GCR accords an indicative Bond rating of A-(NG) to Dufil Prima Food Plc’s proposed N20bn Bond Issue

08 Dec 2016 In Rating Notifications

GCR accords an indicative Bond rating of A-(NG) to Dufil Prima Food Plc’s proposed N20bn Bond Issue

Lagos, 7 December 2016—Global Credit Ratings has assigned an indicative public rating of A-(NG) to Dufil Prima Foods PLC’s (“Dufil”) proposed Series 1 N20bn Fixed Rate Bonds (‘the Bonds”); with the outlook accorded as Stable. The indicative bond rating will expire in May 2017.

The assigned indicative public rating of the Bonds are premised on its Senior Unsecured status. Should the status of the Bond differ from that initially contemplated, this could impact the final ratings accorded. The final rating will be accorded upon receipt of satisfactorily signed and executed transaction documents.

RATING RATIONALE

Dufil is in the process of issuing bonds into the Nigerian capital market, under a N40bn programme. The Bonds will be issued in Series, with Series 1 being a senior unsecured N20bn Issue. Proceeds are to be utilised to repay expensive short term debt and fund expansion. A preliminary filing has been carried out at the Securities and Exchange Commission (“SEC”), with the expected method of distribution being through Book Building. The Series 1 Bonds carry a five-year maturity, with semi-annual interest payment, while the principal will be settled through a bullet repayment upon maturity.

The Programme Trust Deed does not offer bondholders any security over assets or income streams but does feature a negative pledge and other covenants to protect the interest of bondholders. GCR has taken cognisance of the payment mechanism which requires the Issuer to fund the Payment Account four days to the Payment Date, although this leaves the bondholders with little protection or buffer against any adverse financial strain/shortfall in the Issuer’s cash flow position.

As the Series 1 Bonds will be senior unsecured obligation of the Issuer, the Bonds will bear the same rating as the Issuer, and any change in the rating assigned to the Issuer will directly affect the Bonds rating. Dufil was assigned Issuer ratings of A-(NG and A2(NG) in the long and short term respectively in June 2016, with the outlook accorded as Stable.

RATING RATIONALE OF THE ISSUER

Dufil is a major player in the Fast Moving Consumer Goods sector, manufacturing a diversified range of products. Aided by its well-structured marketing base and an effective distribution network, its products enjoy widespread acceptance in the market, with an estimated 69% market share in the noodles segment and rising presence in the other foods segment. This position is further enhanced by the support of major shareholders (98% of shareholding), the Tolaram and Salim Groups (headquartered in Singapore and Indonesia respectively), which operate businesses in many countries in Africa and South-East Asia.

Despite the challenging operating environment, Dufil reported a robust five-year compound annual growth rate of 26% in revenue. Growth was largely driven by rising production and higher traded volumes, with several new factories becoming operational over this period. Nevertheless, revenue advanced by a slower 16% to N103.9bn in F15 (F14: 32%), and registered an annualised 3% increase to N79.9bn in the nine months period to September 2016 (“YTD16”), representing 78% of budget. Scale economies from higher volumes has seen a consistent rise in profitability over the years, with the gross and operating margins peaking at 27.6% and 15.6% respectively in F14. However, F15 profitability was severely affected by the devaluation of the Naira, which made imports more expensive, whilst marketing and administrative spend was increased to combat the weaker consumer environment.

The reliance on borrowings to fund both expansion and working capital has seen gross debt rise from N14.2bn at FYE11 to N40.7bn at FYE15 and N47.4bn at YTD16. Consequently, gearing metrics are high (prevalent in the industry), with net gearing peaking at 466% at FYE14, before reducing to 399% at FYE15, whilst net debt to EBITDA deteriorated to 493% (FYE14: 254%).


NATIONAL SCALE RATINGS HISTORY

ANALYTICAL CONTACTS

Credit Analyst
Kunle Ogundijo
.(JavaScript must be enabled to view this email address)
Lagos
+23 41 462 2545

Committee Chairperson
Dave King
Chairman
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities (updated February 2016)
Dufil Prima Foods PLC Issuer rating report, June 2016
Dufil Prime Foods PLC Indicative Bond Rating Report, November 2016
Glossary of Terms/Ratios (February 2016)

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/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.COM.NG.

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; d) the ratings expire in May 2017.

Dufil Prima Foods Plc 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 rating has been disclosed to Dufil Prima Foods PLC with no contestation of the rating.

The information received from Dufil Prima Foods Plc to accord the credit rating included;
• 2015 audited annual financial statements (plus four years of comparative numbers),
• projections (operating and capital) for the years 2016 to 2020,
• unaudited management accounts to September 2016,
• a breakdown of facilities available and related counterparties.
• information specific to the rated entity and/or industry was also received.
• information relating to the proposed Bond Issue;
 draft trust deed
 draft prospectus
 draft series 1 trust deed
 draft series 1 pricing supplement

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES.  GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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