GCR accords indicative Bond ratings of BBB(NG) to Mixta Real Estate Plc’s proposed Bond Issues

31 Aug 2016 In Rating Notifications

GCR accords indicative Bond ratings of BBB(NG) to Mixta Real Estate Plc’s proposed Bond Issues

Lagos, 31 August 2016—Global Credit Ratings has assigned indicative public ratings of BBB(NG) to the proposed Series 1 Bonds and Series 2 Bonds; with the outlook accorded as Stable. The indicative bond ratings expire in December 2016. The assigned, indicative public ratings are 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 ratings accorded. The final Bond ratings will be accorded upon receipt of satisfactorily signed and executed transaction documents.


RATING RATIONALE

Global Credit Ratings has accorded the above indicative credit ratings on Mixta Real Estate Plc (“Mixta Nigeria” or the “Group” or “the Issuer”) proposed Senior Unsecured Series 1 Bonds and Series 2 Bonds 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”). 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 scale property development company, in line with its strategy to grow the Group’s real estate business and exploit opportunities in the industry across the African continent. Following the acquisition, ARM transferred its holdings in ARM Properties Plc to Mixta Africa. ARM Properties Plc subsequently underwent a name change to Mixta Real Estate Plc, with Mixta Nigeria as the brand. The Group has successfully delivered over 3,100 real estate assets (homes, plots and retail outlets/centres) to end-buyers since 2000.

The Issuer has filed 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”). Under the Programme, bonds will be issued in series, with an initial N15bn expected to be raised in two tranches of N5bn (Series 1 Bonds) and N10bn (Series 2 Bonds). The net proceeds from both Issues will be applied towards refinancing expensive debt and the funding of ongoing expansion projects.

As the Series 1 Bonds and Series 2 Bonds will be direct, unconditional, senior and unsecured obligations of Mixta Nigeria, the Bonds will bear the same rating as the Issuer, and any change in the long term rating assigned to the Issuer will directly affect the Bonds ratings. Mixta Nigeria was assigned a long term Issuer rating of BBB(NG) in June 2016, with a Stable outlook.

The Programme Trust Deed (“PTD”) features a negative pledge and other covenants, to protect the interests of bondholders. GCR has taken cognisance of the cash collection mechanism through the Debt Service Reserve Account (“DSRA”). While this offers some short term protection, it would only delay a default on the Bonds, not prevent it. Thus, its features are not sufficient to warrant a notching up of the Bonds ratings.

As is typical of the industry, Mixta Nigeria reflects a protracted revenue recognition period and cash conversion cycle. Margin and earnings growth are dependent on the level of infrastructural enhancement and nature of sales. Despite lower revenue in F15, the gross and EBITDA margins improved to 39.1% and 19.3% respectively [10-month period to December 2014 (“YTD14”): 11.8% and 7.5%], before declining to 27.9% and 15.7% respectively in the six month period to June 2016 (“1H F16”). Management expects gross and EBITDA margins to average 15.1% and 10.4% respectively between F16 and F18.

From a previously ungeared position, net gearing increased from 69% at FYE15 (YTD 14: 56%) to 81% at 1H F16, however, additional equity and firmer earnings is expected to see net gearing trend below 25% over the forecast period. Net debt to EBITDA has been reported above 2,500% since YTD14, reflecting significant earnings drag. Although leading metrics show much lower earnings based gearing through the cycle, Mixta’s lumpy project pipeline currently distorts cash flows and debt serviceability. If this persists, it would curtail adherence to covenants, limiting the use of material bank facilities to improve funding flexibility. GCR notes the Issuer’s plans to augment its pipeline to minimise income volatility, which if achieved, could positively impact the ratings.

NATIONAL SCALE RATINGS HISTORY
Initial rating/Last rating (June 2016)
Issuer long term: BBB(NG); Issuer short term: A3(NG); Outlook: Stable
Series 1 Bond long term: n.a; Outlook: n.a
Series 2 Bond long term: n.a; Outlook: 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
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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 indicative bond ratings expire in December 2016

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 indicative bond ratings have been disclosed to Mixta Real Estate Plc with no contestation of the ratings.

The information received from Mixta Real Estate and other reliable third parties to accord the indicative bond rating(s) included:
- the 2015 audited annual financial statements (plus four years of comparative numbers),
- the unaudited 6-months’ management accounts to June 2016,
- budgeted financial statements for the years 2016 to 2022,
- a completed rating questionnaire containing additional information on Mixta Real Estate Plc,
- in respect of the Bond programme: the Draft Programme Trust Deed, Draft Series 1 Trust Deed, Draft Series 2 Trust Deed, Draft Shelf Prospectus, Draft Series 1 Supplementary Shelf Prospectus, Draft Series 2 Supplementary Shelf Prospectus, reporting accountants report on historical financial statements.

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.

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