Announcements

iNkotha Investments (RF) Limited – Ratings affirmed.

Johannesburg, 12 December 2014 — Global Credit Rating Co. (‘GCR’) has affirmed the final, public ‘A1(ZA)(sf)’ short term credit rating of the notes (the ‘Notes’) issued or to be issued by iNkotha Investments (RF) Limited (the ‘Issuer’) from time to time under its R10bn domestic call bond fund programme (the ‘Transaction’). Concurrently, GCR has affirmed the final, public ‘A1(ZA)’ short term unsecured credit rating of the Issuer.

RATING RATIONALE

The Issuer is a Rand Merchant Bank managed structured funding vehicle that advances rand denominated overnight call loans to South African corporates and South African subsidiaries/branches of international corporates (the ‘Obligors’). In terms of the Programme, the Issuer may also purchase rand denominated call bonds with a tailored call/put mechanism attached.

GCR developed a rating factor model which uses the long term ratings of the Obligors as an input and translates these ratings into a weighted average credit rating (‘WACR’) for the portfolio as a whole. The WACR is subsequently mapped to a short term rating which is applicable to the Notes and Issuer in line with the duration of the assets and the Notes. The Administrator runs the model daily to ensure that the short term ratings applicable to iNkotha and the Notes do not drop below A1(ZA). GCR is provided with monthly investor reports for the Transaction in order to monitor the WACR of the portfolio. The WACR has been maintained above A1(ZA) since transaction closing. The Issuer has been set up as a bankruptcy remote vehicle and may only perform activities in accordance with the transaction documents. The secured creditors sign non-petition and limited recourse language for the benefit of the Issuer. The risks relating to the Notes and the Issuer are therefore materially the same. This results in the according of the same short term rating to iNkotha as that accorded to the Notes.

For more information on the Transaction, please refer to the report entitled “iNkotha Investments (RF) Limited – Surveillance Report”, published on 08 December 2014. GCR analysed the Transaction by applying its Global Structured Finance Rating Criteria (Feb’14); its Global Master Criteria for Rating Corporate Entities (Aug’14); its Global Master Criteria for Rating Banks and Other Financial Institutions (Apr’14); FirstRand Bank Limited Rating Report (Nov’14); with reference to its iNkotha Investments (RF) Limited Surveillance Report (Dec’13) and its iNkotha Investments (RF) Limited New-Issuance Report (Nov’10).

NATIONAL SCALE RATINGS HISTORY

Initial rating (November/2010)
Callable Notes: A1(ZA)(sf);
Short term unsecured: A1(ZA);

Last rating (December/2013)
Callable Notes: A1(ZA)(sf);
Short term unsecured: A1(ZA);

ANALYTICAL CONTACTS

Mark Vrdoljak
Credit Analyst
+27 11 784 1771
markvrd@globalratings.net

Committee Chairperson
Emma-Jane Fulcher
Head: Structured Finance Ratings
+27 11 784 1771.
fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

• Global Structured Finance Rating Criteria (Feb’14);
• Global Master Criteria for Rating Corporate Entities (Aug’14);
• Global Master Criteria for Rating Banks and Other Financial Institutions (Apr’14);
• FirstRand Bank Limited Rating Report (Nov’14);
• iNkotha Investments (RF) Limited Surveillance Report (Dec’13)
• iNkotha Investments (RF) Limited New-Issuance Report (Nov’10).

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.

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; 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 credit rating/s has been disclosed to the Issuer and the Arranger (RMB) with no contestation of the rating.

GCR has received the audited financial statements of the Issuer for the year ended 30 June 2014, monthly investor reports for the period between April 2010 and November 2014, satisfactory copies of all executed transaction documents and the legal opinion.

The rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Account Bank

A bank where the transaction account is held.

Administrator

See Servicer. Or, a transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.

Applicable Pricing Supplement

A transaction document that describes the particulars of notes issued.

Bankruptcy Remote

A feature, through real security and guarantees that reduces the enforceability of a creditor against a Special Purpose Vehicle. Typically a Security Special Purpose Vehicle should be bankruptcy remote.

Commercial Paper

A debt security of short term nature, less than a year.

Corporate Credit Rating

A credit rating accorded to a corporate entity.

Credit Enhancement

Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or external. Internal credit enhancement may include: Subordination; over-collateralisation; excess spread; security package; arrears reserve; reserve fund and hedging. External credit enhancement may include: Guarantees; Letters of Credit and hedging.

Credit Rating

A rating accorded to the performance of either ultimate or timely payment of obligations.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit Risk

The probability or likelihood that a borrower will not meet it’s debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).

Default Risk

The probability or likelihood that a borrower will not meet it’s debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).

Excess Spread

The net weighted average interest rate receivable on a pool of assets being greater than the weighted average interest rate payable for the debt securities.

Insolvency

A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).

Legal Opinion

An opinion regarding the validity and enforceable of a transaction’s legal documents.

Lien

A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made.

Limited recourse language

A debt where the creditor has limited claims on the obligation in event of default.

Liquidity Facility

A facility provided to a structured finance transaction that will pay the Noteholders interest in the event that the underlying assets cash flows are inadequate.

Liquidity Risk

The risk that a financial instrument cannot be traded on it’s market price due to the size of the market.

Long Term Rating

A credit rating based on the opinion of the ability to repay long term (more than a year) obligations.

Over-collateralisation

Principal balance of loans exceeds the principal balance of the debt securities issued by the securitisation vehicle. Or, the value of the assets is in excess of the debt securities issued by the securitisation vehicle. Or, more assets are given for the debt securities issued by the securitisation vehicle. A form of credit enhancement.

Owner Trust

Owner of a securitisation vehicle that acts in the best interest of the Noteholders.

Priority of Payments

In securitisation, the order in which the cash flows are allocated to the transaction parties.

Property

Movable or immovable asset.

Rated Securities

Debt securities that have been accorded a credit rating.

Rating Outlook

A Rating Outlook indicates the potential direction of a rating over the medium term, typically a one to two years period. An outlook may be defined as; ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).

Real Security

Obtained by a creditor when either as a consequence of agreement with a debtor or operation of law, the creditor acquires the right to be reimbursed from the proceeds of movable or immovable property of the debtor in the event of the debtor default.

Reserve Fund

A funded account available for use by a Special Purpose Vehicle for one or more specified purposes. A reserve fund is often used as a form of credit enhancement. Typically accumulated over time, through excess cash flows.

Securitisation Vehicle

A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV.

Security Package

Security offered to Noteholders for debt securities issued that should increase the recoveries in an event of default.

Settlement Agent

The person that acts on behalf of the debtor for repayment or settlement of obligations.

Short Term Rating

A credit rating based on the opinion of the ability to honour short term (less than a year) obligations.

Special Purpose Vehicle

A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV.

Stock Code

A unique code allocated to a publicly listed security.

Structured Finance

A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.

Subordination

The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.

Synthetic Securitisation

Synthetic securitisation. Transfer credit risk of an underlying pool of assets without transfer of the assets from the asset holders’ balance sheet.

Tranche

In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.

Weighted Average

An average resulting from the multiplication of each component by a factor reflecting it’s importance or, relative size to a pool of assets or liabilities.
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