GCR Ratings (“GCR”) has assigned national scale long-term and short-term Issuer ratings of BBB-(NG) and A3(NG) respectively to Robust International Commodities Limited, with the Outlook accorded as Stable.
Rated Entity / Issue
Outlook / Watch
Robust International Commodities Limited
Long Term Issuer
Short Term Issuer
The ratings assigned to Nigeria-based Robust International Commodities Limited (“Robust Nigeria”) reflect the creditworthiness of the broader Robust International Pte Limited (“Robust Singapore”), its sister company operating in Singapore. This is because Robust Singapore has provided an irrevocable and unconditional full guarantee on the present and future obligations of Robust Nigeria. As a result, while the ratings have been assigned exclusively to Robust Nigeria, its creditworthiness is supported by the financial and corporate strengths of Robust Singapore. The two entities have common ownership, with strong operational integration across the value chain and management. Given the full guarantee, the analytical discussion below focuses primarily on Robust Singapore.
The assigned ratings are supported by Robust Singapore’s strong position within its Sub-Saharan African markets, where it sources agricultural commodities for sale to export markets. Its competitive positioning and earnings growth are however, counterbalanced by its weak leverage metrics due to elevated gross debt and persistent working capital absorptions, as well as its exposure to the higher-risk Sub-Saharan African countries.
Robust Singapore is a global agricultural commodity trading company, with strong local and international relationships, which have helped in developing strong sourcing networks, securing commodities through advances to farm-gate suppliers to ensure a steady supply. However, its competitive position is moderated by its small size when compared with leading players that have globally competitive brands within the international agro-commodities market. Furthermore, GCR views its management and governance as a moderately negative rating factor due to the lack of independent oversight over management and board decisions.
Robust Singapore has reported a strong earnings trajectory over the review period, with 16.5% growth (FY20: 7.6%) to USD602m in FY21, supported by increased processing capacity across its key markets, combined with higher demand and selling prices. The EBITDA margin registered at 5.2% for the year ended 31 December 2021 (“FY21”), above its peers, supported by the higher scale. GCR projects revenue to improve over the medium term, given Robust Singapore’s capacity expansion, and the increasing demand for food. Notwithstanding periodic volatility in commodity markets, earnings margins are also anticipated to widen in the coming years as sales volume increases, with cost savings from economies of scale and greater warehousing capacity.
The ratings are significantly constrained by Robust Singapore’s weak leverage and capital structure due to elevated debt and high working capital pressure. Gross debt rose to USD146.4m in end-June 2022 (FY21: USD144m), from USD62.6m in FY18 due to ongoing working capital absorptions, largely driven by high advances to suppliers to drive product procurement. In line with the working capital intensity of its business, debt is primarily short-tenured, but the fact that these loans are revolving in nature reduces much of the refinancing risk. Gross debt is expected to remain high in the coming years as Robust Singapore seeks additional funds to finance its expansion, but net debt to EBITDA should improve to 3.0x-3.3x by FY23 (FY21: 4.3x) if the earnings target is met. While interest coverage is expected to improve from the 2.5x reported at FY21, it will likely remain below 3x over the medium term.
Working capital pressure is expected to persist because of the high advances to suppliers, which has only been partially offset by advances from customers. This has resulted in weak operating cash flow (OCF) over the years. The ability to drive advances from customers should support a positive OCF coverage of around 10% over the medium term, albeit still low.
Liquidity coverage is estimated at a moderate level of 1.4x over the 12-month period to 31 December 2023. This is because Robust Singapore maintains over USD180m in revolving committed facilities with a range of lenders, providing adequate capacity to meet its short-term working capital requirements. This reduces the likelihood of a credit event and supports a neutral consideration for liquidity assessment. The projected CAPEX (for the construction of warehouse and sesame cortex facilities) is to be financed by a credit facility from the International Finance Corporation and an estimated operating cash flow of about USD4.7m in FY23.
The Stable Outlook reflects GCR’s view that the available revolving facilities will continue to support Robust Singapore’s short-term working capital requirements. This should facilitate sustained revenue progression and a stable competitive position within the global market.
A rating upgrade could follow sustained growth in earnings over the medium term, with better management of cash flows. Furthermore, GCR will positively consider the lengthening of the debt maturity profile and/or lesser recourse to debt funding that supports improvement in: 1) net debt to EBITDA below 3x; 2) operating cash flow coverage of debt above 30%; and 3) EBITDA coverage of interest above 3x.
The ratings could be downgraded; 1) following earnings underperformance, whether due to internal factors or market volatility; 2) continued steep increases in working capital utilisation which heighten cash flow pressures; 3) a rise in debt that results in deterioration in credit protection metrics.
Robust International Commodities Limited
Long term Issuer
Short Term Issuer
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to Robust International Commodities Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
The ratings remained unchanged after an appeal.
Robust International Commodities Limited 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 Robust International Commodities Limited and other reliable third parties to accord the credit ratings included:
- Robust Singapore’s 2021 audited financial statement, and prior four years annual financial statements,
- Robust Nigeria’s 2021 audited financial statement, and prior four years annual financial statements,
- Robust Singapore’s 6-month management accounts to 30 June 2022;
- Internal and/or external management reports; and
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties.