Johannesburg, 05 June 2018– Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit rating of ‘A-(ZA)’ with a ‘Stable’ outlook accorded to the following Senior Unsecured Floating Rate Notes (the “Senior Notes”) issued by Grindrod Bank Limited (the “Issuer” or “GBL”) under the Issuer’s Domestic Medium Term Note (“DMTN”) Programme (the “Transaction”):
- ZAR 160m, Senior Floating Rate Notes, maturing 15 October 2018, stock code…………GBL02;
- ZAR 100m, Senior Floating Rate Notes, maturing 15 October 2018, stock code…………GBL02-Tap
GBL’s R1bn DMTN Programme was launched in October 2012 and is backed by an irrevocable and unconditional Noteholder Guarantee (the “Guarantee”). The final, public ratings accorded to the Senior Notes relate to ultimate payment of interest and principal by the Maturity Date of the Senior Notes (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties. If the ratings accorded to the Issuer or the mechanics of the Guarantee change, the rating of the Senior Notes may change, but potentially not in the same quantum.
GBL is a subsidiary (96.6%) of Grindrod Limited (“the group”), an established freight and financial services group listed on the Johannesburg Stock Exchange (“JSE”). The group is currently undergoing a restructuring, which will see the shipping assets unbundled and separately listed on the NASDAQ. This unbundling combined with the divestiture of the rail assets could result in a leaner, albeit stronger balance sheet with low leverage. The group had a consolidated capital base of R14.2bn and assets of R34.9bn at FY17 (FY16: 15.8bn and R39.1bn respectively, including discontinued operations).
GBL has implicit linkages with the parent, such as shared corporate identity, common management (i.e., board membership) and related party loans/deposits (albeit small at 0.5% of total loans and 3.8% of total deposits at FY17), as well as backing through guarantees on some debt issues (1.6 % of total funding at FY17). The repositioning of the group, which is still ongoing, is anticipated to result in the deleveraging of the group’s balance sheet. Should the repositioning result in changes to the bank’s support environment, which affect GBL’s current ratings, then GCR may review the ratings accorded to the Senior Notes to determine the impact thereof.
The ratings accorded to GBL reflect its established niche business model, offering banking products and services to private, corporate and institutional clients in South Africa, coupled with its resilient financial performance. The bank’s risk appropriate capitalisation, together with sound asset quality and liquid balance sheet mitigate, to an extent, its structural reliance on confidence-sensitive wholesale funding.
GBL issued the R160m Senior Unsecured Floating Rate Notes in October 2015, followed by the tap issue of an additional R100m in June 2017, under its R1bn DMTN Programme. The Guarantee backing the Senior Notes relates to the due and punctual performance of all obligations, which the Issuer may incur to the Noteholders of the Notes, arising under the DMTN Programme.
The Issuer advised GCR that the Senior Notes will be redeemed on their Maturity Date on 15 October 2018. The affirmation of the rating was based on GCR’s Global Structurally Enhanced Corporate Bond Rating Criteria, the Issuer’s long term rating of ‘BBB+(ZA)’ and the irrevocable and unconditional Noteholder Guarantee.
|Primary Analyst||Secondary Analyst|
|Mark Vrdoljak||Tinashe Mujuru|
|Senior Structured Finance Analyst||Structured Finance Analyst|
|+27 11 784 1771||+27 11 784 1771|
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’17);
- Global Criteria for Rating Banks and Other Financial Institutions (Mar’17);
- South Africa Bank Statistical Bulletin (Dec’17);
- Grindrod Bank Limited Financial Institutions Rating Report (Apr’18);
- Grindrod Bank Limited Rating Announcement (Apr’18); and
- Grindrod Bank Limited’s Guaranteed Notes – Tap Issuance (Jun’17).
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/RATING-SCALES-DEFINITIONS. 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.
|Asset||An item with economic value that an entity owns or controls.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Default||A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Floating Rate Notes||Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.|
|Guarantee||An undertaking for performance of another’s obligations in event of default.|
|Irrevocable||Not able to be changed, reversed, recovered and final.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Long-Term Rating||A 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.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Noteholder||Investor of capital market securities.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Repayment||Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Short-Term Rating||A short term rating is 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 Code||A unique code allocated to a publicly listed security.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
|Unconditional||Not subject to any conditions.|
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 rating was 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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating above was solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the rating.
The credit rating has been disclosed to the Issuer with no contestation of the rating.
The information received from Grindrod Bank Limited and other reliable third parties to accord the credit rating included:
- Audited financial results for the year ending 31 December 2017 (plus six years of comparative data) for the Issuer;
- Analyst presentations;
- A Final Signed Legal Opinion prepared by Transaction Council – Bowman Gilfillan;
- The Final Signed Applicable Pricing Supplements for the GLB02 Notes;
- A Signed and Executed Noteholder Guarantee; and
- Signed and executed Transaction Documentation for the Senior Notes and the DMTN Programme.