GCR assigns Primero Transport Services Limited an initial issuer rating of B+(NG); Outlook Stable.

23 Apr 2019 In Rating Notifications

GCR assigns Primero Transport Services Limited an initial issuer rating of B+(NG); Outlook Stable.

Lagos Nigeria, 23 April 2019 — Global Credit Ratings has assigned national scale issuer ratings of B+(NG) and B(NG) in the long term and short term respectively to Primero Transport Services Limited, with the outlook accorded as Stable. The ratings are valid until April 2020.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Primero Transport Services Limited (“Primero TSL”, “the Company”) based on the following key criteria:

Incorporated in September 2014, Primero TSL is the sole operator of the Bus Rapid Transit Scheme in Lagos, Nigeria, with an exclusive franchise from Lagos State Government (through Lagos Metropolitan Area Transport Authority (“LAMATA”) to run on the 33.5km dedicated corridor from Ikorodu to Tafawa Balewa Square. The initial franchise was executed in January 2016 for a period of 5 years, and has been further extended to 2029, with options for further renewal.

The ratings are currently curtailed by Primero TSL’s failure to service trade facilities drawn from Sterling Bank Plc and debt restructure that this necessitated. Primero TSL intends to improve its debt maturity profile through an initial N21.5bn, seven-year bonds, which will be used to refinance 100% of existing bank debt, with the balance mostly dedicated to working capital.

Primero TSL is highly undercapitalised, relying on high levels of debt and gearing to fund its capital-intensive bus operator model. As debt is predominantly USD-denominated, it continues to reset in Naira terms, rising from N14.3bn after the acquisition of the main bus fleet at FY16 to N23bn at FY18. In view of plans to invest in new operating lines, Primero TSL’s funding profile is severely constrained in the absence of material shareholder support.

Revenue primarily derives from an exclusive licence to operate the LAMATA’s Bus Rapid Transit Scheme from Ikorodu to Tafawa Balewa Square in Lagos. As Primero’s operational stability depends on its ability to continue to meet the contractual requirements (including the LAMATA’s approved fares), prospect for sustainable earnings is considered to be weak despite strong demographics supporting the model.

The view is further borne out by a volatile top line (partly due to funding challenges and trading volumes trending below critical mass), while the pricing structure does not cater for imported inflationary pressures deriving from the cost of fuel and spare parts (inter alia).

Although historical margins were aligned with those of certain peers, EBITDA is yet to cover Primero TSL’s high finance charge, with volatile debt service expected to persist over the rating horizon despite planned debt reprofiling.

Sizeable depreciation provisions point to the considerable amount of additional capital that is required to meet a contractual commitment to replace the bus fleet, in addition to investment in 300 buses for an additional route secured. Primero TSL will conceivably have to draw this from debt funders, especially as internal cash generation/capital accumulation are expected to remain restricted over the rating horizon. Cash flows realised from asset disposals have been considered, although these are not expected to contribute materially to the capex requirement.

The Company has benefited from the relative stability in the political terrain and transportation policies in Lagos State. This notwithstanding, a change in the political environment and ideology, which leads to a regulatory change, will likely affect Primero TSL’s operations.

Critical for an improved rating is an equity injection that materially reduces the reliance on debt ahead of material capex and at a time when Primero TSL is yet to achieve sustainable profitability. Successful access to debt capital markets, alleviating refinancing risk. Conversely, protracted losses, combined with the current funding structure will continue to constrain the ratings/could result in further defaults.

NATIONAL SCALE RATINGS HISTORY

Initial/new rating (April 2019)
Long-term: B+(NG)
Short-term: B(NG)
Rating outlook:  Stable

Last rating: n/a

ANALYTICAL CONTACTS

Primary Analyst
Femi Atere
Credit Analyst
.(JavaScript must be enabled to view this email address)
+234 1 9049462


Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Glossary of Terms/Ratios, February 2018


RATING LIMITATIONS AND DISCLAIMERS

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/RATINGS-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 AT WWW.GLOBALRATINGS.COM.NG


SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings are valid till April 2020.

 

Primero Transport Services 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 ratings haves been disclosed to Primero Transport Services Limited.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

The information received from Primero Transport Services Limited and other reliable third parties to accord the credit ratings included:
- 2017 audited annual financial statements, and two years audited financial statements;
- Unaudited company’s management accounts for the full-year 2018;
- Internal management reports;
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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/RATINGS-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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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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