GCR downgrades Alpha Mead Funding Company Plc’s Issuer rating to BBB-(NG); Rating Watch.

10 May 2019 In Rating Notifications

GCR downgrades Alpha Mead Funding Company Plc’s Issuer rating to BBB-(NG); Rating Watch.

Lagos Nigeria, 10 May 2019 — Global Credit Ratings has downgraded the national scale long-term Issuer ratings assigned to Alpha Mead Funding Company Plc to BBB-(NG) and affirmed the national scale short-term Issuer ratings of A3(NG), with the outlook placed on ‘Rating Watch’. The ratings are valid until November 2019.


RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Alpha Mead Funding Company Plc (“AM-Funding” or “the Group”) based on the following key criteria:

AM-Funding comprises Alpha Mead Facilities and Management Services Limited (“AM-Facilities”), a facility management company; and Alpha Mead Development Company Limited (“AM-Development”), a real estate company. These entities are operationally integrated, with common shareholders, who have extensive experience in facility management and real estate business. AM-Funding is a special purpose vehicle incorporated to raise funds from the debt capital market, to be used largely for working capital support, and expansion of its real estate business, so as to benefit from a wide spectrum of real estate businesses across the value chain.

 

AM-Funding’s earnings reflects a mix of annuity income from AM-Facilities and project income from AM-Development. Nevertheless, operation in both businesses have come under pressure, with a downward trend in revenue in recent periods, following delays in completing ongoing projects within its real estate business and an inability to expand the client base. While the completion of delayed projects and initiation of new ones will support future income growth, GCR expects the Group to lag forecasts over the medium term.

The challenging operating environment and the depreciation of the Naira has driven significant escalation in cost base, seeing the Group’s EBITDA and operating margin decline in recent periods. Of greater concern, profitability has been significantly impacted by a deterioration in the debtors’ book due to non-collection, which needs to be remedied.

Gross debt declined significantly to N370m at 3Q FY18 from a high of N1.2bn at FY15, which saw gross gearing reduce to 15% at 3Q FY18 (FY17: 20%), although gross debt to EBITDA rose to 108% (FY17: 61%), reflecting the weak earnings. The debt position is, however, somewhat weaker than financial statements indicate, as working capital has been supported by advances from contractors in recent periods, which will need to be settled.

While reporting a net ungeared position typically suggests a strong funding position, the Group’s operations have been negatively impacted by a lack of funding, with bank facilities almost fully utilised and the long delays in the bond issuance. Limited access to funding is a major constraint on the rating.

In April 2019, AM-Funding raised N1.45bn from the capital market under its Series 1 Tranche A Bond Issuance. Thus, gearing metrics are expected to spike in the short term, and decline thereafter as earnings become more reflective of activities. Sustainably raising earnings is critical to ensure interest coverage registers above 3x, but this has yet to be fully demonstrated.

The ratings have been placed on ‘Rating Watch’ pending receipt of the FY18 audited financial statements. GCR is expected to reassess the ratings within the next six months.

Upwards rating progression is dependent on bringing the capital projects to fruition on time and within budget will have. This should have a strong positive impact on earnings and internal cash generation and see reliance on debt reduce. Improvements to overall project implementation processes would also support earnings stability, which is necessary for ratings uplift. Conversely, further earnings underperformance, arising from delay to the projects delivery and/or disruptions to the operating environment, could negatively impact group performance and lead to further rating downgrade.


NATIONAL SCALE RATINGS HISTORY

Initial/last rating (December 2017)
Long-term: BBB(NG)
Short-term: A3(NG)
Rating outlook:  Stable


ANALYTICAL CONTACTS

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


Committee Chairperson
Dave King
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2018
AM-Funding rating report, 2017
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 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 ratings are valid till November 2019

Alpha Mead Funding Company Plc. 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 have been disclosed to Alpha Mead Funding Company Plc.

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 Alpha Mead Funding Company Plc. and other reliable third parties to accord the credit ratings included:
- 2017 audited annual financial statement, and four years audited annual financial statements for AM-Facilities;
- 2017 audited annual financial statement, and four years audited draft annual financial statements for AM-Development;
- Unaudited management accounts to 30 September 2018 for AM-Facilities and AM-Development;
- Consolidated financial projections for two years (2019-2020);
- Internal and/or external management reports.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

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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