Announcements

Vukile Property Fund Limited – Group 1 Notes Ratings Affirmed after the sale of a property

Johannesburg, 19 November 2015 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit rating of ‘AA+(ZA)’ with a Stable outlook to the following Group 1 Notes:

  • R200m Senior Secured Note, stock code VKE02, maturity 8 May 2016;
  • R240m Senior Secured Note, stock code VKE03, maturity 8 May 2017;
  • R380m Senior Secured Note, stock code VKE06, maturity 8 May 2018; and
  • R200m Senior Secured Note, stock code VKE07, maturity 8 June 2020.

RATING RATIONALE

GCR has been advised that Vukile Property Fund Limited (‘Vukile’) has disposed of the Cape Town Pinelands Pinepark property (Erf 2244 Pinelands valued at R26.6m in September 2014) in compliance with the covenants applicable to the disposal of Properties in accordance with the terms and conditions of the Group 1 Notes Property Portfolio.

The Group 1 Property Portfolio of the Transaction is of a diversified nature, comprising a mix of office/commercial (25.6%), industrial (21.4%), retail (28.8%) and mixed use (24.2%) properties. Vukile’s Group 1 Property Portfolio recorded a 7.5% rise in the market value to R3.83bn as at 30 September 2015 from R3.57bn as at 30 September 2014. Vukile had 11 assets (R1.38bn) in the Group 1 Property Portfolio valued in March 2015 and the remaining 15 (R2.45bn) properties valued during September 2015. Vukile’s properties are valued every six months on a rotational basis by independent external valuers (Broll, Jones Lang LaSalle, Knight Frank and Quadrant Properties).

The rating of the Secured Notes is derived by applying a notching approach, starting from the long term senior unsecured corporate credit rating of the Issuer. The Issuer is currently rated ‘A(ZA)’ and ‘A1(ZA)’ on the long and short term scales respectively, with the long term rating being on Positive outlook. Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 100% carries the qualification “Excellent Recovery Prospects”. A four notch rating uplift on the national scale is deemed to be appropriate for the Transaction. Accordingly, GCR has accorded and affirmed a final, public Long Term rating of ‘AA+(ZA)’ to the Group 1 Notes, with a Stable outlook.

ANALYTICAL CONTACTS

Corné Els

Structured Finance Analyst

+27 11 784 1771

CorneE@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – revised Oct ’15;

Vukile Property Fund Ltd Senior Secured New Issuance Report – May ’15;

Global Master Criteria for Rating Corporate Entities – Feb ’15;

Global Summary Criteria for Rating Property Funds – Apr ’15; and

Vukile Property Fund Ltd Rating Report – Feb ’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/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.

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

Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
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.
Borrower The party indebted or the person making repayments for its borrowings.
Claim A formal request or demand.
Conduit A commercial lending entity that is established to purchase assets to securitise.
Corporate Credit Rating A credit rating accorded to a corporate entity.
Covenant A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.
Credit A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
Debt An obligation to repay a sum of money.
Debtor The party indebted or the person making repayments for its borrowings.
Enforceable To make sure people do what is required by a law or rule et cetera.
Indemnity A security or protection against a loss or other financial burden.
Issuer The party indebted or the person making repayments for its borrowings.
Lease Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.
Lender A credit provider that is owed debt obligations by a debtor.
Lessee The party that enjoys temporary use of a corporeal thing.
Lessor The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
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. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
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 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.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Notching A movement in ratings.
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.
Property Movable or immovable asset.
Provision An amount set aside for expected losses to be incurred by a creditor.
Ranking A priority applied to obligations in order of seniority.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Redemption The repurchase of a bond at maturity by the issuer.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
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.
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.
Senior A security that has a higher repayment priority than junior securities.
Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
Servicing The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.
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.
Transaction A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.


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 Arranger and the Issuer 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 Arranger and the Issuer with no contestation of the rating.

The information received from the Arranger / Issuer:

  • Compliance Certificate for September 2015;
  • Updated Borrower Indemnity Schedule.

https://globalratings.net/uploads/files/201511_Vukile_PF_Limited_Group_1_Notes.pdf

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