement in ratings.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Property Movable or immovable asset.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Reference Rate A rate that is the basis of the calculation such as JIBAR.
Repayment Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Senior A security that has a higher repayment priority than junior securities.
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.
Stock Code A unique code allocated to a publicly listed security.
Structured Finance A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.
Transaction A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Under Review Failure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, i.e. review is ongoing.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.

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 a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.

The rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

The information received from the Arranger and other reliable third parties to accord the credit ratings included the latest Issuer’s audited annual financial statements for the year ending March 2014; reviewed interim consolidated financial results for the period ended 30 September 2014; an overview of the Issuer’s property portfolio as at 30 September 2014; a performance forecast for the period beginning March 2014 and ending March 2016; the insurance policies covering the ceded properties; the applicable Open Market Valuation Reports; a legal opinion prepared in April 2015 and the relevant transaction documents together with the relevant tax opinion.

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