Corporate Market Notifications Rating Alerts

GCR affirms Basil Read Holdings Limited’s rating at BB-(ZA); Negative outlook and Withdraws ratings

Johannesburg, 20 December 2017 — Global Credit Ratings has today affirmed the national scale Issuer ratings assigned to Basil Read Holdings Limited at BB-(ZA) and B(ZA) in the long term and short term respectively; with the outlook accorded as Negative.

At the same time GCR has withdrawn all of the ratings, at the request of the client, which follows the privatisation of its corporate bond.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Basil Read Holdings Limited (“Basil Read”) based on the following key criteria:

In GCR’s market announcement dated 13 September 2017, GCR highlighted the severe deterioration in Basil Read’s credit risk profile, as a result of which the long term national scale Issuer rating was downgraded from BBB-(ZA) to BB-(ZA) and placed on Negative outlook. The rating action factored in the protracted challenging market conditions and the uncertainty with respect to Basil Read’s ability to execute on its planned restructuring to stabilise the business.

Today’s rating update takes into consideration the SENS release on 6 December 2017, which details that Basil Read has entered into a debt standstill agreement with its major unsecured creditors for the period 1 December 2017 to 31 May 2019. This agreement is intended to facilitate ongoing creditor negotiations and includes certain milestones and conditions that need to be met, while the group still looks to restructure its funding and corporate profile. To this end, Basil Read had planned to recapitalise the balance sheet before year-end 2017, however, the necessary authorisations and specific shareholder resolutions required has taken longer than anticipated. Nevertheless, the group is well advanced with its c.R300m rights offer plan, which it expects to initiate in early 2018. In the interim, the second tranche, R89m of the R150m IDC bridging loan has been received following the debt standstill, with the forthcoming rights offer proceeds to be used to first pay this off and then to fund working capital.

If successful, the recapitalisation will provide short term liquidity support and demonstrates the group’s ability to access various sources of capital. Nevertheless, GCR notes the continued difficulties faced by Basil Read within the current adverse environment, and accordingly the ratings remain on Negative outlook.

NATIONAL SCALE RATINGS HISTORY    

Initial Rating (March 2008)

   
Long term: A-(ZA)

Short term: A2(ZA)

   
Outlook: Stable    

Last rating (September 2017)

Long term: BB-(ZA)

Short Term: B(ZA)

Outlook: Negative

   

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Sheri Few   Eyal Shevel
Senior Analyst: Corporate Ratings   Sector Head: Corporate Ratings
(011) 784-1771   (011) 784-1771
few@globalratings.net   shevel@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for rating corporate entities, updated February 2017

Basil Read Issuer rating reports, 2008- June17

GCR Rating Announcement Basil Read Holdings Limited, 13 September 2017

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.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY>

Balance Sheet Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Bond A long term debt instrument issued by either a company, institution or the government to raise funds.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
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.
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.
Downgrade The assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.
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. 
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.
Privatisation The sale of state-owned businesses to the private sector by a government.
Rights Issue One of the ways that a company can raise additional funds is to issue new shares. These must be first offered to current shareholders and a rights issue allows a shareholder to buy shares in proportion to the number already held. 
Risk The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.
Tranche Used to mean an allocation or instalment of a larger loan facility. Tranches of the same debt programme may differ from each other because they pay different interest rates, mature on different dates, carry different levels of risk, or differ in some other way.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Basil Read Holdings Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Basil Read Holdings Limited with no contestation of the ratings.

The information received from Basil Read Holdings Limited and other reliable third parties to accord the credit ratings included:

  • SENS release 5/12/2017: Execution of debt standstill agreement.
  • SENS release 2/11/2017: Renewal of cautionary announcement, distribution of circular and revised pro formas.
  • SENS release 27/09/2017: Amendment to agreement relating to a specific repurchase and special resolutions to implement the specific repurchase.
  • Other non-public information

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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