GCR Accords FSDH FUNDING SPV PLC’s Series 1 Bonds a Rating Of A-(NG)

11 May 2016 In Rating Notifications

GCR Accords FSDH FUNDING SPV PLC’s Series 1 Bonds a Rating Of A-(NG)

Lagos, 05 May 2016—Global Credit Ratings has accorded an indicative*, public national scale long-term rating of A-(NG) to FSDH FUNDING SPV PLC’s Series 1 N15bn Bonds; with the outlook accorded as Stable. The rating is valid until September 2016.

RATING RATIONALE

Global Credit Ratings has accorded the above indicative, public credit rating based on the following key criteria:

Notwithstanding the fact that Issuer is FSDH FUNDING SPV PLC, repayment of the obligations under the Series 1 Bond Issue ultimately depends on the performance of FSDH Merchant Bank Limited (“FSDH” or “the bank” or “the Sponsor”), as the direct obligor of the Issue. The Sponsor irrevocably and unconditionally undertakes to the Trustee the due and punctual payment (in accordance with the Trust Deed) of the principal of and interest on all Bonds and of any other amounts payable by the Issuer under the Deed. As such, cognisance must be taken of FSDH’s credit standing, competitive strength and financial position.

FSDH reported net income of N5.4bn for F15, translating to 105% growth over the previous year’s figure. Performance at the total operating income (“TOI”) level improved year-on-year by 29.3%, supported by improvement in net interest margin, and an increase in net interest income as a proportion of TOI to 53.2% (F14: 36.5%). Net gains from foreign exchange trading fell 353.3% to N469.8m, significantly constraining non-interest income growth in F15. In addition, the bank’s impairment charge increased 3.7 times, while operating expenses also rose by 13.3%, primarily driven by increases in staff related costs. Nevertheless, FSDH closed the year with an after tax profit of N3.4bn, representing a 35.6% growth over F14.

The accorded rating is supported by the senior nature of the underlying FSDH Senior Unsecured Notes (to be purchased with the proceeds of the Series 1 Bonds), which are backed by an irrevocable and unconditional undertaking by FSDH, which effectively guarantees the timely honouring of all its obligations under the Issue. Thus, the Series 1 Bonds have been accorded an indicative national scale long-term rating of A-(NG), with Stable outlook, in line with the Sponsor’s rating.

A legal opinion from the solicitor to the Trustees of the Series 1 Bonds confirms that the undertaking provided by FSDH in respect of the FSDH Senior Unsecured Notes is valid and enforceable against it under the provisions of Nigerian law. The rating accorded should not be viewed as a replacement of the legal advice that investors should seek on the validity and enforceability of the Transaction Documents/undertaking.

Timely honouring of the obligations under this Issuance is dependent on the performance of the Sponsor. Hence, the accorded rating would be sensitive to a positive rating action on the Sponsor. Non-compliance with covenants, and a downgrade of the Sponsor’s rating could trigger a negative rating action.

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


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (not applicable)
Long term: (first time/new rating)
Outlook: (first time/new rating)

ANALYTICAL CONTACTS

Primary Analyst                                                       
Julius Adekeye                                                          
+23 41 462 2545                                                        
.(JavaScript must be enabled to view this email address)


Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 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; 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 as indicated by the applicable credit rating document.

The rating was solicited by, or on behalf of, FSDH FUNDING SPV PLC, and therefore, GCR has been compensated for the provision of the rating.

FSDH Merchant Bank 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 rating was disclosed to and not contested by FSDH Merchant Bank Limited.

The information received from FSDH Merchant Bank Limited to accord the credit rating included the Sponsor’s 31 December 2015 audited annual financial statements (plus two years of comparative numbers), the Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 1 Trust Deed, the Series 1 Pricing Supplement, the Deed of Undertaking, as well as the Master Notes Issuance Agreement.

 

 

 

 

 

 

 

 

 

 

 

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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