GCR accords indicative ratings of AA-(NG) to Lafarge Africa Plc’s proposed Series 1 & 2 Bond Issues

03 May 2016 In Rating Notifications

GCR accords indicative ratings of AA-(NG) to Lafarge Africa Plc’s proposed Series 1 & 2 Bond Issues

Lagos, 3 May 2016—Global Credit Ratings has accorded indicative public ratings of AA-(NG), with Stable outlooks, to Lafarge Africa Plc’s proposed Series 1 bond and Series 2 bond Issues respectively. The indicative bond ratings expire in August 2016. The final bond ratings will be accorded upon receipt of satisfactorily signed and executed transaction documents. GCR has also affirmed Lafarge Africa Plc’s long term and short term issuer ratings of AA-(NG) and A1+(NG), with a Stable outlook. The ratings expire in August 2016.


RATING RATIONALE

Global Credit Ratings has accorded the above indicative credit rating(s) on Lafarge Africa Plc’s (“LAP” or “Issuer”) proposed Senior Unsecured Series 1 Bonds and Series 2 Bonds based on the following key criteria:

Lafarge Africa Plc in its enlarged form was formed in September 2014 through the acquisition of the affiliate companies and equity interests held by its parent company, Lafarge S.A., in Nigeria and South Africa.

Lafarge Africa Plc is initiating a N100bn Bond Issuance Programme, with an initial N60bn expected to be raised in two tranches of N25bn and N35bn respectively in 2016. Actual amounts will be firmed up following book building. The net proceeds from both Issues will be applied towards refinancing of United Cement Company of Nigeria Limited’s (“UniCem”) UniCem’s local currency and USD denominated bank loans.

As the Series 1 and Series 2 Bonds will be senior unsecured obligations of the Issuer, and the bond programme features a negative pledge, 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 ratings.  The long term Issuer rating was affirmed at AA-(NG) in April 2016.

LAP’s leading position in the Nigerian cement market is underpinned by an established international brand, its long history of operations (over 50 years), robust fixed infrastructure, effective distribution network and operational support from parent, LafargeHolcim. Following the global merger of Lafarge S.A and Holcim in 2015, all Nigerian companies are now fully integrated, with a unified management team overseeing operations nationwide. Positively, LAP has an increased greater geographic footprint including the well-established South African operations. Nigeria remains the major area of operations, accounting for 72% of turnover and 92% of operating profit in F15 (F14: 71% and 88%). According to management, the cost savings resulting from Group synergies are anticipated to reach N8bn-N10bn over the medium term. Positively, LAP has significant cash generative capacity and robust equity (N174.6bn at FYE15), while the anticipated commissioning of the additional 2.5Mtpa capacity in 2H F16 bodes positively for earnings over the medium term. Installed cement capacity is anticipated to reach 18Mtpa by 2018, in addition to strong market leading positions in aggregates, ready mix concrete and fly ash.

Despite the challenging operating environment and overall slowdown in infrastructural development, LAP’s revenue increased moderately by around N6.4bn to N267.2bn in F15, following mixed performance within the Group. Competitive pressures were especially evident in 4Q F15 and prices were adjusted downward to sustain market share. Management has indicated that price levels across the board should revert to more normal levels in F16. As a result of the restructuring exercise, LAP was right sized, and incurred significant one-off staff costs with respect to gratuity and terminal benefits. Overall, the operating margin dipped to 19.3% in F15 (F14: 20.7%), leading to a 4% decline in operating profit to N51.6bn. Net interest reduced to 5.7x in F15 (F14: 6.8x), albeit firm.

As a result of the merger, UniCem’s N136bn debt has been consolidated into the Group numbers, pushing up total debt to N148.3bn at FYE15, from just N28.3bn at FYE13. From a net ungeared position at FYE13, net gearing increased 76% at FYE15 (FYE14: 58%). Net debt to EBITDA also increased from 145% at FYE14 to 194% at FYE15. Although these metrics are within acceptable levels for highly rated corporates, upward rating migration is not considered likely until Group debt is reduced to management targets in the medium term. Over 95% of LAP’s gross debt is long term, with maturities ranging from 2018 to 2025. Although UniCem’s bank loans are not immediately due for repayment, LAP intends to refinance them at a lower interest rate using proceeds from the Series 1 bonds and Series 2 bonds. Budgets indicate that debt should reduce annually to the N62bn level by FYE19.

The Nigerian cement market is anticipated to report solid growth of 7%-10% in view of the significant housing deficit and the Federal Government’s renewed focus on infrastructural development. Although the South African market is expected to remain challenging, management is implementing various strategies aimed at expanding sales and profitability.

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 ratings will be accorded upon receipt of satisfactorily signed and executed transaction documents.


NATIONAL SCALE RATINGS HISTORY
Initial rating (July 2010)
Issuer long term: A(NG); Issuer short term: A1(NG); Outlook: Stable
Series 1 Bond long term: n.a; Outlook: n.a
Series 2 Bond long term: n.a; Outlook: n.a

Last rating (October 2015)
Issuer long term AA-(NG); Issuer short term: A1+(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 Credit Analyst
Lagos
+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
Lafarge Cement WAPCO Nigeria Plc Rating Reports, 2010 to 2015
Glossary of terms/ratios, February 2015


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 Issuer and indicative ratings expire in August 2016

Lafarge Africa 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 credit rating/s has been disclosed to Lafarge Africa Plc with no contestation of the rating.

The information received from Lafarge Africa Plc and other reliable third parties to accord the credit rating included:
- the 2015 audited annual financial statements (plus four years of comparative numbers),
- budgeted financial statements for the years 2016 to 2020,
- a completed rating questionnaire containing information on the Issuer,
- 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.

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