Johannesburg, 19 July 2017 — Global Credit Ratings (“GCR”) has downgraded the final, public long-term international scale foreign currency credit rating accorded to the Primary Investment Vehicle (“PIV”) trading as Global Equity Investments 8 Limited (“GEI 8”) from ‘BBB(sf)’ to ‘BBB-(sf)’ with a ‘Negative’ outlook. In addition, GCR has downgraded the final, public long-term international scale foreign currency credit rating accorded to GEI 9 from ‘BBB-(sf)’ to ‘BB+(sf)’ with a ‘Negative’ outlook:
GCR has also affirmed the final, public long-term international scale foreign currency credit ratings for GEI 6 and GEI 10, with the outlooks revised from ‘Positive’ outlook to ‘Stable’ outlook, and from ‘Negative’ outlook to ‘Stable’ outlook respectively:
Concurrently, GCR has affirmed the final, public long-term international scale foreign currency credit ratings and rating outlooks accorded to the following PIVs:
* Book value as at 6 July 2017.
The rating review was premised by the change in the public ratings for the underlying linked credits ie, Sasol Financing International Plc and Old Mutual Plc, as rated by other recognised credit rating agencies. The revision of the ratings and outlooks accorded to GEI6, GEI 8, GEI 9 and GEI 10 is in line with GCR’s ratings mapping approach and its Global Credit Linked Note and Repackaging Vehicle Criteria.
The final, public credit ratings accorded to the GEI 1-10 PIVs that issue ZAR Denominated Redeemable Ordinary Shares relate to timely payment of any dividends accrued and principal.
The Issuer issued Rand denominated redeemable shares (the “PIV Shares”) to a specific institutional investor (the “CIS Client”) in South Africa, on a private basis. The proceeds from each tranche of the PIV Shares subscribed to will be utilised to subscribe for redeemable equity shares (the “Cell Shares”) issued by a constituent cell of a protected cell company, Global Equity Investments PCC (each a “Cell” and the “Protected Cell Issuer” respectively), incorporated in Mauritius with a Category 1 Global Business License. The Protected Cell Issuer will in turn use the proceeds of the subscription in the Cell Shares to invest in the Impala Bond Programme or a Structured Deposit (the “Cell Investments”) in line with the investor’s risk appetite, with the primary objective of preserving capital while providing consistent superior risk adjusted returns to its investors.
The initial issuance of PIV Shares took place on 29 November 2016, with subsequent issues in line with investor demand. Any profits realised by the Cell pursuant to the Cell Investment are to be distributed as dividends to the PIV Shareholders of each Cell. Profits of any Cell will be equal to any revenue received from the Cell Investments, less the agreed fees and statutory taxes payable. The Cell will grant the CIS Client a Put Option whereby the CIS Client can put the PIV Shares to the Cell for its capital value plus any declared but unpaid dividends. As security for this payment obligation, the Cell will grant the CIS Client an English law charge over its cash accounts and/or custody accounts held in the name of the Cell.
The CIS Client ultimately bears the credit risk associated with the assets held in the cash accounts and/or custody accounts, via the Put Option, in the event that the Protected Cell Issuer fails to perform its obligations. Therefore, the credit risk of the PIV Shares is intrinsically linked to the risk associated with the underlying linked credit. The underlying linked credit associated with each of the above listed Issuers, are rated by at least one of the larger international rating agencies, or GCR. GCR applied its ratings mapping approach to determine the intrinsically linked credit risk, and thus the ratings accorded to the ZAR Denominated Redeemable Ordinary Share(s) Issuers as listed above. GCR sourced and received legal opinions for all jurisdictions involved namely, South Africa, England, Mauritius and Singapore, which were in turn reviewed by Norton Rose Fulbright UK. GCR also received a Tax Opinion on the structure which was prepared by Norton Rose Fulbright South Africa and reviewed by Senior Tax Counsel. For more information, please read the Global Equity Investments 1-10 Limited ZAR Denominated Redeemable Ordinary Share(s) New-Issuance Reports published on 30 November 2016.
Primary Analyst Secondary Analyst
Mark Vrdoljak Tinashe Mujuru
Senior Structured Finance Analyst Structured Finance Analyst
+27 11 784 1771 +27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771.
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Credit Linked Note and Repackaging Vehicle Rating Criteria – May ’17;
Global Master Structured Finance Rating Criteria – Feb ’17.
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.
SALIENT FEATURES OF INDICATIVE RATINGS ACCORDED
GCR affirms that a.) no part of the ratings 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; 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, Tamaka Limited, 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 ratings above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.
The credit ratings have been disclosed to the Arranger with no contestation of the ratings.
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.
- Final signed Transaction documents.
- South African counsel legal opinion.
- Singaporean counsel legal opinion.
- English counsel legal opinion.
- Mauritian counsel legal opinion.
- Applicable underlying linked credit ratings.
|Asset||An item with economic value that an entity owns or controls.|
|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.|
|Credit Risk||The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).|
|Downgrade||The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Legal Opinion||An opinion regarding the validity and enforceable of a transaction’s legal documents.|
|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.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|Option||Either a call or a put option. A call option gives the holder the right to buy assets at an agreed price on or before a particular date. A put option gives the holder the right to sell assets at an agreed price on or before a particular date.|
|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.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|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.|
|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.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|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.|
|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.|
|Timely Payment||The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.|
|Tranche||In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.|