Rating Action
Johannesburg, 24 November 2020 – GCR Ratings (“GCR”) has placed Omnia Holdings Limited (“Omnia” or “’the group”) and Omnia Group Investments Limited’s long and short-term issuer ratings of BBB+(ZA) and A2(ZA) respectively, on Rating Watch Positive, from a Stable Outlook previously.
Rating Rationale
The Rating Watch reflects the positive impact on the group’s leverage and liquidity expected from the proposed disposal of Oro Agri, and Omnia’s intention to settle group debt from the proceeds.
In October 2020, Omnia announced the agreed terms for a proposed sale of its subsidiary Oro Agri to Rovensa, a leading European provider of agricultural solutions and technologies. Per the proposed sale agreement, Rovensa will pay Omnia a base consideration of approximately USD147m and will also settle Oro Agri’s EUR and USD denominated debt. The proposed transaction has progressed beyond due diligence and awaits shareholder approval.
In GCR’s view, the settlement of group debt will allow for significant interest cost savings as well as robust debt service during the working capital upcycle. Liquidity is also expected to remain strong, supported by internal reserves, committed facilities, and the well-entrenched relationships with both local and international financial institutions.
Omnia’s key operating units continue to achieve sound earnings growth as it consolidates efficiencies and rationalisation initiatives adopted in recent years. Omnia’s earnings profile does remain highly vulnerable to exogenous factors, although GCR expects the group’s increased cost flexibility and better control of the trading cycle to provide some insulation to its earnings and cash flows. Overall, the improved resilience of the group’s cash flows, in GCR’s view, should enable Omnia to maintain a net ungeared financial position going forward.
Omnia’s competitive position remains underpinned by its strong market positioning in the agriculture products space on the continent, complemented by BME’s burgeoning market share. Proprietary technologies, modernised production processes, control of the supply chain, and integration of the group’s divisions also underpins a sound revenue base.
While the proposed disposal of Oro Agri will reduce cash flows from certain low-risk territories, this is expected to be offset by the growing market footprint of Omnia’s Agriculture and Mining divisions in highly developed jurisdictions.
Outlook Statement
The Rating Watch Positive reflects GCR’s view that the earlier than planned settlement of group debt following the disposal of Oro Agri will further entrench the defensiveness of Omnia’s financial profile despite distortions to free cash flows that could arise from elevated global uncertainty and other exogenous pressures.
Rating Triggers
An upgrade could arise from 1) settlement of group debt from the Oro Agri disposal proceeds and 2) sound cash flows and committed facility headroom that support 18-24 months’ liquidity cover of at least 1.0x. While the likelihood of a ratings downgrade is low, it could arise from cash flow underperformance that continues well into the outlook period, particularly if this leads to renewed gearing pressure.
Analytical Contacts
| Primary analyst | Patricia Zvarayi | Deputy Sector Head: Corporate Ratings |
| Johannesburg, ZA | Patricia@GCRratings.com | +27 11 784 1771 |
| Committee chair | Eyal Shevel | Sector Head: Corporate Ratings |
| Johannesburg, ZA | Shevel@GCRratings.com | +27 11 784 1771 |
Related Criteria and Research
| Criteria for the GCR Ratings Framework, May 2019 |
| GCR Rating Scales, Symbols and Definitions, May 2019 |
| Criteria for Rating Corporate Companies, May 2019 |
| GCR Country Risk Scores, May 2020 |
| GCR Corporate Sector Risk Scores, July 2020 |
Ratings History
Omnia Holdings Limited
Omnia Group Investments Limited
| Rating class | Review | Rating scale | Rating | Outlook/Watch | Date |
| Long Term Issuer | Initial | National | A-(ZA) | Stable Outlook | Nov 2016 |
| Short Term Issuer | National | A1-(ZA) | |||
| Long Term Issuer
|
Last | National | BBB+(ZA) | Stable Outlook | Sep 2020 |
| Short Term Issuer | National | A2(ZA) |
Risk Score Summary
Glossary
| 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. |
| Rating Horizon | The rating outlook period. |
| Rating Outlook | See GCR Rating Scales, Symbols and Definitions. |
| Rating Watch | See GCR Rating Scales, Symbols and Definitions. |
| 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. |
| Repayment | Payment made to honour obligations regarding 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. |
| Rights Issue | One of the ways that a company can raise additional funds is to issue new shares. These must be first offered to current shareholders and a rights issue allows a shareholder to buy shares in proportion to the number already held. |
| Short Term | Current; ordinarily less than one year. |
| Working Capital | Working capital usually refers to the resources that a company uses to finance day-to-day operations. Changes in working capital are assessed to explain movements in debt and cash balances. |
| Interest Cover | Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s EBITDA by its interest payments for a given period. |
| Issuer Ratings | See GCR Rating Scales, Symbols and Definitions. |
| Leverage | In 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. |
| Maturity | The length of time between the issue of a bond or other security and the date on which it becomes payable in full. |
SALIENT POINTS OF ACCORDED RATING
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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to the rated entities. The ratings above were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.
The rated entities participated in the rating process via face-to-face management meetings, as well as other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the rated entity and other reliable third parties to accord the credit ratings included:
- Omnia Holdings Limited’s audited annual financial results to 31 March 2020
- Four years of comparative audited numbers
- Comprehensive group facility details
- Group Trading Update, November 2020
- Group SENS, circulars and presentations
