GCR Revises Sterling Bank’s Outlook to Stable, Gets “BBB” Rating

Esan Bolaji
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GCR Revises Sterling Bank’s Outlook to Stable, Gets “BBB” Rating

09 July 2021 – GCR Ratings (GCR) has affirmed Sterling Bank Plc’s national scale long-term and short-term issuer ratings of BBB(NG) and A3(NG) respectively; with the Outlook revised to Stable from Negative.

The stable outlook reflects GCR’s opinion that Sterling Bank will maintain a good financial profile amidst the challenging operating environment. We expect the bank’s asset quality metrics (NPL and credit losses) to be maintained at current levels.

Also, the anticipated growth in risk-weighted assets is expected to be balanced by strong internal capital generation, mitigating downward pressure on the bank’s capitalisation over the rating horizon.

Insider Dealing: Abubakar Suleiman Buys Additional 750,000 Sterling Bank Shares
Abubakar Suleiman, MD/CEO, Sterling Bank Plc | www.brandspurng.com

Ratings history – Sterling Bank Plc

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term issuer Initial National BBB(NG) Stable Outlook July 2019
Short Term issuer Initial National A3(NG) July 2019
Long Term issuer Last National BBB(NG) Negative Outlook July 2020
Short Term issuer Last National A3(NG) July 2020

Rating rationale

The ratings assigned to Sterling Bank Plc reflects its good business profile, sound risk position, stable funding and liquidity, albeit counterbalanced by the relatively moderate capitalisation and high loan book concentrations.

Sterling’s competitive position is supported by its strong track record, having maintained a positive earnings trajectory over the review period (FY16-FY20). The bank operates a national banking license and delivers banking services to a broad client base comprising retail, corporate, and institutional customers through a network of 157 branches and digital channels.

Sterling is a mid-sized bank and categorised as a tier-2 bank in the Nigerian banking industry, with a modest market share of 3.4% and 2.6% measured by customer deposits and total assets respectively as at FY20. Management & Governance is a neutral rating factor.

Capitalisation is negative to the ratings. Although the bank has a capital adequacy ratio (CAR) above the 10% regulatory threshold (18.0% in FY20 vs. 14.7% in FY19), GCR computed capital ratio registered within the low band at 14.9% in FY20 (FY19: 13.9%) and is forecast to remain within the 13%-14% range over the rating horizon, barring any injection of additional tier 1 capital or significant improvement in an internal capital generation.

Sterling’s risk position is positive to the ratings. This is underpinned by the bank’s low non-performing loan (NPL) ratio of 1.9% as at FY20 (FY19: 2.2%), significantly below the regulatory tolerable limit of 5%, and broadly compares favourably with the industry average of c.6% at FY20.

Similarly, credit losses registered at 1.3% at FY20 (FY19: 0.9%), relative to the industry average of about 3% at FY20. Over the next 12-18 months, GCR expects the bank’s NPL ratio and credit losses to remain within a similar range. FCY loans, at 23.7% of the loan portfolio in FY20 (FY19: 22.9%), also ranks favourably to the industry average of 35%.

Conversely, the bank evidenced loan book concentration, with the twenty largest obligors accounting for 58.3% of the loan portfolio as at FY20. GCR also takes cognisance of the fact that the single largest obligor constituted 24% of shareholders’ funds at FY20, breaching the regulatory threshold of 20%, but balanced against management’s assurance of ongoing efforts at normalising the ratio.

Positively, market-sensitive income (trading gains) constituted a relatively moderate 13.4% of total operating revenues as of FY20 (FY19: 6.0%), underscoring the bank’s minimal exposure to market risk.

Funding and liquidity is assessed at the intermediate level, reflecting satisfactory liquid asset coverage of the funding base. The funding structure is broadly comparable with peers, as customer deposits comprised 84.4% of the funding base as of FY20 (FY19: 87.7%).

The deposit book is relatively diversified, with the single and top twenty largest depositors contributing 5.1% and 19.3% to total deposits respectively as of FY20. As of 31 December 2020, the GCR liquid asset coverage of total wholesale funding and customer deposits stood at 2.8x and 35% respectively, reflecting the bank’s moderately positive liquidity level.

Dangote Cement Gets GCR’s “AAA” Rating With Stable Outlook

GCR Ratings
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Dangote Cement Gets GCR’s “AAA” Rating With Stable Outlook

9 July 2021 – GCR Ratings (GCR) has affirmed Dangote Cement Plc’s national scale long-term and short-term Issuer ratings of AAA(NG) and A1+(NG) respectively, with the Outlook accorded as Stable.

Concurrently, GCR has affirmed the national scale long-term Issue rating of AAA(NG) each accorded to the existing N100bn Series 1 Senior Unsecured Bonds and N50bn Series 1 (Tranche A-C) Senior Unsecured Bonds, with the Outlook accorded as Stable.

The Stable Outlook reflects GCR’s view of DCP’s robust earnings and strong cash flows, which serves to moderate the impact of external shocks and limit recourse to additional debt.

Dangote Cement truck drivers protest alleged mistreatment

Ratings History- Dangote Cement Plc

Rating class Review Rating scale Rating Outlook/Watch Date
Long term Issuer Initial National AA+(NG) Stable Outlook September 2016
Short Term Issuer Initial National A1+(NG)
N100bn Series 1 Bond Long Term Issue Initial National AA+(NG) Stable Outlook May 2020
Long term Issuer Last National AAA(NG) Stable Outlook March 2021
Short Term Issuer Last National A1+(NG)
N100bn Series 1 Bond Long Term Issue Last National AAA(NG)
N50bn Series 1 Tranche A-C LT Issue Initial/Last National AAA(NG)

Rating Rationale

The ratings reflect Dangote Cement Plc’s (DCP) competitive position as one of Africa’s leading integrated cement manufacturers, evidenced by very strong earnings, robust cash flows and solid gearing metrics.

DCP’s ability to penetrate new markets with large-scale, modern and energy-efficient factories give it a strong competitive edge in the African market. Nevertheless, the company profile is constrained by the very high concentration of the Nigerian market, accounting for about 88% of group EBITDA and 65% of capacity at the end-March 2021.

In recent periods, DCP has increased focus on its export strategy within West and Central Africa, which should support the advancement of its competitive positioning across the African continent, albeit marginally offset by the higher risks in many of the countries it is targeting.

DCP’s market dominance has translated into very strong earnings and cash flows, with the EBITDA margin registering around 47% over the last five years, well above the industry average.

Based on the 1Q FY21 management results to 31 March 2021, the margin registered around 53% (FY20: 46%), supported by improved cement volume sales across its key markets, and its cost-control efforts with cheaper fuel mix and lower power costs. Inflationary pressure and foreign currency shortages (particularly in Nigeria) are expected to continue to weigh adversely on production costs and operating expenses, but DCP’s strong financial profile serves to moderate the impact of external shocks.

The current headroom to ramp up production volumes based on existing capacity across another market should drive strong earnings growth over the medium term while sustaining strong margins.

At 1Q FY21, gross debt declined to N426bn following part repayment of the existing obligations. This saw annualised net debt to EBITDA registered at a low 0.4x, against 0.7x recorded at FY20, indicative of strong credit protection.

Similarly, EBITDA coverage of net interest was high at 16x in 1Q FY21, from an average of 11x between FY16 and FY20. In May 2021, DCP successfully raised N50bn from the debt capital market in Series 1 Senior Unsecured Bond Issue under its N300bn Bond Issuance Programme.

Notwithstanding the additional amounts raised under the Programme, GCR expects the Group to continue to demonstrate strong financial flexibility, with net debt to EBITDA (including operating leases) expected to range between 40%-55% over the outlook period, and net interest cover projected between 10x and 15x.

The Group’s robust operating cash flow is a key mitigant against concerns of higher debt. In this regard, operating cash flow (OCF) coverage of debt registered at 166% in 1Q FY21 and should remain strong over the rating horizon.

DCP’s liquidity assessment is underpinned by the expectation that cash flows will remain strong, along with N146m in cash and N153m in unutilised committed funding lines.

Nevertheless, the assessment is somewhat constrained by the very high level of short-term debt, as well as the historically high dividend payout ratios. The uses vs. sources liquidity coverage are estimated at 1.3x over the next 12 months.

The N50bn Series 1 Senior Unsecured Bond is split into N3.64bn Tranche A, N10.45bn Tranche B and N35.91bn Tranche C, with varying interest rates and maturities in 2024, 2026 and 2028, respectively.

Being senior unsecured debt of DCP, the existing N100bn Series 1 Bond and the additional N50bn Series 1 Tranche A-C Bonds rank pari passu with all other senior unsecured creditors. As such, the Bonds will bear the same national scale long term rating as that accorded to DCP. Accordingly, any change in DCP’s long term Issuer rating would impact the Bond rating.

Policy Flashpoints, Resolution Options & Unintended Consequences (LBS Executive Breakfast Session – July 2021)

FDC
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Policy Flashpoints, Resolution Options & Unintended Consequences (LBS Executive Breakfast Session – July 2021)

We are adopting a new format for the LBS this month. It’s in two parts: A) Policy flashpoints & resolution options and B) Economic scorecard & outlook for July/August.

Here goes our summary:

When abnormal becomes the NEW Normal

Policymakers in Nigeria have been navigating a treacherous path. This is as they align strategic reforms beneficial to the economy with reducing the short term pain of citizens. In economics, the definition of an outside lag is the time between policy decisions and their impact. At times, these lags may fly in the face of people bearing the brunt of the sacrifice.

LBS Executive Breakfast Session

For example, the PIB passed last week contains clauses that make subsidy payments illegal. But at a time of high unemployment and poverty levels, this comes with a great strain on the average man. At $4.89bn, the subsidy will reduce aggregate private consumption to $288.71bn because it is a mere 1.67%, but when compared to the budget ($35.88bn) it becomes stark (13.63%).

Hanging by a thread

In urban terms, the economy is hanging by a thread…No Cap! Inflation at (17.93%), even though down, is still stratospheric. Growth prospects are dim as the real sector struggles with the scarcity of raw materials and weak consumer demand. Oh! We cannot leave out INSECURITY!

The good news, however, is that oil prices are near a 3-year high ($75pb) and domestic production could climb back to 1.58mbpd in July. The result is an increase in government revenue. But the downside is that refined petroleum imports would be more expensive. Currently, Nigeria’s petrol consumption is growing 16 times faster than GDP growth.

Falling naira bites the wealthy – As they say “the rich also cry”

One indicator that affects everybody but impacts more on the elites than the bottom of the pyramid is the value of the naira. Corporates in particular are saddled with the burden of exchange rate misalignment and its attendant volatility.

The naira remains flat at N503/$ at the parallel market and N411/$ at the I & E window but is likely to appreciate marginally in the near term. This depends on an increase in forex supply by the CBN. Average forex intervention in the market rose by 2.39% to $143.34mn in June from $139.99mn in May, just as the EIU revised its year-end projection of the naira to strengthen to N419/$ from N422/$.

In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank discuss relevant policy flashpoints, their implications on your business operations and strategy for Q3’21.

Download the reports here

Ada Animation Secures Pre-seed Funding

Brand Spur
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Ada Animation Secures Pre-seed Funding

…From VC Firm Platform Capital’s technology vehicle Unicorn Group

The move is set to open up exciting animation opportunities and grow Ada Animation across Africa; Unicorn Group appoints Dr. Akindele to join the board.

Ada Animation, an entertainment Tech company under the Ada Labs Africa group of ventures, today announced its pre-seed capital raise from Nigerian venture capital firm Platform Capital through its technology vehicle, Unicorn Group. This investment is a first of its kind in East Africa and is set to elevate entertainment companies in Africa as potential partners in the VC investments realm.

Founded in 2020, Ada Animation was born out of the desire to build capacity in the animation industry, tell animated African stories and catalyze the animation industry for growth.

Ada Animation will use the secured investment to support the company’s growth ambitions to hire great talent, create African content, and further develop its proprietary technology. Ada Animation is supported by a strong advisory board of Dean Lyon, Director at Splinter Studios; Jack Giarraputo, Co-Founder at Happy Madison Productions; Firdaus Kharas at CEO at Chocolate Moose; Joann Yarrow at Executive Director at LIVE Animation Studios. As part of Platform’s investment, Dr. Akintoye Akindele, Chairman of Platform Capital will join the board.

Speaking of the investment, Joy Mwangi, CEO of Ada Animation said, “We are incredibly proud of our partnership with Unicorn Group, a Platform Capital company. This strategic investment represents an important step in our growth as a company, we will immediately ramp up our efforts to attract top talent in animation production to join our journey.

Ada Animation is at the forefront of the animation industry on the continent, changing the way we represent our content to produce more than we consume and share our stories from our perspectives. We see huge potential for Ada Animation content on millions of screens worldwide. The world will watch movies made from our imagination and will visualize color and creativity born from our culture.”

“We look forward to showcasing to the international community that there is a massive animation market opportunity in Africa for investment and scale through our work, talent and programs. The timing is so critical for us as we have started producing our first animation movie set for a global release next year.” Concluded Mwangi.

Dr. Akintoye Akindele, Chairman of the Unicorn Group explained “We are excited about our partnership with Ada Animation. We have seen how passionate and committed they have been since inception to add value into the animation creatives sector in Africa. We see this as an opportunity to build a dynamic animation industry for the youth.

“It is about time we fabricated and developed a platform that encourages and supports young creatives on the continent to be at the epicenter of telling African stories. We are optimistic about the development of creative talent and growth of homegrown platforms that will spur international companies’ partnerships in boosting the animation industry.”

The funding comes soon after the company’s recent partnership with Kenya Film Commission (KFC) to launch an animation summit and the second season of Ada Animation boot camp that will be the largest nationwide training program in the sector.

CBN Publishes Supervisory Framework For Payment Service Banks

Brand Spur
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CBN Publishes Supervisory Framework For Payment Service Banks

The Central of Nigeria (CBN) hereafter called the Bank has introduced various initiatives to enhance access to financial services for the unbanked population of the Nigerian economy.

This included the deployment and facilitation of the use of technology to drive the financial inclusion ambition of the CBN.

To this end, the Guidelines for the Licensing and Regulation of Payment Service Banks (PSBs) in Nigeria was issued in 2018 (revised 2020).

The Payment Service Banks are expected to leverage technology to provide services that would be easily accessed by the unbanked population and those who are in hard-to-reach areas of the country.

This framework hereby provides a set of regulations that are targeted at streamlining the operations of Payment Service Banks, ensuring transparency in their operations as well as ensuring adequate customer protection.

The framework focuses on corporate governance, risks management of the PSBs, and safety of funds to the consumers of the Payment Service Banks’ products.

This Framework also aims to ensure that sound risk management practices are embedded in the operations of the Payment Service Banks.

Payment Service Banks are required to comply with relevant extant regulations and CBN’s prudential guidelines and circulars which are issued periodically.

SEC Approves Dangote Cement’s Share Buy-Back Program Renewal

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SEC Approves Dangote Cement’s Share Buy-Back Program Renewal

Dangote Cement PLC, Africa’s largest cement producer, announces that the Securities and Exchange Commission (SEC) has approved the renewal of its share buy-back programme until January 21 2022.

The share buy-back programme will be executed under the approval granted by the Company’s shareholders at the Annual General Meeting of Dangote Cement PLC which was held on 26 May 2021, within the framework provided under Rule 398 (3)(xiv) of the Securities and Exchange Commission’s Rules and Regulations and under the approval of the Nigerian Exchange.

Dangote Cement Brandspurng Export Potentials Underscore Positive Topline Outlook
Photographer: Tom Saater/Bloomberg

The share buy-back will be undertaken through an open market offer or self-tender, at such times and on such terms as the management of the Company may determine, subject to prevailing market conditions.

The Company will continue to monitor the evolving business environment and market conditions, in making decisions on tranches of the share buy-back programme.

Dangote Cement Plc is Sub-Saharan Africa’s largest cement producer with an installed capacity of 48.6Mta capacity across 10 African countries. We operate a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales and distribution of cement.

Peruzzi, DJ Big N, DJ Tony, MC Smart, Rapizo and others to take over Makurdi for Tiger Beer Street Food Festival

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Peruzzi, DJ Big N, DJ Tony, MC Smart, Rapizo and others to take over Makurdi for Tiger Beer Street Food Festival

Anticipation is high as music superstars Peruzzi, DJ Big N and others head to Makurdi for the biggest food festival in Nigeria hosted by Tiger Beer. The capital city of the food basket of the nation, Benue will host the festival on Saturday, July 10, 2021, following successful editions in Abuja and Owerri.

The Tiger Street Food festival was conceived out of the need to support the love of food, beer, music, art and entrepreneurs in the street food business while celebrating the flavours of the Tiger beer brand through specially curated unique food experiences.

Tiger street food festival

The festival will evoke interesting conversations that revolve around food, art and music for the young-spirited who are spontaneous, unafraid to break boundaries. The festival is not just for food lovers but for everyone who loves to live their dreams by uncaging their potential.

As the tradition for the street food festival, the Makurdi edition will witness a performance from top acts including Peruzzi, DJ Big N, DJ Tony, MC Smart, Rapizo and others. Makurdi talents will also get a chance to showcase their creativity at the IBB Market Square in the state capital. From dance to graffiti, performers and festival buffs are expected to thrill the audience with their bedazzling showmanship and craft.

Speaking on the festival, Beatrice Adeniran, Senior Brand Manager, Tiger Beer remarked,

“We are breaking boundaries with this edition of the Tiger Street Food Festival. The food basket of the nation will make its mark by unleashing a variety of experiences with music, art and food which is the core reason for this street show. We are very excited to continue our tradition, and we can’t wait to party with Makurdi’s unique meals.”

Sampson Oloche, Portfolio Manager, Premium Lager, 0.0 & Sessionable, expressed his optimism in the positive outcome of this festival, saying,

“Our quest to rebuild the economy by strengthening the street food business is very important to this festival. We have activated the Tiger Street Food Festival in Abuja and Owerri and it is only logical to uncage this experience in Benue, the food basket of the nation. It will be a truly rewarding experience for the food vendors, customers and young talents who will use the platform to express their creativity and unleash their inner ‘Tiger’.”

Tiger Beer was first brewed in 1932 in Singapore. The world-acclaimed lager, Tiger Beer is made with only the finest ingredients through a precise brewing process and uses only the finest quality ingredients.

The result is the intensely refreshing, full-bodied taste of one of the world’s leading contemporary beer brands that have won over 40 international awards and accolades including Gold at the prestigious world beer cup, a gold medal at the Commonwealth Bottled Beer Competition, and the BIIA’s World’s Best Lager Beer award among others.

Primate Ayodele Set Date To Launch 27th Edition Of ‘Warnings To The Nations’

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Primate Ayodele Set Date To Launch 27th Edition Of ‘Warnings To The Nations’

Leader of INRI Evangelical Spiritual Church, Primate Ayodele is set to launch the 27th edition of his annual book of prophecy titled ‘Warnings To The Nations’

Brand Spur Nigeria reports that the 27th Edition Of ‘Warnings To The Nations’ is set to launch on Saturday, 10th Of July, 2021 in Lagos.

Business tycoons, top African leaders, security agencies, and other top Dignitaries have indicated their interest in the 27th edition of ‘Warnings To The Nations’

Information at our disposal has it that some business tycoons, top African leaders, security agencies, high-profile Nigerians, world-recognized business tycoons have requested copies of the popular prophet’s annual book of prophecy ‘Warnings To The Nations’.

‘Warnings To The Nations’ for many years has served as a direction to world leaders, business moguls, security operatives, others.

The content of the prophecy booklet includes prophetic warnings to all nations on earth, prophetic solutions to the problem of countries, prophetic clarification to confused leaders, prophecies about security, education, politics, leadership, sports, and every aspect of human life.

Primate Elijah Ayodele has been publishing Warnings To The Nation since 1994, and the new edition which will be launched on Saturday will be the 27th edition. Among the prophecies that have been given so far in the past editions, more than 10,000 of them have come to pass.

Primate Elijah Ayodele has been celebrated far and wide due to the uniqueness of his prophetic ministry. In Africa, he is the only prophet that publishes book of prophecy about every nation with testimonies of his statements coming to pass as he put them.

World cereal inventories expected to rise for the first time since 2017/18

Esan Bolaji
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World cereal inventories expected to rise for the first time since 2017/18

FAO’s forecast for global cereal production in 2021 has been lowered marginally since the previous report in June to 2 817 million tonnes, but still 1.7 percent (47.8 million tonnes) higher than in 2020 and would mark a new record high.

The modest month-on-month cutback principally concerns coarse grains, with global production now pegged at 1 513 million tonnes, 3 million tonnes below last month’s expectation. A sharp cut to the Brazilian maize production forecast accounts for the bulk of the expected global decline, as prolonged periods of dry weather have dragged down yield expectations.

The world barley production forecast is also trimmed, owing to a lower production forecast in the European Union, reflecting smaller-than-previously expected plantings, and in several countries in the Near East on widespread dry conditions that have curtailed yield potentials.

cereal inventories

These declines more than outweigh upward revisions made to maize production forecasts in China, the Russian Federation and Ukraine. Global wheat production prospects were also dented slightly this month, as the dry weather conditions in the Near East have cut back yield prospects.

As a result, the 2021 world wheat output has been lowered by 1 million tonnes to 784.7 million tonnes, still 1.2 per cent higher year on year.

World cereal inventories

By contrast, the forecast of global rice production in 2021 has undergone a slight upward adjustment since June, as more buoyant area expectations for Iraq and record reported yield outcomes in Argentina and Uruguay outweighed a downward revision for the European Union, where limited water supplies for irrigation are assessed to have curtailed Spanish plantings more than previously envisaged. As a result, a record of 519.5 million tonnes of rice is now expected to be harvested in 2021, up 1.0 percent from 2020.

The forecast of world cereal utilization in 2021/22 has been lowered by 15 million tonnes from the previous month to 2 810 million tonnes, nevertheless still 1.5 percent higher than in 2020/21. The downward revision stems largely from lower-than-earlier-anticipated utilization of maize in China for animal feed, on the expectation of much greater use of other feedstuffs, as well as for industrial purposes.

Despite this downward revision, world total coarse grains utilization is forecast to increase by 0.9 percent from the 2020/21 level, reaching 1 510 million tonnes in 2021/22. By contrast, the 2021/22 global wheat utilization forecast has been lifted since the previous month to 780 million tonnes, now up 2.7 percent from the 2020/21 level.

This month’s upward revision and the projected year-on-year increase in wheat utilization are both largely attributed to greater feed use of wheat driven by its price competitiveness relative to maize. World rice utilization in 2021/22 is pegged at 520.8 million tonnes, up 1.5 percent from the previous season and little changed from June expectations.

Although feed uses are also seen increasing, an anticipated expansion in food use would account for much of this yearly growth, keeping global per caput rice intake firm at close to 54 kilos per person.

World cereal stocks by the close of seasons in 2021/22 are now forecast to rise above their opening levels for the first time since 2017/18 following a sharp upward revision of 24 million tonnes made this month to 836 million tonnes, up 2.4 percent from last year’s tight level. Higher maize stocks foreseen in China account for the bulk of this month’s upward revision to world cereal inventories.

Maize inventories in China are now expected to reach 152 million tonnes, nearly 24 million tonnes higher than the previous forecast and up 3.0 million tonnes from their revised opening levels, marking the first year-on-year increase in six years. With this revision, coarse grains stocks in 2021/22 are forecast to rise above their opening levels by 4.0 percent to 354 million tonnes.

By contrast, 2021/22 wheat inventories have been lowered from the previous month but are still forecast to increase by 1.8 percent above their opening levels and reach a record 297 million tonnes, mostly reflecting anticipated buildups in Australia, China, the EU, India, Morocco and Ukraine.

Mirroring a slight upward adjustment to carry-over expectations for Pakistan, FAO’s forecast of world rice stocks at the close of 2021/22 seasons is now pegged at 184.9 million tonnes, which would represent a 0.5-per cent year-on-year increase and the second-highest volume on record.

Based on this month’s revisions to the forecasts of world cereal stocks and utilization, the global cereal stock-to-use ratio for 2021/22 is now expected to hover around 29.0 percent, hence on par with the 2020/21 level.

FAO’s latest forecast for world trade in cereals in 2021/22 has been raised slightly since June and now stands at a record 472 million tonnes, representing an increase of 0.8 percent from the 2020/21 volume.

At nearly 235 million tonnes and unchanged from last month, trade-in coarse grains in 2021/22 (July/June) is forecast to remain near its 2020/21 estimated level. Continued large maize purchases from China are seen supporting a record maize trade level in 2021/22, while an expected expansion in sorghum trade is seen offsetting a likely fall in barley imports due to lower anticipated purchases by China, Morocco and Saudi Arabia.

Greater import demand expected from Algeria and Pakistan has lifted FAO’s forecast for world wheat trade in 2021/22 to 189 million tonnes this month, an increase of 2.1 percent from 2020/21 mostly stemming from continued strong demand from several countries in Asia.

International trade in rice in 2021 (January-December) is forecast at 48.2 million tonnes, up marginally from the June forecast, but 6.0 percent above the 2020 volume. A revival in import demand from Bangladesh, alongside rising imports by China, Cote d’Ivoire and Nigeria, are forecast to drive this increase, although a likely surge in purchases by Viet Nam (a major rice exporter) is also seen contributing to the year’s global import expansion.

MTN Nigeria’s AAA Status by GCR Rating: What Does it Mean?

Kalu Aja
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MTN Nigeria’s AAA Status by GCR Rating: What Does it Mean?

Nigeria’s largest mobile network operator, MTN Nigeria, has announced that the Global Credit Ratings (GCR), a rating agency, has upgraded her national scale long-term issuer ratings to AAA. GCR has also affirmed MTN’s national scale short-term rating of A1+. This rating is a big deal for MTN, A huge positive affirmation of its franchise in Nigeria.

MTN Nigeria is now the first mobile network operator in Africa to be accorded an AAA corporate rating by GCR rating, the highest possible long-term and short-term ratings on GCR’s national rating scale.

GCR said the AAA ratings reflect MTN’s very strong competitive position as the leading provider of telecommunication services in Nigeria and its strong earnings and cash flow, which has supported a robust financial profile. GCR also noted that MTN Nigeria is viewed as operationally integral to the MTN Group and accounts for 29% of MTN Group subscriber base (FY20) and around 30% each of revenue and EBITDA of MT Group.

MTN Nigeria Is The Group Crown Jewel

Nigeria is the largest MTN market, contributing 14.6% to the MTN group’s service revenue in 2020. MTN posted the highest ever recorded full-year revenue of any Nigerian listed company at N1.3t in FY 2020, and this was an increase of 15% from 2019. MTN Data-led segment sales alone posted a 51% year to year growth.

MTN 4G Network now covers about 60% of the Nigerian population compared to 43% in 2019. GCR notes that MTN Nigeria’s competitive position is underpinned by its well-established brand, a broad spectrum of licences, substantial infrastructure and network coverage, which allows it to monetise excess capacity and share infrastructure with other domestic operators.

What does a AAA Corporate Rating Mean?

What are corporate ratings? According to Investopedia, “A corporate credit rating is an opinion of an independent agency regarding the likelihood that a corporation will fully meet its financial obligations as they come due”. A rating is like a credit score for companies; the higher the rating, the higher the relative ability of a company to meet its obligations, both long term and short term.

An AAA Rating means in GCR’s opinion that any lender buying long term bonds from MTN has the confidence that MTNs credit obligation has the “highest international scale creditworthiness.” In addition, MTN issued short term obligations have the “highest certainty of timely payment.”

In summary, lending to MTN with a high credit rating is good business and prudent. According to GCR Rating, the leverage metrics for MTN Nigeria are expected to remain strong.

Why Is This a Big Deal for Nigeria and MTN?

MTNs revised strategy, tagged Ambition 2025, is anchored on building the largest and most valuable platform business with a clear focus on Africa. MTN Group plans to divest its other operations in the Middle East and focus on Africa by driving scale connectivity and infrastructure business, using its mobile and fixed access networks across the consumer, enterprise, and wholesale segments.

MTN’s goal is to “win in digital services in the key African markets as customers come online for the first time.”

According to the e-Conomy Africa 2020 report prepared by the IFC (the Finance arm of the World Bank) and Google, the Africa internet economy has the potential to reach $180 billion by 2025, accounting for 5.2% of the GDP of Africa in just four years.”.

Nigeria in 2019 had 125 million internet users, which translates to a 60% penetration rate. Thus MTN is positioning itself to capture as much of this fast-growing market. MTN plans to implement its growth strategy through selective partnerships and leveraging MTN’s brand as the most trusted and valued in Africa. At the same time, it will be supported and funded through enhanced cost and CAPEX efficiencies.

To target and win a critical share of this projected 125m subscribers in Africa, MTN Group must invest in infrastructure, people and systems. Thus MTN plans to invest approximately R29.1 billion in its network, fintech and digital services platforms in 2021, supporting its 2025 ambition.

Nigeria is MTN Group’s key market in Africa and will be critical to driving revenue growth. To support the group’s growth strategy MTN Nigeria registered an N200bn Bond Issuance Programme and successfully raised N110bn in Series 1 Senior Unsecured Bond Issue in May 2021. GCR also notes that despite the increase in borrowing,

“MTN Nigeria net debt to EBITDA has remained conservative around 1.3x in the recent period and operating cash flow of debt has trended above a strong level of 40%.”. GCR maintains the N110b Bonds will bear the same national scale long term rating as that accorded to MTN Nigeria. Thus MTN, with its premium credit rating, can borrow to invest at prefered rates, further improving margins and competitiveness.

Commenting on the rating, Karl Toriola, Chief Executive Officer, MTN Nigeria, said,

“We are delighted with the outcome of the GCR rating. This demonstrates the resilience of our business and positions MTN Nigeria as the benchmark of reference for the information and communications technology sector for long-dated, fixed-term instruments. As we continue to invest in our network and strengthen our risk management processes, we remain focused on sustaining and accelerating growth in line with our Ambition 2025 strategy.”

MTN’s goal is simple, and they want to be number one in Africa by a mile; in my view, the GCR rating confers a premium status to MTN Nigeria, enabling it to approach the Nigerian equity and debt markets. MTN has demonstrated it can be flexible and adaptive in managing crises and delivering stunning positive headline numbers.

A focus on the African markets is appropriate and allows MTN to deploy its most trusted brand status to significant effect. MTN’s FINTEC franchise alone, with over 46 million subscribers, and projected by the Group CEO Ralph Mupita to hit 100 million over the next five years, will be a crucial driver of organic growth for the group, and can possibly be spun off in future as a separate vehicle for investors to participate in according to Mupita.

GCR Ratings is a founding member of Europe based ARC Ratings, which is registered with the European Securities and Markets Authority.

About the Author

MTN Nigeria GCR Rating
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Kalu Aja is a Financial Planner and Economic Strategy Consultant with over 20 years of expertise in the financial services industry. He has extensive knowledge of brand management, Investment & Private Banking and Occupational Pension Management. He is an alumnus of the University of Nigeria, Lagos Business School and the New York Institute of Finance.

Kalu also manages a personal financial advocacy Financial Planning with Kalu Aja which focus on Entrepreneurship and Personal Finance. He also writes and speaks on various media and forums along with the topics of financial literacy, fiscal federalism and limited government.

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