GCR Assigns Final Rating of BBB(NG) to FCMB Financing SPV Plc’s Series 3 Bonds.

28 Feb 2017 In Rating Notifications

GCR Assigns Final Rating of BBB(NG) to FCMB Financing SPV Plc’s Series 3 Bonds.

Lagos, 28 February 2017—Global Credit Ratings has accorded a public national scale long term rating of BBB(NG) to FCMB Financing SPV Plc’s N5.1bn Series 3 Debt Issuance Programme; with a Rating Watch. The rating is valid until 06/2017.

RATING RATIONALE

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

Notwithstanding that the Series 3 Bonds are being issued by FCMB Financing SPV Plc, repayment of the obligations under the Issue ultimately depends on the performance of First City Monument Bank Limited (“FCMB” 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. Consequently, cognisance must be taken of FCMB’s credit standing, competitive strength and financial position.

A reduction in FCMB’s net interest margin saw its net interest income decline to N62.8bn in F15, representing a 12.1% decline year-on-year. Non-funded revenue also declined by 10.3%, constraining performance at the total operating income level to N84.9bn (88.4% of the F14 result). While operating expense has remained relatively flat, escalation in the impairment charge saw the bank’s pre-tax profit shrink to N6.5bn, representing a 71.3% decline relative to F14. Overall, the bank’s ROaE and ROaA diminished to 4.0% and 0.5% in F15 (F14: 15.8% and 2.0 %) respectively. The bank registered a total comprehensive income of N11.2bn in the nine month period ended 30 September 2016, representing a significant improvement over the corresponding period in F15, as well as the F15 full year results. At the pre-tax level, the full year budget was outperformed by 11.6% on an annualised basis.

Cognisance has also been taken of the subordinated and unsecured nature of the FCMB Subordinated Bonds, to be issued to the Issuer by the Sponsor, ranking after all senior secured indebtedness (including the Series 2 Bonds) and the claims of depositors of the bank. Accordingly, the Series 3 Bonds have been accorded a final, public national scale long-term rating of BBB(NG), two notches below the Sponsor’s rating.

A legal opinion from the solicitor to the Trustees of the Series 3 Bonds confirms that the undertaking provided by FCMB in respect of the FCMB Subordinated Bonds is valid and enforceable against the bank 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/or a downgrade of the Sponsor’s rating could trigger a negative rating action.

NATIONAL SCALE RATINGS HISTORY                                                                

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


ANALYTICAL CONTACTS

Primary Analyst                                                                            Committee Chairperson
Julius Adekeye                                                                               Dave King
+23 41 462 2545                                                                             .(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 2016
FCMB rating report, 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, FCMB Financing SPV Plc, and therefore, GCR has been compensated for the provision of the rating.

FCMB Capital Markets Limited and First City Monument 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 FCMB Capital Markets Limited and First City Monument Bank Limited.

The information received from First City Monument Bank Limited and FCMB Capital Markets Limited to accord the credit rating included the Sponsor’s 31 December 2015 audited annual financial statements (plus three years of comparative numbers), audited interim financial statements for the nine months to 30 September 2016, the Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 3 Trust Deed, the Series 3 Supplemental Shelf Prospectus, as well as the Master Bonds Purchase 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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