Announcements Rating Alerts Structured Finance

GCR reviews the ratings assigned to Global Equity Investments 2, 3, 8, 10, 12 and 14 Limited

Rating Action

Johannesburg, 24 March 2020 – GCR Ratings (“GCR”) has affirmed the international scale long term ratings assigned to the securities issued by the Primary Investment Vehicles (“PIVs”) trading as Global Equity Investments (“GEI”) 2, GEI 3, GEI 10, GEI 12 and GEI 14 while maintaining their respective outlooks.

At the same time, GCR has downgraded the rating assigned to GEI 8 to ‘BB+(sf) ‘with a stable outlook from ‘BBB-(sf) ‘.

The rating actions follow a change in the ratings and/or Outlooks related to some of the underlying linked credits and reflect the lower of either these changes or the ‘BBB+(sf)’ rating cap introduced at the June 2019 review.

PIV Underlying Linked Credit Rating class Rating scale Rating Outlook / Watch
GEI 2 Emirates NBD PJSC Long Term International BBB+(sf) Stable
GEI 3 HSBC Bank plc Long Term International BBB+(sf) Stable
GEI 8 Sasol Financing International plc Long Term International BB+(sf) Stable
GEI 10 Barclays Bank plc Long Term International BBB+(sf) Stable
GEI 12 Raiffeisen Bank International Long Term International BBB+(sf) Stable
GEI 14 Commerzbank Long Term International BBB+(sf) Stable

The abovementioned international scale ratings relate to timely payment of dividends and principal. The ratings exclude an assessment of the ability of the Issuers to pay either any early repayment or default interest rate penalties.

The Issuers are established PIVs which may issue rand denominated redeemable shares to a specific institutional investor 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.

Rating Rationale

Rating Cap

In assessing the transaction in June 2019 under GCR’s Criteria for Rating Structured Finance Transactions. GCR noted the risk introduced to the transaction by the Custodian Account Bank and the Hedge Provider due to insufficient replacement triggers and the absence of remedial language in the event that these counterparties fail to perform their duties. GCR capped the ratings to the lower of either Standard Chartered Bank, Singapore (the Custodian Account Bank through which dividends are paid), or Investec Bank plc (the Hedge Provider).

GCR affirmed the rating assigned to Investec Bank plc of ‘BBB+’ with a Stable outlook on 20 December 2019. Standard Chartered Bank, Singapore is rated ‘A1’ by Moody’s Investors Service (“MIS”) with a Stable Outlook. The rating cap has been maintained at the lower ‘BBB+(sf)’ rating assigned to Investec Bank plc.

Underlying Credit Rating Movements

In January 2020, Fitch Ratings affirmed its ratings assigned to Emirates NBD PJSC, with a Stable outlook. GCR has affirmed the GEI 2 rating with a Stable outlook, which reflects the rating cap.

In March 2020, Fitch Ratings placed its ‘A+’ rating assigned to HSBC Bank Plc under criteria observation. Given the ratings assigned to HSBC Bank plc by Fitch Ratings, MIS and S&P Global Ratings are at minimum three notches above the rating cap, GCR has affirmed the GEI 3 rating with a Stable outlook, reflecting the rating cap.

In March 2020, MIS downgraded its rating assigned to Sasol Financing International plc. At the same time, in March 2020, S&P Global Ratings affirmed its rating assigned to Sasol Financing International plc, with a Negative outlook. GCR has downgraded the GEI 8 rating, reflecting the lower of these two ratings.

In January 2020, MIS upgraded its rating assigned to Barclays Bank Plc. GCR has affirmed the GEI 10 rating with a Stable outlook, which reflects the rating cap.

In March 2020, S&P Global Ratings upgraded its rating assigned to Raiffeisen Bank International. GCR has affirmed the GEI 12 rating with a Stable outlook, which reflects the rating cap.

In January 2020, Fitch Ratings affirmed its ratings assigned to Commerzbank AG, with a Stable outlook. GCR has affirmed the GEI 14 rating with a Stable outlook, which reflects the rating cap.

Surveillance and Monitoring

GCR continuously monitors the rating movements of the underlying linked credit of the PIVs and has published the latest Monitoring Dashboard on its website.

Analytical Contacts

Primary Analyst Gary Nyoni Structured Finance Analyst
Johannesburg, ZA GaryN@GCRratings.com +27 11 784 1771
Secondary Analyst Yehuda Markovitz Structured Finance Analyst
Johannesburg, ZA YehudaM@GCRratings.com +27 11 784 1771
Committee Chair Matthew Pirnie <matthewp@gcrratings.com> Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for Rating Structured Finance Transactions, September 2018
Criteria for Rating Credit Linked Notes and Repackaging Vehicles, November 2018
Global Equity Investments 1-14 Limited Surveillance Report, June 2019

Ratings History

Global Equity Investments 1-14 Limited

Issuer Underlying Linked Credit Rating Outlook Initial Rating
GEI 1 Investec Bank plc BBB+(sf) Stable Nov. 2016
GEI 2 Emirates NBD PJSC A-(sf) Stable Nov. 2016
GEI 3 HSBC Bank plc AA-(sf) Stable Nov. 2016
GEI 4 Goldman Sachs Group Inc A-(sf) Stable Nov. 2016
GEI 5 UBS AG/Stamford CT A+(sf) Stable Nov. 2016
GEI 6 Scottish Widows Limited A(sf) Positive Nov. 2016
GEI 7 Fidelity International Ltd BBB+(sf) Stable Nov. 2016
GEI 8 Sasol Financing International plc BBB(sf) Negative Nov. 2016
GEI 10 Barclays Bank plc A(sf) Negative Nov. 2016
GEI 11 MTN Mauritius Investments BB+(sf) Negative Sep. 2017
GEI 12 Raiffeisen Bank International BBB+(sf) Stable Sep. 2017
GEI 13 UniCredit SpA BBB(sf) Stable Sep. 2017
GEI 14 Commerzbank AG BBB+(sf) Stable Sep. 2017
Security class Underlying Linked Credit Rating Outlook Last Rating
GEI 1 Investec Bank plc BBB+(sf) Stable Jan. 2020
GEI 2 Emirates NBD PJSC BBB+(sf) Stable Jan. 2020
GEI 3 HSBC Bank plc BBB+(sf) Stable Jan. 2020
GEI 4 Goldman Sachs Group Inc BBB+(sf) Stable Jan. 2020
GEI 5 UBS AG/Stamford CT BBB+(sf) Stable Jan. 2020
GEI 6 Scottish Widows Limited BBB+(sf) Stable Jan. 2020
GEI 7 Fidelity International Ltd BBB+(sf) Stable Jan. 2020
GEI 8 Sasol Financing International plc BBB-(sf) Negative Jan. 2020
GEI 10 Barclays Bank plc BBB+(sf) Stable Jan. 2020
GEI 11 MTN Mauritius Investments BB+(sf) Negative Jan. 2020
GEI 12 Raiffeisen Bank International BBB+(sf) Stable Jan. 2020
GEI 13 UniCredit SpA BBB(sf) Stable Jan. 2020
GEI 14 Commerzbank AG BBB+(sf) Stable Jan. 2020

Glossary of Terms/Acronyms

Account Bank A bank where the transaction account is held.
Agency An insurance sales office which is directed by an agent, manager, independent agent, or company manager.
Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
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 A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Assets A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Contract An agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. A ‘policy’ is the written statement of the terms of the contract.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
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.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Downgrade The rating has been lowered on its specific scale.
Equity Investment An instrument that signifies an ownership position of shares of stock in a company that is either listed or traded on a stock exchange (also known as a counter) or are unlisted.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
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. In insurance, it refers to an individual or company’s vulnerability to various risks
Hedge A form of risk management aimed at mitigating financial loss or other adverse circumstances. May include taking an offsetting position in addition to an existing position. The correlation between the existing and offsetting position is negative.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
International Scale Rating An opinion of creditworthiness relative to a global pool of issuers and issues.
Issuer The party indebted or the person making repayments for its borrowings.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
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.
Loss 1. A tangible or intangible, financial or non-financial loss of economic value. 2. The happening of the event for which insurance pays (insurance).
Market An assessment of the property value, with the value being compared to similar properties in the area.
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.
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 The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Outlook See GCR 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 transaction 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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
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.
Upgrade The rating has been raised on its specific scale.

Salient Points of Accorded Ratings

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 credit ratings have been disclosed to the Arranger. 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.

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

Daily Investment reports received on a weekly basis.

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