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

17 Aug 2017 In Rating Notifications

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

Lagos, 16 August 2017—Global Credit Ratings has accorded an indicative, public national scale long term rating of BBB+(NG) to LAPO MFB SPV Plc’s N6.0bn Series 1 Bonds under LAPO MFB SPV Plc’s N20bn Debt Issuance Programme; with a Stable Outlook. The rating is valid until February 2018.

RATING RATIONALE

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

Notwithstanding that the Series 1 Bonds are being issued by LAPO MFB SPV Plc, 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 standing, competitive strength and financial position.

LAPO Mfb recorded steady improvement in profitability in the five year review period to FY16. Performance in FY16 was mainly revenue driven, as an increase in earning assets delivered a strong 37.7% rise in interest revenue to N23.9bn. Despite a significant 28.2% escalation in operating expenses (driven by staff related and traveling costs) and additional pressure from impairment charge rise, the bank ended with a pre-tax profit of N6.7bn, representing a 38.1% improvement over FY15. An unaudited pre-tax profit of N3.4bn was reported for the first half of FY17, translating to annualised 70.1% of the full year budget.

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

A legal opinion from the solicitor to the Trustees of the Series 1 Bonds confirms that the undertaking provided by LAPO Mfb in respect of LAPO MFB SPV Plc’s Series 1 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.

# 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 (July 2017)

Long term: BBB+(NG)

Outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst

+Julius Adekeye

+23 41 462 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

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

Global Criteria for Rating Microfinance Institutions, updated March 2017

LAPO Mfb 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, 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 2016 audited annual financial statements (plus four years of comparative numbers), the unaudited management accounts of the Sponsor for six month period (up to June 2017), Master Trust Deed for the Debt Issuance Programme, the Programme Shelf Prospectus, the Series 1 Trust Deed, the Series 1 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.

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