Johannesburg, 15 October 2014
— Global Credit Rating Co. (“GCR”) has downgraded the final, public Short Term credit rating to ‘A2(ZA)’ from ‘A1-(ZA)’ for the following Senior Secured Note:
• R50m Senior Secured Floating Rate Note, stock code RPG03, coupon 3M JIBAR + 2.000%, maturing 23 March 2015 (the ‘RPG03 Note’);
Concurrently, GCR has also downgraded the final, public Long Term credit rating to ‘BBB+(ZA)’ from ‘A-(ZA)’ with a Stable Outlook for the following Senior Secured Note:
• R225m Senior Secured Floating Rate Note, stock code RPG02, coupon 3M JIBAR + 3.000%, maturing 25 November 2014 (the ‘RPG02 Note’).
The rating of the RPG02 Senior Secured Floating Rate Note is valid until 25 November 2014.
The rating of the RPG03 Senior Secured Floating Rate Note is valid until 25 March 2015.
RATING RATIONALE
The Long Term Issuer rating of Real People Investment Holdings Ltd was downgraded on 7 October 2014 to ‘BB+(ZA)’ from ‘BBB(ZA)’ with a Negative Outlook. The ratings downgrade follows GCR’s anticipation of further asset quality deterioration, given the challenging operating environment, which is expected to lead to higher loan-loss provisioning and untimely weaker earnings. In addition, the ratings are constrained by the tightening funding conditions experienced by micro financiers, partially offset by the Issuer’s planned capital raising which remain uncertain.
The ratings of the RMB Guaranteed Notes (Senior Secured Notes) are derived by applying a notching approach, starting from the Long Term unsecured credit rating of Real People Investment Holdings Limited (‘BB+(ZA)’) with a rating uplift of three national scale notches deemed appropriate for the RMB Guaranteed Notes, given the overall estimated recovery rate of 65.93%. The ratings accorded to the RMB Guaranteed Notes relate to the ultimate (as opposed to timely, akin to a loss severity rating therefore) repayment of the principal and interest.
The ratings of the RMB Guaranteed Notes incorporate recoveries potentially arising from an enforcement of the RMB Guarantee and Real People Investment Holdings Limited unencumbered assets.
RATINGS HISTORY
Stock code | Initial Rating | Long Term Rating | Short Term Rating | Outlook |
RPG02 | 29 November 2011 | A(ZA) | n.a. | Stable |
RPG03 | 18 July 2014 | n.a. | A1-(ZA) | n.a. |
Stock code | Previous Rating | Long Term Rating | Short Term Rating | Outlook |
RPG02 | 18 July 2014 | A-(ZA) | n.a. | Stable |
RPG03 | 18 July 2014 | n.a. | A1-(ZA) | n.a. |
ANALYTICAL CONTACTS
Corné Els
Structured Finance Analyst
CorneE@globalratings.net
+27 11 784 1771
Committee Chairperson
Emma-Jane Fulcher
Head: Structured Finance Ratings
fulcher@globalratings.net
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – Oct ’14
Global Master Criteria for Rating Banks and Other Financial Institutions – Apr ’14
Real People Investment Holdings Ltd Financial Institution Report – Jun ’14 and subsequent rating announcement.
Real People Investment Holdings Ltd Partially Guaranteed Notes – Jul ’14
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 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 info received was considered adequate and has been independently verified where possible.
The rating/s above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.
The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.
The information received from the Issuer and other reliable third parties to accord the credit ratings included the signed executed transaction documents together with the relevant signed legal and tax opinions; the Issuer’s Audited Annual Financial Statements for the year ended 31 March 2014, the Issuer’s Encumbered & Unencumbered Statement of Financial Position as at 31 August 2014, and the Issuer’s Capital Adequacy Ratio quarterly reports from March 2011 to June 2014.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS ANNOUNCEMENT
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 its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred). |
Floating Rate Notes |
Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR. |
JIBAR |
Johannesburg Interbank Agreed Rate. A reference rate. |
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. |
Liquidity Risk |
The risk that a financial instrument cannot be traded on its 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. |
Property |
Movable or immovable asset. |
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). |
Rating Watch |
Indicates that a rating is under review for possible change in the short-term and the movement may be either positive or negative. |
Reference Rate |
A rate that is the basis of the calculation such as JIBAR. |
Short Term Rating |
A credit rating based on the opinion of the ability to honour short term (less than a year) obligations. |
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. |
Under Review |
Failure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, i.e. review is on-going. |