GCR Downgrades Mixta Real Estate Plc’s rating to BBB-(NG); Outlook Stable.

31 Aug 2019 In Rating Notifications

GCR Downgrades Mixta Real Estate Plc’s rating to BBB-(NG); Outlook Stable.

Lagos Nigeria, 31 August 2019 — Global Credit Ratings has downgraded the national scale issuer ratings assigned to Mixta Real Estate Plc to BBB-(NG) and A3(NG) in the long term and short term respectively, with the Outlook accorded as Stable. The ratings are valid until July 2020.


RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Mixta Real Estate Plc (“Mixta Nigeria” or “the Group”) based on the following key criteria:

The downgrade reflects Mixta Nigeria’s inability to scale up project delivery amidst a high debt profile and concerns on debt serviceability. GCR has, however, considered the Group’s sizeable land bank and strong technical alliances with major industry players in support of the ratings.

The challenging operating climate in Nigeria, characterised by constrained consumer spending, higher lending rates and weak access to funding, continued to curtail industry performance. Accordingly, while Mixta Nigeria achieved revenue growth of 15% to N7bn in FY18, this was 53% below budget. Management intends to more than double the top line by FY19, supported by bulk land sales and timely project delivery. GCR, however, considers the budget aggressive given the vagaries of the operating environment and the comparatively low FY18 revenue base. This is borne out by 1H FY19 revenue registering at just N4.7bn, well behind an annual target of N15.3bn.

The depreciation of the Naira has driven significant escalation in project costs, as well as material distortions in land and property values since FY17. This has seen a marked erosion of Mixta Nigeria’s gross margin to just 11% (FY17: 9%), from highs ranging between 30-40% in FY15 and FY16. This underpinned a succession of operating losses in FY17 and FY18. Although the Group reported gross and operating margins of 28% and 13% respectively in 1H FY19, GCR notes the historically observed turnaround from interim to full year results due to year-end adjustments. That said, the Group’s ability to timeously develop and deliver large scale projects on a consistent basis will smooth out future margins somewhat.

Gross debt has risen consistently over the years, registering at N43.1bn at 1H FY19 (FY18: N43bn) from just N17.5bn at FY14. The marked increase reported in FY17 and FY18 in particular, was due to highly leveraged development cycle. As such, the loan to value has doubled over the period under review to 32% at 1H FY19 (FY18: 31%). Net debt to EBITDA and interest cover, however, have been volatile, reflecting the significant earnings drag. Both metrics are expected to remain weak or erratic (with interest cover projected at 0.6x and 1.0x for FY19 and FY20 respectively) unless earnings realised from properties completed and sold stabilises.

Mixta Nigeria continues to present a lumpy debt maturity profile, with around 68% of the total expected to fall due within one year, and a further 32% after FY20. The high short term maturity amidst persistently negative/weak discretionary cash flows suggests imminent refinancing risk, and is a key rating concern.

The Group’s ability to develop and successfully deliver large scale projects on a consistent basis will support improved margins. This should also lead to strong internal cash generation and less reliance on debt, with earnings-based gearing improving to sustainable levels. Conversely, the ratings remain sensitive to further delays in project delivery, which materially curtail the group’s cash generative capacity, and further constrain its ability to service its obligations.


NATIONAL SCALE RATINGS HISTORY

Initial rating (June 2016)
Long-term: BBB(NG)
Short-term: A3(NG)
Rating outlook:  Stable


Last rating (June 2018)
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


APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Mixta Real Estate Plc Issuer rating reports (2016-18)
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 ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings expire in July 2020.

 

Mixta Real Estate 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 Mixta Real Estate Plc.

The information received from Mixta Real Estate Plc and other reliable third parties to accord the credit rating included:
- the 2018 audited annual financial statements and audited comparative results for the preceding four years,
- revised budgeted financial statements for the years 2019 to 2020,
- 6-months’ unaudited management accounts to June 2019,
- a breakdown of facilities available and related counterparties as at 30 June 2019,
- completed rating questionnaire containing additional information of Mixta Real Estate 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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