GCR Ratings (“GCR”) has assigned a national scale long term indicative Issue rating of A(NG)(IR) to Geregu Sukuk Plc’s up to N20bn Al-Ijarah Sukuk Issue. The Outlook on the rating is Stable.
*IR: An Indicative Rating is denoted by an ‘IR’ suffix to indicate that a credit rating has been accorded based on review of final draft documentation and expectations regarding final documentation. The Indicative Rating is expected to convert to a final credit rating subject to the receipt of final documentation in line with GCR’s expectations. Typically, this suffix will be used when awaiting the finalization of notes for a debt or program issuance. In this case, once the final documents are available the IR suffix may be removed. We expect the rating to convert upon regulatory approval, within the next 180 days.
The Issuer, Geregu Sukuk Plc, is a special purpose vehicle owned and sponsored by Geregu Power Plc (“Geregu”, “the Sponsor”) as a funding entity, solely for the purpose of raising finance for its Sponsor. GCR affirmed the Sponsor’s national scale long term Issuer rating of A(NG) in December 2021, underpinned by strong revenue progression and conservative leverage position, counterbalanced by high level of receivables due to the general illiquidity in the Nigerian Electricity Supply Industry and working capital pressure.
In January 2022, the Sponsor began the process of registering a N100bn Multi instrument Issuance Programme (“the Programme”) with the Securities and Exchange Commission, and plans to raise up to N40bn through the Issuance of Series 1 Senior Unsecured Bonds (“Series 1 Bonds”) and an additional up-to-N20bn through a Series 2 Ijarah Sukuk Issue under the Programme. The Series 2 Sukuk’s net proceeds, together with the net proceeds of the Series 1 Bonds, will be utilised to partly finance the purchase of power plant and overhaul of existing plants. Per the legal documentations, the Series 2 Sukuk Issue will have a tenor of seven years, with maturity in 2029. The Series 2 Sukuk shall constitute direct, unconditional, senior, and unsecured obligations of the Issuer and all times rank parri passu and without any preference among themselves.
Geregu shall (in favour of the Issuer) enter into a Deed of Guarantee with the Trustees, pursuant to which Geregu, in its capacity as the Guarantor and primary obligor, absolutely, irrevocably and unconditionally guarantees the punctual and full payment of all debts and obligations owed by the Issuer under the Series 2 Sukuk Issue. GCR has received a legal opinion which confirms inter alia that Geregu’s Guarantee is irrevocable, unconditional and enforceable in line with its terms.
The Series 2 Sukuk Issue incorporates a sinking fund which shall be established and maintained under the control of the Trustees. Geregu, as the primary obligor, has undertaken to fund the sinking fund with the periodic distribution amount five (5) days before the relevant rental payment date. Principal repayment and coupon are payable semi-annually in arrears, on an amortizing basis. However, there is a two-year moratorium on principal repayment.
Given that Geregu offers timely and full coverage of all payments due to the Series 2 Sukuk holders, the Sukuk bears the same default risk as its Sponsor and would reflect similar recovery prospects to senior unsecured creditors in the event of a default. As such, the long-term rating for the Series 2 Sukuk is equivalent to the Sponsor. Accordingly, any change in the Sponsor’s long-term rating would impact the Sukuk rating.
The Stable Outlook reflects GCR’s view that the Sponsor’s earnings will materially increase on the back of capacity expansion which will result in a sustained low gearing metrics as a reasonable level of dividend payment is maintained.
Given that the indicative rating is intrinsically linked to the Sponsor’s national scale long-term senior unsecured credit rating, any change in the rating assigned to the Sponsor would affect the Sukuk rating.
Geregu Sukuk Plc’s Series 2 Al-Ijarah Sukuk Issue
Salient Points of Accorded Rating
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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the Issuer, the Sponsor, and the Transaction Arrangers. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
The Issuer, the Sponsor and the Arrangers participated in the rating process via tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the Issuer and other reliable third parties to accord the credit rating included:
- 2021 audited annual financial statement, and prior four years annual financial statements of the Sponsor.
- Internal and/or external reports on the Sponsor;
- Draft Information Memorandum;
- Draft Series 2 Sukuk Pricing Supplement;
- Draft Series 2 Sukuk Trust Deed;
- Draft Series 2 Sukuk Programme Trust Deed:
- Shariah Adviser Agreement:
- Draft Service agency, Vending and Ijarah agreement:
- Other information specific to the rated Issue.