GCR Assigns Indicative Rating of BBB(NG) to Fortis Microfinance Bank Plc’s N10bn Bonds

22 Sep 2017 In Rating Notifications

GCR Assigns Indicative Rating of BBB(NG) to Fortis Microfinance Bank Plc’s N10bn Bonds

Lagos, 25 September 2017—Global Credit Ratings has accorded an indicative, public national scale long term rating of BBB(NG) to Fortis Microfinance Bank Plc’s N10bn Bonds; with a Stable Outlook. The rating is valid until January 2018.

RATING RATIONALE

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

Fortis’ strong competitive position in the Nigeria microfinance banking subsector, being one of only two microfinance banks (“MFB”) listed on the local bourse and one of eight MFBs licensed to operate nationally in the country presently. Fortis’ performance was mixed over the review period to FY16. Steady improvement in profitability was recorded in the three years to FY14, followed by declines in FY15 and FY16. An after tax profit of N571m was reported for the FY16 year, representing a 2.2% decline over FY15.

The rating of the Bonds is derived by applying a notching approach starting from the BBB-(NG) unsubordinated unsecured credit rating of the Issuer. Based on the estimated “Good Recovery Prospects”, of the authorised investments in an enforcement scenario, a rating uplift of one national scale notch has been deemed appropriate for this transaction.

The transaction mechanics entail the use of a maximum of 52% of the proceeds of the Issue for the growth of the Issuer’s loans and advances portfolio, and retail infrastructure enhancement, while the remainder (48%) are to be held in the Principal Repayment Account (“PRA”), to be invested in Federal Government of Nigeria (“FGN”) Securities.

A legal opinion from the solicitor to the Trustees of Fortis Microfinance Bank Plc N10bn Bonds confirmed that the obligations of the Trustees under the Bonds’ Trust Deed constitute legal, valid, binding, and enforceable obligations under the provisions of Nigerian law. Specifically, the legal opinion confirms that upon establishment of the PRA under the control of the Trustees, the Trustees will be empowered to exercise control over the PRA in accordance with the Trust Deed, and that in the event of failure by the issuer to perform its obligation under the Issue Documents, will be able to appropriate the Principal Reserve Amount, together with any interest thereon, in satisfaction of the obligations of the Issuer in accordance with the Trust Deed. 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.Notwithstanding that the Series 1 Bonds are being issued by LAPO MFB SPV Plc, repayment of the obligations

Compliance with covenants in addition to a positive rating action on the Issuer. Non-compliance with covenants would see the rating immediately drop to Default (“LD”).

# Indicative rating and outlook, to be converted to a final rating and outlook upon the receipt   of all final transaction documents.

 

NATIONAL SCALE RATINGS HISTORY

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

Outlook: (first time/new rating)

 

ANALYTICAL CONTACTS

Primary Analyst

Julius Adekeye  

+23 41 462 2545

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Committee Chairperson

Dave King

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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Banks and Other Financial Institutions, updated March 2016

Global Structurally Enhanced Corporate Bonds Rating Criteria, updated September 2016,

Global Criteria for Rating Microfinance Institutions, updated March 2017,

Fortis rating report, 2017

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, Fortis Microfinance Bank Plc, and therefore, GCR has been compensated for the provision of the rating.

Fortis Microfinance Bank Plc and Planet Capital Limited (the Lead Issuing House) 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 Fortis Microfinance Bank Plc.

The information received from Fortis Microfinance Bank Plc to accord the credit rating included the Issuer’s 31 December 2016 audited annual financial statements (plus four years of comparative numbers), unaudited interim financial statements for the three months to 31 March 2017, the draft Trust Deed for the Issue, draft legal opinions the transaction documents, as well as the draft Red Herring Prospectus for the Issue.

 

 

 

 

 

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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