Lagos, 30 September 2021 – GCR Ratings (“GCR”) has upgraded the national scale issue ratings of FCMB Financing SPV Plc’s Series 1 and 3 Bonds to BBB(NG), with the Outlook revised to Positive from Negative.
|Rated Issue||Rating class||Rating scale||Rating||Outlook|
|N26bn Series 1 Unsecured Subordinated Bond||Long term issue||National||BBB(NG)||Positive|
|N5.1bn Series 3 Unsecured Subordinated Bond||Long term issue||National||BBB(NG)||Positive|
The Series 1 and Series 3 Bonds (“the Bonds”) were issued in November 2014 and December 2016 respectively under FCMB Financing SPV Plc’s (“the Issuer”) N100bn Debt Issuance Programme (“the Programme” or “DIP”). The enabling resolution of the Issuer’s Board of Directors permits the directors to issue the Bonds in tranches, different forms, and under different terms and conditions as it may deem fit, subject to the approval of the relevant regulatory authorities. The Bonds constitute direct, unsecured, and subordinated obligations of the Issuer and rank pari passu without any preference among themselves, and with every other unsecured subordinated obligation of the Issuer.
The transaction mechanics entails the use of the proceeds of the issuance of the Series 1 and Series 3 Bonds to purchase Subordinated notes issued by First City Monument Bank Limited (“FCMB” or “the Sponsor”). The Bonds are backed by an irrevocable and unconditional undertaking issued by the Sponsor supporting all obligations of the Issuer under the Deed of Undertaking between the Sponsor and the Issuer.
While the Issuer is FCMB Financing SPV Plc, repayment of the obligations under the Issues ultimately depends on the performance of the Sponsor, as the direct obligor of the Issues. Thus, the accorded rating is linked to FCMB’s credit standing and financial position and, as such a notch below the Sponsor’s long-term national scale credit rating, as GCR considers the bonds to rank alongside the Subordinated Notes issued by the Sponsor. FCMB has been accorded a long-term national scale issuer credit rating of BBB+(NG) with a positive outlook in September 2021.
According to the periodic performance reports provided to GCR by the Trustees to the Bondholders, dated September 6, 2021, in respect of the Series 1 Bonds and September 7, 2021 in respect of the Series 3 bonds, the Issuer has been meeting all its obligations on a timely basis on both the Series 1 and 3 Bonds.
The positive outlook reflects GCR’s opinion that FCMB’s financial profile will remain strong over the next 12-18 months notwithstanding the challenging operating environment. We expect credit losses and non-performing loan ratio to be maintained at the current strong levels, and GCR core capital ratio is expected to remain firm at 14%+ over the rating horizon, taking into account the bank’s strong earnings profile and expected growth in risk weighted assets.
Given that the ability of the Issuer to meet its obligations under these Issues is dependent on the financial condition of the Sponsor, the accorded rating would be sensitive to a positive rating action on the Sponsor. Non-compliance with the set covenants, as well as a downgrade of the Sponsor’s rating could trigger negative rating actions.
|Primary analyst||Abdul Mukhtar||Financial Institutions Analyst|
|Lagos, NG||Abdullahim@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 Rating Financial Institutions, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Ratings Criteria for Secured Bond Expected Loss Credit Ratings, July 2021|
|GCR Nigeria Country Risk Scores, February 2021|
|GCR Nigeria Financial Institutions Sector Risk Score, February 2021|
FCMB Financing SPV Plc – Series 1 and Series 3 Unsecured Subordinated Bonds
|Rated Issue||Review||Rating scale||Rating||Outlook||Date|
|Series 1 Bond||Initial||National||BBB(NG)||Stable||March 2015|
|Series 3 Bond||Initial||National||BBB(NG)||Stable||February 2017|
|Series 1 Bond||Last||National||BBB-(NG)||Negative||August 2020|
|Series 3 Bond||Last||National||BBB-(NG)||Negative||August 2020|
Risk Score Summary of the Sponsor
|Rating Components & Factors||Risk scores|
|Country risk score||4.00|
|Sector risk score||3.50|
|Management and governance||0.00|
|Capital and Leverage||(1.50)|
|Funding and Liquidity||0.50|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|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.|
|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|
|Income||Money received, especially on a regular basis, for work or through investments.|
|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||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.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|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 Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the rating 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; 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 First City Monument Bank 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.
First City Monument Bank 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 First City Monument Bank Limited and other reliable third parties to accord the indicative rating included:
- The audited financial results as at 31 December 2020
- Four years of comparative audited numbers
- Trustees’ performance reports up to September 2021
- Other related documents.