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GCR Assigns an Indicative Rating of AAA(NG)(IR) to LFZC Funding SPV Plc’s proposed N25bn Series 3 Senior Guaranteed Fixed Rate Infrastructure Bonds; Outlook Stable

Dec 21, 2022   •   by   •   Source: GCR Ratings   •   eye-icon 223 views

GCR Ratings (“GCR”) has assigned a national scale long-term indicative Issue rating of AAA(NG)(IR) to LFZC Funding SPV Plc’s N25bn Series 3 Senior Guaranteed Fixed Rate Infrastructure Bonds, with the Outlook accorded as Stable.


Rated Issue

Rating class

Rating scale

Rating

Outlook

N25bn Series 3 Senior Guaranteed Bonds

Long Term Issue

National

AAA(NG)(IR)*

Stable

*IR stands for Indicative Rating.

Rating Rationale

LFZC Funding SPV Plc (“the Issuer”) is a special purpose vehicle established for the purpose of raising debt capital for Lagos Free Zone Company (“the Sponsor” or “Co-obligor”). The proposed N25bn Series 3 bonds (“the Series 3 Bonds”) is the third to be issued under the Issuer’s N50bn Bond Issuance Programme (“the Programme”) registered with the Securities and Exchange Commission (“SEC”) in August 2021. The Issuer has raised an aggregated sum of N35.5bn through the Series 1 and 2 Bonds under the programme, and GCR notes that the proposed N25bn Series 3 Bonds would exceed the initial N50bn programme size. The transaction arranger, Stanbic IBTC Capital Limited, indicated that a request will be made to SEC for a possible waiver to exceed the N50bn programme size.

The Sponsor engages in the development and management of the Lagos Free Zone and leasing of the developed land to enterprises registered within the Zone. The Sponsor’s ultimate parent company is Tolaram Group Inc., a global conglomerate founded in 1948 and headquartered in Singapore, with operations spanning across Europe, Asia, and Africa.

The Series 3 Bonds shall constitute direct, unconditional, unsubordinated, and irrevocable obligations of the Issuer, the Co-obligors, and Infrastructure Credit Guarantee Company Limited (“the Guarantor” or “InfraCredit”), under the Deed of Guarantee. The Series 3 Bonds shall have a tenor of twenty years, with maturity in 2042. There shall be a 60-month moratorium on the principal repayment, after which semi-annually repayments will commence each year. However, interest shall accrue from the issue date, and be payable semi-annually in arrears. The net proceeds of the issue shall be utilised to refinance the Sponsor’s credit facilities and capital expenditure in relation to the Lagos Free Zone.

The Series 3 Bonds will be fully guaranteed by Infrastructure Credit Guarantee Company Limited (“InfraCredit” or “the Guarantor”). InfraCredit has agreed to provide an irrevocable and unconditional guarantee in favour of the Guarantee Trustee for and on behalf of the Series 3 Bondholders to ensure the timely performance of the obligations of the Issuer under the Series 3 Bonds Issuance. The payment obligations of the Issuer, Co-obligor and Guarantor in respect of the Series 3 Bonds, shall rank at least pari passu with all other unsecured unsubordinated indebtedness and monetary obligations of the Issuer, the Co-obligors, and the Guarantor respectively, both present and future.

InfraCredit in its capacity as Guarantor, shall guarantee the timely payment of both the interest and principal obligations of the Series 3 Bonds. Under the Guarantee, if by ten (10) business days prior to a payment date, the payment account has not been funded by the Issuer and/or the Co-obligor, the Guarantee Trustees are required to issue a Demand Notice to the Guarantor, and InfraCredit is obliged to fund the payment account with the due amount by the payment date to ensure bondholders are paid. The Guarantee will be in force until all payment obligations under the Series 3 Bonds have been fully discharged.

InfraCredit is rated ‘AAA(NG)’ by GCR with a Stable Outlook. The rating is supported by its strong competitive position, in terms of mandate and operations delivery as the sole infrastructure credit guarantee provider in Nigeria currently. The rating also benefits from its strong capitalisation and leverage position, solid liquidity profile, and sound asset quality. However, earnings remain largely supported by market sensitive income, given the current modest size of the guaranteed portfolio.

Given that InfraCredit offers timely and full coverage of all payments due under the Series 3 Bonds through the Deed of Guarantee, the Bonds bear the same credit risk as InfraCredit. As such, the national scale long-term indicative Issue rating of the Series 3 Bonds is equalised with the Guarantor’s national scale long-term Issuer rating.

The legal opinion indicates all transaction documents to which each of the Issuer, the Co-obligors, and the Guarantor, is a party constitutes legal, valid, binding and enforceable obligations against each of them under the Nigerian law.

Outlook Statement

The Stable Outlook reflects that of the Guarantor’s national scale long term Issuer rating.

Rating Triggers

Any changes in the national scale long term Issuer rating of the Guarantor and/or revision in the terms of the Guarantee would impact the rating of the Series 3 Bonds.

Rating History

Rated Issue

Review

Rating scale

Rating

Outlook

Date

N25bn Series 3 Senior Guaranteed Bonds

Initial/last

National

AAA(NG)(IR)

Stable

December 2022

 

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 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 and the Transaction 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:

  • Programme Trust Deed
  • Draft N25bn Series 3 Pricing Supplement
  • Draft N25bn Series 3 Trust Deed
  • Draft InfraCredit’s Deed of Guarantee for Series 3
  • Draft legal opinion
  • Other applicable documents

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