Announcements Financial Institutions Rating Alerts

GCR upgrades Real People Investment Holdings Limited’s Servicer Quality Ratings

Rating Action

Johannesburg, 19 December 2019 – GCR Ratings (‘GCR’) has upgraded Real People Investment Holdings Limited’s national scale primary and special servicer ratings to SQ2-(ZA)/SQ2(ZA) from SQ3+(ZA)/SQ2-(ZA), with outlooks accorded as Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Real People Investment Holdings Limited Primary servicer National SQ2-(ZA) Stable Outlook
Special servicer National SQ2(ZA) Stable Outlook

Rating Rationale

The national scale servicer quality ratings on Real People Investment Holdings Limited (‘Real People’, ‘the entity’) balance a fairly strong debt collection profile, adequate systems and control environment, good management team, and a relatively weak, but recovering, financial profile.

Collections have sustained good levels over the past 3 years and we expect the trend to continue based on strong recovery fundamentals for both its originated and acquired debt portfolios. At 31 July 2019, the average estimated remaining collections on the acquired debt portfolio was 3.4x the purchase price, with over 50% collected as of that date. The self-originated home improvement finance book had high NPLs of 73% as of 31 March 2019, however strong levels of receipting averaging c. R70mln monthly over the past 3 years supports good recovery prospects, with c.16% of defaults recovered within 12-15 months. The factors supporting this fairly stable debt collection profile are explained below.

Real People’s operating systems and control environment are deemed adequate for the scale of its business. The entity uses an inhouse developed fintech platform called CreditEase which supports its debt management capabilities. Collection methods are broadly in line with industry standards. A good internal control environment is also supportive of the entity’s technological advancements, while ensuring efficiencies.

We consider the management team of Real People to be highly experienced in arrears management and this broadly supports its collection ability. The entity buys and collects on specific debt asset classes within various sectors and breadth of management experience and staff support are considered adequate.

We also factor in the relatively weak but improving financial profile of the entity. The issuer ratings on the entity were withdrawn in May 2019. At the time of withdrawal, the financial profile was broadly improving with earnings, leverage and liquidity all recovering towards more normalised levels towards December 2018. Surveillance on the entity’s credit profile will continue on unsolicited basis.

Outlook Statement

The outlook factors in stable collections, improving financial profile, and our expectation that collections ability will remain sound.

Rating Triggers

A ratings improvement on the primary and special servicer quality ratings could result from sustained stronger collections and a strengthening financial profile. A weakening financial profile and/or systems and control environment of the entity, in addition to reducing collections could lead to a downgrade in both ratings.

Analytical Contacts

Primary analyst Simbarake Chimutanda Financial Institutions Analyst
Johannesburg, ZA SimbarakeC@GCRratings.com +27 11 784 1771
Committee chair Corné Els Senior Structured Finance Analyst
Johannesburg, ZA CorneE@GCRratings.com +27 11 784 1771

Related Criteria and Research

Global Master Structured Finance Servicer Rating Criteria, February 2018
Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Financial Institutions, May 2019
Criteria for Rating Financial Services Companies, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Financial Institutions Sector Risk Score, July 2019

Ratings History

Real People Investment Holdings Limited

Rating class Review Rating scale Rating Outlook Date
Primary Servicer Initial National SQ2(ZA) Stable December 2013
Last National SQ3+(ZA) Stable February 2018
Special Servicer Initial National SQ2+(ZA) Stable December 2013
Last National SQ2-(ZA) Stable February 2018

Rating Factor Score Summary

Rating factor scores
Arrears management 4.0
Debtor administration 4.0
Systems and controls 4.0
Management and staff 3.0
Financial strength 1.0
Average Score 3.2

Glossary

Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
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.
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.

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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The servicer quality rating has been disclosed to Real People Investment Holdings Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

Real People Investment Holdings Limited participated in the rating process via face-to-face 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 Real People Investment Holdings Limited and other reliable third parties to accord the servicer quality rating included:

  • Audited financial results of Real People Investment Holdings Limited as at 31 March 2019;
  • Audited financial results of DMC Debt Management Proprietary Limited as at 31 March 2019;
  • DMC Debt Management Proprietary Limited collections and AUM data as at 31 July 2019;
  • Latest internal and/or external audit report to management;
  • Industry comparative data.
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