Announcements Rating Alerts Structured Finance

GCR reviews the final public ratings accorded to Global Equity investments 1-14 Limited

Johannesburg, 6 June 2019 – GCR Ratings (“GCR”) has affirmed the final, public long-term international scale credit ratings and outlooks accorded to the following Primary Investment Vehicles (“PIVs”) trading as Global Equity Investments (“GEI”) 7 and GEI 14:

Issuer
Underlying Linked Credit
Amount*
Long-term international scale rating
Outlook
GEI 7
Fidelity International Ltd
R44.4m
BBB+(sf)
Stable
GEI 14
Commerzbank
R29.9m
BBB+(sf)
Stable

Concurrently, GCR has affirmed the final, public long-term international scale credit ratings accorded to the PIVs listed below. The outlooks for GEI 1, GEI 8, GEI 9 and GEI 12 were revised to Stable from Positive, while the outlooks for GEI 11 and GEI 13 were revised to Negative from Stable.

Issuer
Underlying Linked Credit
Amount*
Long-term international scale rating
Outlook
GEI 1
Investec Bank Plc
R0
BBB+(sf)
Stable
GEI 8
Sasol Financing International Plc
R37.0m
BBB-(sf)
Stable
GEI 9
Old Mutual Plc
R0
BB+(sf)
Stable
GEI 11
MTN Mauritius Investments
R62.8m
BB+(sf)
Negative
GEI 12
Raiffeisen Bank International
R64.5m
BBB+(sf)
Stable
GEI 13
UniCredit SpA
R107.1m
BBB(sf)
Negative.

GCR has downgraded the final, public long-term international scale credit ratings of the following PIVs and accorded a Stable outlook. The downgrades reflect the potential risks associated with the Hedge Provider and associated transaction documents, which do not meet the thresholds set out in GCR’s rating criteria and as such, necessitated a rating cap to the PIV ratings.

Issuer
Underlying Linked Credit
Amount*
Long-term international scale rating
Outlook;
GEI 2
Emirates NBD PJSC
R25.8m
BBB+(sf)
Stable
GEI 3
HSBC Bank Plc
R45.5m
BBB+(sf)
Stable
GEI 4
Goldman Sachs Group Inc
R28.7m
BBB+(sf)
Stable
GEI 5
UBS AG/Stamford CT
R102.4m
BBB+(sf)
Stable
GEI 6
Scottish Widows Ltd
R49.2m
BBB+(sf)
Stable
GEI 10
Barclays Bank Plc
R144.5m
BBB+(sf)
Stable

* Book value at 30 May 2019.

The final public ratings accorded to the GEI 1-14 PIVs issuing rand-denominated redeemable ordinary shares relate to timely payment of any dividends accrued and principal. The ratings exclude an assessment of the ability by the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

SUMMARY RATING RATIONALE

GCR has accorded the above final credit ratings to the SASP 1 Notes based on the following key factors:

The Issuers are established PIVs which may issue rand denominated redeemable shares to a specific institutional investor (the “CIS Client” or the “PIV Shareholder”) in South Africa, on a private basis. The proceeds from the subscription in the PIV shares are ultimately invested in rated credit assets, such that each PIV will have an underlying exposure to a single credit counterparty.

The ratings for some of the PIVs (GEI 2, GEI 3, GEI 4, GEI 5, GEI 6, GEI 10, GEI 12 and GEI 14) are capped to the long-term international scale credit rating of Investec Bank Plc (BBB+ with a Stable outlook), which is the hedge provider in this transaction. GCR assessed the transaction documents in light of its updated Global Master Structured Finance Rating Criteria (published in September 2018) and established that there are no rating thresholds or remedial language in respect of the hedge provider or custodians. As such, the PIV ratings and outlooks are capped to the lower of the long-term ratings of the hedge provider and custodian, which is established to be Investec Bank Plc’s rating.

GCR monitors the ratings assigned to the underlying linked credits by other recognised credit rating agencies on a monthly basis. In addition, GCR receives investment reports for all the PIVs on a weekly basis. Similar to GEI which currently has no outstanding exposure, the exposure in GEI 9 was wound down to zero. However, pending the CIS Client’s decision regarding future exposures through this vehicle, GCR will continue to assume credit linkage to Old Mutual Plc.

For more information in respect of the transaction structure and GCR’s analysis, please refer to the GEI 1 Limited New Ratings Report published in November 2016. In addition, please refer to the GEI 1-14 Limited Surveillance Report published in June 2019 for further information relating to the current surveillance. GCR analysed the transaction by applying its Global Master Structured Finance Rating Criteria (Sep’18) and Global Credit Linked Note and Repackaging Vehicle Rating Criteria (Oct’18).

RATINGS HISTORY  
       
Issuer
Initial Rating
Long Term International Scale Rating
Outlook
GEI 1
30 November 2016
BBB+(sf)
Stable
GEI 2
30 November 2016
A-(sf)
Stable
GEI 3
30 November 2016
AA-(sf)
Stable
GEI 4
30 November 2016
A-(sf)
Stable
GEI 5
30 November 2016
A+(sf)
Stable
GEI 6
30 November 2016
A(sf)
Positive
GEI 7
30 November 2016
BBB+(sf)
Stable
GEI 8
30 November 2016
BBB(sf)
Negative
GEI 9
30 November 2016
BBB-(sf)
Negative
GEI 10
30 November 2016
A(sf)
Negative
GEI 11
22 September 2017
BB+(sf)
Negative
GEI 12
22 September 2017
BBB+(sf)
Stable
GEI 13
22 September 2017
BBB(sf)
Stable
GEI 14
22 September 2017
BBB+(sf)
Stable
Security Class
Last Rating
Long Term Rating
Outlook
GEI 1
30 November 2017
BBB+(sf)
Positive
GEI 2
30 November 2017
A-(sf)
Stable
GEI 3
30 November 2017
AA-(sf)
Stable
GEI 4
30 November 2017
A-(sf)
Stable
GEI 5
30 November 2017
A+(sf)
Stable
GEI 6
30 November 2017
A(sf)
Stable
GEI 7
30 November 2017
BBB+(sf)
Stable
GEI 8
30 November 2017
BBB-(sf)
Negative
GEI 9
30 November 2017
BB+(sf)
Negative
GEI 10
30 November 2017
A(sf)
Stable
GEI 11
30 November 2017
BB+(sf)
Stable
GEI 12
30 November 2017
BBB+(sf)
Positive
GEI 13
30 November 2017
BBB(sf)
Stable
GEI 14
30 November 2017
BBB+(sf)
Stable

ANALYTICAL CONTACTS

Primary Analyst
Tinashe Mujuru
Structured Finance Analyst
(011) 784-1771
tinashem@GCRratings.com
 
Secondary Analyst
Gary Nyoni
Structured Finance Analyst
(011) 784-1771
garyn@GCRratings.com
 
Committee Chairperson
Yohan Assous
Sector Head: Structured Finance Ratings
(011) 784-1771
yohan@GCRratings.com

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

  • Global Master Structured Finance Rating Criteria (Sep’18);
  • Global Credit Linked Note and Repackaging Vehicle Rating Criteria (Oct’18).

SALIENT FEATURES 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 are 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.

The Arranger 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 the Issuer.

The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  • Daily Investment reports received on a weekly basis;

The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.


GLOSSARY OF TERMS USED IN THIS DOCUMENT

Arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
Asset An item with economic value that an entity owns or controls.
Credit A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
Credit Rating Please see GCR’s Rating Scales, Symbols and Definitions.
Credit Rating Agency An entity that provides credit rating services.
Default Please see GCR’s Rating Scales, Symbols and Definitions.
Downgrade Please see GCR’s Rating Scales, Symbols and Definitions.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
Hedge A form of insurance against financial loss or other adverse circumstances.
International Scale Rating Please see GCR’s Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Long-Term Rating Please see GCR’s Rating Scales, Symbols and Definitions.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Proceeds Funds from issuance of debt securities or sale of assets.
Provision An amount set aside for expected losses to be incurred by a creditor.
Rating Outlook Please see GCR’s Rating Scales, Symbols and Definitions.
Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
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.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short-Term Rating Please see GCR’s Rating Scales, Symbols and Definitions.
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.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
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.


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