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TEXT-Fitch affirms Alexander Forbes Preference Share Investments
August 21, 2012 / 3:07 PM / 5 years ago

TEXT-Fitch affirms Alexander Forbes Preference Share Investments

(The following statement was released by the rating agency)

Aug 21 - Fitch Ratings has affirmed South Africa-based Alexander Forbes Preference Share Investments Limited’s (AF Pref) linked debentures at ‘BB-(zaf)'. The strength of the underlying cash flows and credit metrics of Alexander Forbes Equity Holdings (Pty) Ltd (AF Group) continues to significantly influence the rating assigned to the debentures issued by AF Pref. However, the agency notes that the rating remains constrained by the fact that the AF Pref debentures are deeply subordinated from the underlying AF Group cash flows. For the financial year ending March 2012, AF Group achieved net revenue growth of 9.6% and operating margin of 25.4%. The revenue is supported by a high portion of annuity income generated in financial services, AF’s large customer base, the diversified nature of its business mix and the leading position across most business. Fitch expects trading conditions to remain challenging on the back of strong competition in the short term, but to improve over the coming years as economic growth rates recover. During the financial year, AF group has exited from risk broking business in South Africa, Namibia and Botswana. Due to the anticipated implementation of the solvency assessment and management regime in 2015, the increase in capital requirements is supported by cash reserves and capitalising interest payments on high-yield term loan (as allowed under the terms of the loan). Capital adequacy remains strong and above the regulatory requirement of 1x cover. AF group’s credit metrics are expected to remain moderate in the medium term due to deleveraging. For the financial year ending 2012, FFO adjusted leverage and FFO adjusted net leverage was 4.46x (FY11:4.69x) and 3.8x (FY11:4.24x), respectively. The major maturity includes amortisation of senior preference shares in the next three years and the maturity of a ZAR1.86bn high-yield term loan in FY2016. A revolving credit facility aggregate amount of ZAR200m is available until July 2014. Liquidity remains stable with moderate future improvements with FFO fixed charge coverage trading at 1.58x (FY11:2.24x). The rated AF Pref debentures are unsecured, with a fixed rate of 17% per annum. Interest payments are capitalised semi-annually until redemption of the debentures, unless the issuer elects to make these payments earlier. AF Group is a South Africa-based provider of financial services with a presence in UK, Europe and some African countries. Clients are well-diversified and include small, medium and large organisations, corporations, specialist groups and individuals. The three main areas of operations are financial services, insurance services and investment solutions catered for by five divisions within the company. AF Pref is a special purpose vehicle of the AF Group that allows linked unit holders to gain indirect exposure to AF Group through issued preference shares and linked debentures listed on the Johannesburg Stock Exchange (JSE). AF Pref holds a 26.5% interest in the ordinary shares and 31,8% interest in the A-preference shares in the AF group. It also holds proportional rights to specific assets in AF, which include amongst others, a 26.5% of the high yield loan and 100% of the pay-in-kind debentures. (Caryn Trokie, New York Ratings Unit)

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