Johannesburg, 24 Feb 2014 — Global Credit Ratings has placed Real People Investment Holdings (Pty) Limited’s long- and short-term national scale issuer ratings of BBB(ZA) and A2(ZA) on Rating Watch. The outlook on the international scale issuer rating of BB was unaffected and remain stable. The outlook revision reflects a deterioration in the underlying loan portfolio that exceeds the previously acceptable limit range. The change can also be seen as an advance market signal should any of the revised assumptions (from management consultation) turn out not to adequately reflect the underlying risk associated with the company.
The rating action on Real People Investment Holdings (Pty) Limited is based on the following key criteria:
Management action with regards to the treatment of the company’s loan book assets (both ordinary and those earmarked for disposal), as well as a change in the assumptions applied during our most recent credit rating review has prompted an interim assessment of the company’s updated strategy, financial standing and risk metrics, and also its likely future prospects, based on the restated data (group consolidated) for the 9-month period to December 2013.
Though the tightening operating environment was well commented on in our previous assessment of the company, management remained optimistic as to the recovery prospects and behavioural patterns of its loan clients, with these assumptions also driving the implementation and direction of its refocused strategy. Nevertheless, despite the company’s best efforts, asset performance volatility (acquired debt and arrears portfolios) bucked all intervention measures. In the same vein, the company’s assets earmarked for disposal are being restructured, as a sale in their current condition is not regarded feasible.
The change in assumptions necessitated a reduction in the expected future cash flows on the continuing business – as a result, a once off impairment of assets of R259m was provided for in October 2013, along with a corresponding R186m impairment in capital. While the group had sufficient resources to absorb the impact of the aforementioned adjustments, the write-down clearly surfaced as an anomaly when running the numbers through GCR’s behavioural models (apart from the immediate pressure on its underlying loss absorption capacity, this distorts the company’s long term performance ratios and trends ).
Overall, while the company’s credit metrics and/or protection factors still remain within the limits for this ratings band, they have come under considerable pressure. Should these pressures persist and/or the company’s mitigation measures prove to be ineffective, a slide out of the acceptable limits may transpire. That said, GCR expects to conduct a full rating review by June 2014 (which would be an accelerated review).
Positive movement/s: further progress in the group’s market positioning, trading performance, financial profile and portfolio collections track record (and that across the entire product pool).
Negative movement/s: a ratings downgrade may be triggered by credit losses materially above expectations, higher than expected liquidity gaps, less stringent credit norms and a weaker franchise.
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2011)||Initial/Last rating (Dec/2013)|
|Long term: BBB(ZA); Short term: A2(ZA)||Long term: BB|
|Outlook: Stable||Outlook: Stable|
Last rating (Dec/2013)
Long term: BBB(ZA); Short term: A2(ZA)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Financial Institution Criteria
Previous Rating Reports (up to 2013)
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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.
Real People Investment Holdings (Pty) 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 rating/s has been disclosed to Real People Investment Holdings (Pty) Limited with no contestation of the rating.
The information received from Real People Investment Holdings (Pty) Limited and other reliable third parties to accord the credit rating included the March 2013 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, 2013 detailed budgeted financial statements, December 2013 management accounts, corporate governance and enterprise risk framework, reserving methodologies, capital management policy, industry comparative data and regulatory framework, and a breakdown of facilities available and related counterparties.
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.