Announcements Corporate Rating Alerts

GCR upgrades Centum Investment Company Plc’s Issuer Rating to A+(KE) due to the redemption of debt; Outlook Stable.

Rating Action

Johannesburg, 16 January 2020 – GCR Ratings (“GCR”) has upgraded the long term Issuer rating on Centum Investment Company Plc (“Centum”) to A+(KE) from A(KE), and maintained the short term rating at A1(KE); with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Centum Investment Company Plc Issuer Long Term National A+(KE) Stable Outlook
Issuer Short Term National A1(KE)

GCR released new Ratings Framework Criteria in May 2019, and a new Criteria for Rating Investment Holding Companies in November 2019. As a result, the ratings were placed “Under Criteria Observation”. Subsequently, GCR has finalised the review under the new methodology, and the ratings have been removed from “Under Criteria Observation”.

Rating Rationale

The rating action reflects the improvement to Centum’s gearing metrics and strong liquidity post the sale of Almasi Beverages and Nairobi Bottlers.

Centum has reported a rising debt trend over the review period, albeit still maintaining moderate gearing levels. Moreover, the company has demonstrated good access to capital through both domestic and international banks, as well as from the capital market. However, with the proceeds of the sale of Almasi Beverages, the company reduced gross debt from KES16.1bn at FY19 to KES9.9bn at 1H FY20, and has since paid of all its bank debt. While the KES6.3bn bond issuance remains outstanding, Centum has specifically set aside cash to settle the debt when it matures during 1H FY21. GCR has also premised the positive gearing assessment on the company’s intention to maintain an ungeared balance sheet over the medium term.

Similarly, GCR considers Centum’s liquidity to be a ratings strength. In this regard, Centum has sufficient cash and committed bank facilities to meet, not only its debt redemption, but also its initial capital commitment as part of the planned private equity fund. Moreover, Centum expects to generate strong cash flows from its property portfolio over the next twelve months, as evidenced by KES6bn in pre-sales. Thus, even if a larger than projected investment opportunity arises, GCR expects Centum to be able to meet its capital commitments. GCR also positively views Centum’s strategy of maintaining a portfolio of marketable securities that generate sufficient income to meet operating costs.

The ratings are somewhat constrained by the scale of Centum’s portfolio relative to global IHCs, its geographic concentration, and the high exposure to property developments, which GCR considers to entail higher risks. Excluding cash and marketable securities, over 80% of Centum’s investment portfolio is domiciled in Kenya, with more than 70% pertaining to property developments. However, the diversification of investments, with three large property developments and several investee companies in different other industries is positively considered. GCR also considers Centum’s proven track record of developing new projects and selling mature investments as a key ratings strength, as demonstrated by the significant capital gains realised in the years under review, and regional assets that were developed in the Centum stable.

Outlook Statement

The Stable Outlook reflects GCR’s expectations that Centum will continue to maintain a net ungeared balance sheet amidst its new investment strategy.

Rating Triggers

GCR considers the potential for positive rating action to be limited over the rating horizon. In the medium term, an upgrade could arise from a material improvement in the diversification of the investment portfolio by both geography and sector. Increased investment in companies with strong earnings generation would also be positively considered. Negative rating action could arise if there is a deterioration in investment performance and/or if there is a material increase in gearing, not in line with current expectations.

Analytical Contacts

Primary analyst Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA shevel@GCRratings.com +27 11 784 1771
Secondary analyst Tavonga Muchemedzi Analyst: Corporate Ratings
Johannesburg, ZA tavongam@GCRratings.com +27 11 784 1771
Committee chair Patricia Zvarayi Deputy Sector Head: Corporate Ratings
Johannesburg, ZA patricia@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Investment Holding Companies, Nov 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Score report, published June 2019
GCR’s Kenya Corporate Sector Risk Score reports/Market Alerts, published September 2019

Ratings history

Centum Investment Company Plc

Rating class Review Rating scale Rating Outlook/Watch Date
Issuer Long Term Initial National A-(KE) Stable Jul 2012
Issuer Short Term National A1-(KE))
Issuer Long Term Last National A(KE) Positive Aug 2018
Issuer Short Term National A1(KE)

Risk Score Summary

Risk score 10.00
Operating environment 6.50
Country risk score 4.50
Sector risk score 2.00
Business profile -1.00
Size & Diversification -2.00
Investment portfolio quality -1.00
Track record 2.00
Management and governance 0.00
Financial profile 4.50
Leverage and Capital Structure 3.00
Liquidity 1.50
Comparative profile 0.00
Group Support 0.00
Peer analysis 0.00

Glossary

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.
Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
Covenant A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.
Debt Service Ratio A measure of a company’s ability to service its interest and principal redemption costs, expressed as the ratio of earnings or cash flows over a period to the sum of interest and principal payments over the same timeframe.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Downgrade The rating has been lowered on its specific scale.
Facility The grant of availability of money at some future date in return for a fee.
Gearing Gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds, EBITDA or operating income.
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 Cover Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.
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.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
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.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Rating Horizon The rating outlook period.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Current; ordinarily less than one year.
Upgrade The rating has been raised on its specific scale.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings process 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 Centum Investment Company Plc. 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.

Centum Investment Company Plc 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 Centum Investment Company Plc and other reliable third parties to accord the credit ratings included:

  • the 2019 audited annual financial statements (plus four years of audited comparative numbers);
  • Published interim results for 1H FY20
  • Analyst presentations


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