GCR Affirms Nigeria Mortgage Refinance Company Plc’s Rating Of BBB+(NG).

19 Jul 2016 In Rating Notifications

GCR Affirms Nigeria Mortgage Refinance Company Plc’s Rating Of BBB+(NG).

Lagos, 19 July 2016—Global Credit Ratings has affirmed the national scale long term rating of BBB+(NG) to Nigeria Mortgage Refinance Company Plc and assigned the national scale short term rating of A2(NG). The ratings have been placed on Rating Watch. The ratings are valid until 12/2016.

RATING RATIONALE

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

Nigeria Mortgage Refinance Company Plc (“NMRC” or “the company”) is a private sector entity with a public purpose, with two public sector related entities currently owning 39.7% of its shares. Hence, the likelihood of government support for the company, as demonstrated by the guaranteeing of its maiden debt issuance programme by the Federal Government of Nigeria, has been favourably considered.

While the company’s governance structure is considered strong in terms of the profile of the members of the Board of Directors, an enhanced mechanism for managing and preventing conflicts of interest is required, considering the fact that over 50% of NMRC’s shares are jointly owned by Nigerian primary mortgage banks. Thus, the recent appointment of independent directors to the board is considered positively.

NMRC has been progressing well with the implementation of its maiden five-year strategic plan, having recorded significant progress in its market development activities (including the development and successful testing of a generally accepted Uniform Underwriting Standard (“UUS”)), the successful issuance of the first tranche under its N140bn debt issuance programme (fully backed by an FGN guarantee), and the commencement of mortgage refinancing activity, presently focusing on the purchase of legacy loans with recourse to lenders.

Although the prescribed eligibility criteria as per the UUS have not been fully met by the mortgages refinanced thus far, credit risk has been well managed via the adoption of stringent acceptance criteria, with nil non-performing loans (“NPLs”) reported as at 31 December 2015.

NMRC’s total shareholders’ funds amounted to N7.8bn at 31 December 2016, representing growth of 10.2% over the previous year’s level (underpinned by internal capital generation). Hence, the company ended the year with strong Tier 1 and total risk weighted capital adequacy ratios of 47.9% and 61.0% respectively. Despite this strong capital position, the company is planning to raise additional equity capital in 3Q F16, with the objectives of broadening its ownership base to include Development Financial Institutions, and further strengthening its capital base to support its borrowing capacity.

NMRC’s performance was constrained by the delayed conclusion of its maiden debt issue, and the institution’s inability to fully deploy the proceeds of the debt Issue (due to non-availability of eligible mortgages) in F15. Consequently, total operating income of N2bn was recorded for the year, translating to 83.9% of the forecast. Overall, an after tax profit of N483m was reported for the F15 year (slightly surpassing forecast), and ROaE and ROaA were 6.5% and 1.9% respectively.

The establishment and sustenance of a strong financial track record, together with clear evidence of implementation of the mandate, would be positively considered. A negative rating action may follow a significant underperformance of the financial projections, evidence of management’s inability to fully implement the proposed business plan and operational structure, or a reduction in the likelihood of government support.

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (May 2015)
Long term: BBB+(NG)
Outlook: Stable


ANALYTICAL CONTACTS

Primary Analyst                                                                                                                                                 
Julius Adekeye                                                                                                                                                
+23 41 462 2545                                                                                                                                          
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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 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 validity of the rating is for 12 months, or as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of Nigeria Mortgage Refinance Company Plc, and therefore, GCR has been compensated for the provision of the ratings.

Nigeria Mortgage Refinance Company Plc participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to Nigeria Mortgage Refinance Company Plc with no contestation of/changes to the ratings.

The information received from Nigeria Mortgage Refinance Company Plc and other reliable third parties to accord the credit rating included the audited annual reports for the year ended 31 December, 2015 and the company’s 5-year strategic plan. In addition, other information specific to the rated entity and/or industry was also received.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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://GLOBALRATINGSCOM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGSCOM.NG/RATINGS-INFO/RATING-SCALE-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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