Announcements Corporate Rating Alerts

GCR places Omnia’s ratings of BBB-(ZA)/A3(ZA) on Negative Outlook on Risks from a Weak Operating Climate

Rating Action

Johannesburg, 05 March 2020 – GCR Ratings (“GCR”) has affirmed Omnia Holdings Limited (“Omnia”) and Omnia Group Investments Limited’s national scale Issuer ratings of BBB-(ZA) and A3(ZA) in the long term and short term respectively. The Outlook has been changed to Negative, from Rating Watch Negative previously.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Omnia Holdings Limited Long Term Issuer National BBB-(ZA) Negative Outlook
Short Term Issuer National A3(ZA)
Omnia Group Investments Limited Long Term Issuer National BBB-(ZA) Negative Outlook
Short Term Issuer National A3(ZA)

Rating Rationale

The Rating Watch was lifted following the R2bn rights issue and the refinancing of group debt, which has seen a marked improvement in leverage ratios towards levels anticipated in our July 2019 rating action. We have also noted the enhanced working capital management and recovery in cash generation amidst ongoing operational rationalisation. The Negative Outlook, however, still signals the potential for earnings or cash flow volatility due to the challenging operating environment, which could constrain management’s ability to stabilise leverage ratios at sustainable levels.

During 1H FY20, the proceeds of the rights issue were used to reduce bank debt, which saw rolling net debt to EBITDA almost halved to 2.5x, while net interest cover fell within the 4.0x-4.5x range. Due to the seasonality of the group’s working capital cycle, improved efficiencies and strict management of trading assets will be required to reach comfortable levels of operating cash flow coverage of debt of 40%-55%, which would support an improved leverage assessment.

The earnings profile remains constrained by the variability of earnings in the sector and the volatility of the group’s profits in recent times. Although GCR expects an improvement in the group’s EBITDA for FY20, Omnia will be required to continue to achieve strong volumes, and to demonstrate sustained margin uplift from the rationalisation of key businesses to improve the earnings assessment.

Liquidity has been enhanced by the terming out of debt, with all the secured, committed lines (barring a 12-month general banking facility) maturing between two to five years. This, and the unutilised facility headroom on hand is supportive of sound liquidity coverage throughout the year, despite intra-seasonal variability in working capital. The liquidity ratio is also expected to strengthen as additional debt is repaid. However, due to certain features of the new debt structure, the liquidity assessment is currently capped at a neutral level. GCR will also continue to monitor anticipated performance against covenants, as proximity to these thresholds could negatively impact on our view on liquidity.

The group’s competitive position is supported by its strong position in the fertiliser market on the continent, complemented by BME’s growing regional market share. Note is also taken of advantages derived from proprietary technologies, control of the supply chain, and integration of the three main business units.

Outlook Statement

The Negative Outlook reflects the potential for the challenging operating environment to cause volatility in cash flows. In this regard, a Stable Outlook would depend on strong earnings that enable the settlement of remaining legacy debt, and support comfortable covenant headroom.

Rating Triggers

Positive rating action may arise from net debt to EBITDA managed below 1.5x, 12 months’ operating cash flow coverage of debt in the 40%-55% range, and interest coverage of 5.0x-10x. Conversely, failure to sustain earnings recovery or strong working capital oversight that causes volatile cash flows would result in negative rating action. Proximity to the covenants could also have negative rating impact.

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
Criteria for Rating Corporate Entities, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, January 2020
GCR Corporate Sector Risk Scores, December 2019

Ratings History

Omnia Holdings Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National BBB+(ZA) Stable Outlook Mar 2009
Last National BBB-(ZA) Rating Watch Negative Jul 2019
Short Term Issuer

 

Initial National A2(ZA) Mar 2009
Last National A3(ZA) Jul 2019

Omnia Group Investments Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National A-(ZA) Stable Outlook Nov 2016
Last National BBB-(ZA) Rating Watch Negative Jul 2019
Short Term Issuer

 

Initial National A1-(ZA) Nov 2016
Last National A3(ZA) Jul 2019

Risk Score Summary

Risk score
Operating environment 10.50
Country risk score 6.50
Sector risk score 4.00
Business profile 1.00
Competitive position 1.00
Management and governance 0.00
Financial profile -2.50
Earnings -1.50
Leverage & cash flow -1.00
Liquidity 0.00
Comparative profile 1.00
Group support 0.00
Peer comparison 1.00
Total Risk Score 10.00

Glossary

Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
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.
Proceeds Funds from issuance of debt securities or sale of assets.
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.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
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.
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.
Issuer The party indebted or the person making repayments for its borrowings.
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.
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:

  • The audited financial results to 31 March 2019
  • Four years of comparative audited numbers
  • Unaudited interim results up to 30 September 2019
  • Group facility documents
  • Group SENS and presentations

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.