GCR accords an initial rating of BBB(NG) to Mixta Real Estate Plc; Outlook Stable

17 Jun 2016 In Rating Notifications

GCR accords an initial rating of BBB(NG) to Mixta Real Estate Plc; Outlook Stable

Lagos, 16 June 2016—Global Credit Ratings has assigned initial national scale ratings to Mixta Real Estate Plc of BBB(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable.  The ratings expire in June 2017.

RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to Mixta Real Estate Plc (“Mixta Nigeria” or the “Group”) based on the following key criteria:

Mixta Nigeria commenced operations in February 2006 as a real estate investment fund promoted by Asset & Resource Management Company Ltd (“ARM”) and was subsequently converted to a property company in December 2007, under the name; ARM Properties Plc. ARM in turn was founded in 1994 as an asset management firm, with assets under management of over N640bn.  In 2015, ARM acquired Mixta Africa S.A. (“Mixta Africa”), a large property development company, in line with its strategy to grow the Group’s real estate business and exploit opportunities in the real estate industry across the African continent. ARM Properties Plc was merged with Mixta Africa in 2015, and underwent a name change to Mixta Real Estate Plc, with Mixta Nigeria as the brand.

Mixta Nigeria has evolved into a leading real estate development company, with a strong track record and diverse real estate portfolio, and operations spanning the residential, commercial and retail segments. As land costs account for around 40% of development expenses in the Nigerian real estate industry, Mixta Nigeria’s significant land bank (valued at around N56bn at FYE15) is positively considered. This allows for timely project take–off and is considered an important competitive edge. The Group has successfully delivered over 3,100 real estate assets (homes, plots and retail outlets/centres) to end-buyers since 2000.

As typical of the industry, Mixta Nigeria reflects a protracted revenue recognition period and a cash conversion cycle. Although all developments are sold on a pre-sales basis, income realised from off-plan sales are normally reported as deferred income pending completion. Revenue was reported at N6.5bn and N3.7bn at YTD14 (10 months period to December 2014) and F15 respectively. As at FYE15, the Group reported advance deposits totaling N9bn, with another N6.1bn expected as final instalment payments. Management expects revenue to increase to N9.4bn in F16 and to N13bn level by F17.

Margins and earnings growth are dependent on the level of infrastructural enhancement and nature of sales. Despite the lower revenue in F15, gross margin and EBITDA margin improved to 39.1% and 19.3% respectively (YTD14: 11.8% and 7.5%). Management expects the gross and EBITDA margins to average 15% and 10% respectively between F16 and F18 and to increase significantly thereafter as a greater quantum of large projects is completed.

The Group’s asset base has expanded considerably from N29.9bn at FYE10 to N118bn at FYE15, on the back of acquisitions, the roll out of large projects and significant investment in infrastructure. Accordingly, total debt has increased from just N1.2bn at FYE14 to N20.3bn at FYE15 (YTD14: N17.4bn), with 73% of the total being intercompany loans.

 

Mixta Nigeria is in the process of filing an application with the Securities and Exchange Commission (“SEC”) to issue bonds into the Nigerian capital market, under a N30bn bond issuance programme (“the Programme”). Bond proceeds will be used to fund Mixta Nigeria’s strategic objectives, to refinance a portion of its existing debt and to fast track the completion of ongoing projects. The debt profile is therefore expected to change materially in the short term.

From a previously ungeared position, Mixta reported moderate net gearing of 56% at YTD14 and 69% at FYE15. The Group’s net loan to value was low at 19% as at FYE15 (YTD14: 16%). Underpinned by an anticipated jump in equity to N71bn at FYE16, net gearing is expected trend below 25% over the forecast period as planned bond Issues will mainly be used to refinance existing debt.  Net debt to EBITDA was reported above 2,600% at YTD14 and FYE15, reflecting significant earnings drag. Although leading metrics show much lower earnings based gearing through the cycle, the Group’s lumpy project pipeline continues to distort cash flows and debt serviceability, and may curtail adherence to covenants, limiting use of material bank facilities to improve funding flexibility.

Positive rating action could emanate from the continued ability to develop and successfully deliver large scale projects which will smooth out margins and lead to strong internal cash generations. Combined with additional equity injections, this should see the reliance on debt reduced, with rolling net debt to EBITDA metrics declining to much more manageable levels. Conversely, project delays driving material cost overruns, subdued uptake of large developments or poor delivery, could place pressure on earnings and impair credit protection metrics, leading to possible rating downgrade.

NATIONAL SCALE RATINGS HISTORY
n.a


ANALYTICAL CONTACTS
Primary Analyst
Adekemi Adebambo
Senior Analyst
Lagos, Nigeria
+234 1 462 2545
.(JavaScript must be enabled to view this email address)

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


APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2016
Glossary of terms/ratios, February 2016


SALIENT FEATURES

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 ratings expire in June 2017.

 

Mixta Real Estate 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/s has been disclosed to Mixta Real Estate Plc with no contestation of the rating.

The information received from Mixta Real Estate Plc and other reliable third parties to accord the credit rating included:
- 2010-2015 audited annual financial statements,
- budgeted financial statements for the years 2016 to 2022,
- 3-month unaudited management accounts to March 2016,
- corporate governance and enterprise risk framework,
- industry comparative data
-a breakdown of facilities available and related counterparties.
-a completed rating questionnaire

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.


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 WWW.GLOBALRATINGS.COM.NG/RATINGS-INFO. 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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here