GCR Affirms LAPO MFB SPV Plc’s Series 1 Bonds Rating of BBB+(NG).

31 Jan 2019 In Rating Notifications

GCR Affirms LAPO MFB SPV Plc’s Series 1 Bonds Rating of BBB+(NG).

Lagos, 29 January 2019—Global Credit Ratings has affirmed the national scale long term rating of BBB+(NG) accorded to LAPO MFB SPV Plc’s N3.15bn Series 1 Bonds, issued under LAPO MFB SPV Plc’s N20bn Debt Issuance Programme; with a Stable Outlook. The rating is valid until September 2019.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above final credit rating based on the following key criteria:

Notwithstanding that the Series 1 Bonds are being issued by LAPO MFB SPV Plc (“the Issuer”), repayment of the obligations under the Issue ultimately depends on the performance of LAPO Microfinance Bank Limited (“LAPO Mfb” 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 Trust Deed. Consequently, cognisance must be taken of LAPO Mfb’s credit profile.

The Sponsor’s stable funding in the form of equity and member deposits lessens the risk of the bank failing. Liquidity is adequate based on the contractual maturity profile of its assets and liabilities. Assets are staggered to match maturity of labilities, resulting in positive liquidity gaps across all maturity buckets.

LAPO Mfb’s profitability curve trended downward in FY17, having maintained an upward slope in the preceding five years. Although total operating income grew by 13.6% to N27.4bn in FY17, this was neutralised by a notable 70.5% and 21.7% rise in impairment charge and operating expenses respectively. Consequently, net profit before tax ended down at N5.7bn, representing a year-on-year 14.4% decline. Both interest and non-interest income ended at 73.6% and 92.5% respectively of budget at 1H FY18, while operating expenses and impairment charge were closer to budget at annualised 90.3% and 89.7% respectively, thus suppressing performance at the pre-tax level to barely annualised 12.5%.

Cognisance has also been taken of the unsubordinated and unsecured nature of the Bonds (“LAPO Mfb Bonds”) issued to the Issuer by the Sponsor, which will rank at par with all senior unsecured indebtedness and the claims of depositors of the bank. Accordingly, the Series 1 Bonds have been accorded a final, public national scale long-term rating of BBB+(NG), in line with the Sponsor’s rating.

Per the performance reports provided by the Trustee to the Bondholders, in the period to 30 June 2018, the Issuer has met all its obligations under the Series 1 Issuance on a timely basis.

In the absence of a third party guarantee, timely honouring of the Issuer’s obligations under the Issue 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/or a downgrade of the Sponsor’s rating, could trigger a negative rating action.

 

NATIONAL SCALE RATINGS HISTORY                                                                

Initial/last rating* (February 2018)                                             
Long term: BBB+(NG)                                                                                   
Outlook: Stable                                                      

• Final rating.

ANALYTICAL CONTACTS
Primary Analyst                                                 Committee Chairperson
Julius Adekeye                                                     Dave King
+23 41 904-9462-3                                               .(JavaScript must be enabled to view this email address)
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Global Criteria for Rating Microfinance Institutions, updated March 2017
LAPO Mfb rating report, 2018
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, LAPO MFB SPV Plc, and therefore, GCR has been compensated for the provision of the rating.

LAPO Microfinance Bank Limited (the Sponsor) 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 LAPO MFB SPV Plc and LAPO Microfinance Bank Limited.

The information received from LAPO MFB SPV Plc and LAPO Microfinance Bank Limited to accord the credit rating included the Sponsor’s 31 December 2017 audited annual financial statements (plus four years of comparative numbers), the unaudited management accounts of the Sponsor for six month period (up to June 2018), Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 1 Trust Deed, the Series 1 Supplemental Shelf Prospectus, the Master Bonds Purchase Agreement, as well as up-to-date performance report from the Trustees.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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