Lagos, 11 May 2021 – GCR Ratings (“GCR”) has revised the national scale fund rating assigned to Chapel Hill Denham Money Market Fund (“CHDMMF”) to AA-(NG)(f) from A(NG)(f) under the new criteria, with the outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Chapel Hill Denham Money Market Fund||Fund Rating||National||AA-(NG)(f)||Stable Outlook|
|Fund inception date||December 1999|
|Fund currency||Nigeria Naira|
|Fund data review date||December 2020|
|Asset under management (“AUM”)||N2.5bn|
|Net asset value (“NAV”)||N2.5bn|
|Fund benchmark||Treasury bills yield|
|Fund manager||Chapel Hill Denham Management (“CHDM”)|
Fund profile: is a unitised scheme with conservative risk profile, which enables unit holders to invest in a diverse pool of high-quality short-term assets, including the Federal Government of Nigeria treasury bills (T-bills), bank placements, and commercial papers, on behalf of investors with the objective of capital preservation and liquidity.
Credit quality assessment: CHDMMF’s credit quality is a major positive rating factor. Following the crash in interest rates, the fund manager displayed a shift in appetite, moving from largely T-bills and bank placements (which accounted for a combined 95%), to a sizeable 25.5% investment in commercial papers (‘CPs’) at FY20. Nevertheless, CHDM has restricted investments in CPs to that of blue-chip companies with good credit scores. Hence, unadjusted weighted risk score of the credit portfolio averaged 8.5 as at FY20. However, a negative 0.5 adjustment was made to the score due to noticeable counterparty concentration. Going forward, GCR will continue to monitor the portfolio, given the wide range in credit scores of allowable instruments under the fund mandate.
Weighted average maturity (“WAM”) and interest risk: The fund’s WAM and duration is considered to be positive in support of the rating. As a money market instrument, CHDMMF has been invested in largely short-dated instruments which can easily be traded should liquidity need arises. As such, WAM stood within the 30 to 90 days maturity bucket and duration within 31days. An average of the two scores is reflected at 1.25 positive.
Management assessment: GCR observed the flexibility provided by the CHDMMF’s investment philosophy and mandate, which allows the Manager to invest in instruments at the lower end of the investment grade curve. As such, a haircut of -0.25 was assigned to manage potential volatility of the rating.
Liquidity assessment: Liquidity is accorded a neutral score, given that CHDMMF is a money market fund and the investment portfolio is dominated by liquid or short-term assets. Also, the investor base is considered to be retail and diversified, therefore no major concentrations exist.
The stable outlook reflects our expectation that the manager will continue to invest in high quality instruments, with low maturity and duration risk, with no expectations around volatility of performance or weighted credit quality.
A sustainable improvement in credit quality of the counterparties of the underlying instrument, which result to an increase in weighted average credit score of the fund could impact the rating positively. However, a change in mandate or a shift in risk appetite of the manager to invest in instruments with lower credit scores could lead to rating downgrade.
|Primary analyst||Funmilayo Abdulrahman||Senior Analyst, Financial Institutions|
|Lagos, NG||Funmilayo@GCRratings.com||+234 1 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Fund Ratings, July 2020|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Weighted average credit quality||8.50|
|Credit quality portfolio adjustments||-0.50|
|Maturity & interest rate risk||1.25|
|Weighted average maturity & interest||1.25|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|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.|
|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.|
|Long-Term||Not current; ordinarily more than one year.|
|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.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Net Asset Value||The value of an entity’s assets less its liabilities. It is a reflection of the company’s underlying value and is usually quoted on a per share basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings were 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 rating has been disclosed to Chapel Hill Denham Management Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Chapel Hill Denham Management Limited participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Chapel Hill Denham Management Limited and other reliable third parties to accord the credit ratings included:
- A breakdown of the fund investment portfolio, including information on the instruments, their terms, conditions and credit quality;
- Fund investment mandate;
- Details regarding the fund management, investment management and administration activities of the fund