Announcements

Global Credit Ratings has affirmed ABC Holdings Limited’s rating of BB+(BW); Ratings Withdrawn

Johannesburg, 30 June 2016 — Global Credit Ratings has today affirmed the national scale ratings assigned to ABC Holdings Limited of BB+(BW) and A3(BW) in the long term and short term respectively; with the outlook accorded as Stable.

Concurrently, the above ratings have all been withdrawn at the request of the client. Therefore, GCR will no longer monitor the performance of ABC Holdings Limited.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to ABC Holdings Limited (“ABCH” and/or “the group”), based on the following key criteria:

ABCH is a bank holding company registered in Botswana (with a group head office located in South Africa) with operations in Zambia, Tanzania, Botswana, Mozambique and Zimbabwe (trading under the brand name BancABC). The ratings reflect ABCH’s weak, albeit improving asset quality and profitability. The aforementioned constraints are partially offset by the takeover of ABCH by Atlas Mara Limited (“Atlas Mara”) in 2014 (98.7% stake), and demonstrated support for the group, with financial and operational support and strategic direction provided by the new shareholders. Atlas Mara is driving ABCH’s next growth phase and stronger inroads into the retail sector.

ABCH was delisted from the Botswana and Zimbabwe Stock exchanges on 30 January and 12 February 2015 respectively, post-acquisition. Atlas Mara is a London-listed financial services group focused entirely on sub-Saharan Africa (currently operations in seven sub-Saharan African countries) with a consolidated asset base of USD2.5bn at FYE15 and capital base of USD625.5m. ABCH contributed 73.8% to Atlas Mara’s consolidated assets at FYE15.

In June 2015, Atlas Mara completed the full take-over of ABCH by increasing its shareholding from 98.7% to 100%. As a result, the directors concluded that the most appropriate functional currency for ABCH is the USD.

During F15, ABCH received an interest free loan from Atlas Mara for USD80m (F14: USD20m). In September 2015, Atlas Mara converted USD50m of the loan into equity, increasing stated capital to USD129.1m. Consequently ABCH’s consolidated capital and reserves increased by 15.6% to USD115.8m at FYE15. At FYE15 all regulated banking operations complied with regulatory imposed capital requirements. ABCH’s capital/assets ratio increased to 6.4% at FYE15, recovering from a five year low of 5.3%.

Asset quality remains a key rating concern on the back of challenging operating conditions in target markets. The gross non-performing loans (“NPL”) ratio decreased marginally to 15.6% at FYE15 (FYE14: 15.8%). Impairment coverage (by specific provisions) declined to 37.1% at FYE15 (FYE14: 40.5%), pre-collateral. Given an increase in capital, the net NPL/capital ratio decreased to 107.7% at FYE15 (FYE14: 119.8%). Following the take-over by Atlas Mara, a special operations credit recovery team was set up to manage the restructuring, resolution and recovery of NPLs across the group and stabilise operating performance. Consequently, asset recoveries (mainly in Zimbabwe and Tanzania) increased to USD15.9m in F15 from USD1.8m in F14. During 2015, Atlas Mara conducted a comprehensive review of the credit lifecycle management process at banking subsidiaries, following which the group has now embarked on a credit transformation programme (“CTP”) to enhance the credit process, with full implementation expected in 2016. The CTP also introduces better credit scoring and collections capability.

ABCH reported a small pre-tax profit of USD9.8m for F15, up from a pre-tax loss of USD49.0m for F14. The improved earnings performance was mainly due to significantly lower impairment charges in F15 (subsequent to an aggressive loan clean-up in F14 as well as recoveries). The liquidity ratio of 25.7% at FYE15 (FYE14: 25.2%) helps mitigate liquidity risk to a degree.

NATIONAL SCALE RATINGS HISTORY

   
     
Initial ratings (December 2004)    
Long term: BBB-(BW); Short term: A3(BW)    
Outlook: Negative    
     
Last ratings (June 2015)    
Long term: BB+(BW); Short term: A3(BW)    
Outlook: Stable    
     

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Jennifer Mwerenga   Vimbai Muhwati
Senior Credit Analyst   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
jennifer@globalratings.net   vimbaim@globalratings.net
     
Committee Chairperson    
Omega Collocott    
Sector Head: Financial Institution Ratings    
(011) 784-1771    
omegac@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2016

ABCH rating reports (2004-15)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES 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 rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

ABC Holdings Limited participated in the rating process via teleconferences and other written correspondence. The ratings were accorded based on publicly available information and information received from management. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating has been disclosed to ABC Holdings Limited with no contestation of the rating.

The information used to analyse ABC Holdings Limited and accord the credit ratings included:

• Audited financial results of the group as at 31 December 2015 (and four years comparative numbers);

• Reserving methodologies and capital management policy;

• Corporate governance and enterprise risk framework; and

• Other public available information.

The credit ratings above were not solicited by, or on behalf of, the rated client, and therefore, GCR has not been compensated for the provision of the ratings.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY

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.
Capital Base The issued capital of a company, plus reserves and retained profits.
Collateral Asset provided to a creditor as security for a loan.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
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/or 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.
Equity Equity (or shareholders’ funds) 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.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Impairment Reduction in the value of an asset because the asset is no longer expected to generate the same benefits, as determined by the company through periodic assessments.
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 LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
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.
Margin The rate taken by the lender over the cost of funds, which effectively represents the entity’s profit and remuneration for taking the risk of the loan; also known as spread.
National Scale Rating Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Performing Loan A loan is said to be performing if the borrower is paying the interest on it on a timely basis.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
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 An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
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.
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.
Stock Exchange A market with a trading-floor or a screen-based system where members buy and sell securities.

For a detailed glossary of terms utilised in this document please click here

Global Credit Ratings has affirmed ABC Holdings Limited’s rating of BB+(BW); Ratings Withdrawn

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