GCR Ratings Proposed Series 1 Bond Issue by Presco Plc up to N30 Billion
Sunday 06 February 2021 / 08:00 / by GCR Ratings / Header Image Credit: Presco PLC
GCR Ratings (“GCR”) has assigned a National Long Term Indicative Rating of A-(NG)(IR) to Presco Plc offered up to N30 billion of Series 1 senior unsecured bonds with the outlook seen as stable.
*IR stands for indicative rating
The indicative rating assigned to the proposed N30 billion Series 1 senior unsecured bond reflects the long-term rating of the issuer, namely Presco Plc, one of Nigeria’s leading palm oil producers. GCR has assigned a nationwide long-term issuer rating of A-(NG) to issuer with a stable outlook in February 2022. The rating balances Presco’s robust earnings trajectory, moderate leverage and strong competitive position in Nigeria’s palm oil producing segment against the valuation weakest of its parent company, Siat NV Belgium (“Siat NV” or “the group”). (link to the issuer’s ARC)
Presco Plc is in the process of registering a N50 billion bond issuance program (“the programme”) with the Securities and Exchange Commission, with up to N30 billion to be issued in series bonds 1 under the program, with an expected duration of seven years, including a three-year moratorium on the principal amount from the date of issue. The Series 1 Bond will include a call option whereby the Issuer may choose to make early redemption of the Bonds, in whole or in part, at the expiry of a period of 48 months from the date issue pursuant to the provisions of the Series 1 Trust Indenture. Repayment of principal on the Series 1 Bond will be on an amortized basis, after the principal moratorium period or on call, while the coupon payment will accrue from the date of issue and will be due. and payable semi-annually in arrears, up to and including the maturity date.
The Series 1 Notes will be direct, unconditional, senior, unsubordinated and unsecured obligations of the Issuer and will rank past bet without any preference between them. Bonds also rank past bet with all other senior unsecured and unsubordinated obligations assumed by the Issuer other than those mandatorily preferred by law.
Being senior unsecured debt, the proposed Series 1 Notes will rank past bet with all other senior unsecured creditors of the Issuer. Thus, the Bonds will have the same national long-term rating as that granted to the Issuer. Consequently, any change in the long-term rating of the Issuer would impact the rating of the Bond.
The stable outlook reflects GCR’s view that Siat NV will maintain the recent return to profitability and stable cash flow and significantly reduce debt. GCR also expects Presco to continue to post strong revenue growth and solid margins, which should cushion the debt surge.
As Presco’s rating is currently constrained by its parent company, a rating upgrade is contingent on Siat NV’s strengthening financial condition, including 1) Siat NV’s ability to demonstrably sustain recent earnings improvements and net profits, 2) significantly reduce gross debt to more sustainable levels, 3) improve corporate governance deficiencies. This needs to be complemented by sound cash management at Presco such that 12-month cash coverage exceeds 2x and net debt to EBITDA moderates into the 1x-1.25x range.
A downgrade move could result from 1) failure to address Siat NV’s concerns and further weak earnings performance, 2) a significant increase in debt, whether at Presco or the Group.
1. Presco Plc will hold a board meeting on January 26, 2022
2. Presco Plc maintained its outperform rating when reviewing third quarter 2021 results
3. Review of Presco Q4’20 and Q1’21 results: strong outlook for FY21 2021 thanks to strong fundamentals
4. PRESCO Declares N5.3 Billion PAT in Audited 2020 Results and Proposes Final Dividend of N200,000; (SP:N72.00k)
5. Presco postpones board meeting to March 23, 2021
6. PRESCO notifies the date of the board meeting and the start of the closed period
seven. PRESCO reports N7bn PAT in fourth quarter 2020 results, (SP: N75.00k)
8. PRESCO notifies the date of the board meeting and the start of the closed period
9. Presco Plc Q3 2020 Unaudited Results – Cost Pressures Keep Profits Flat
ten. PRESCO Reports N5bn PAT in Third Quarter 2020 Results, (SP: N65.90k)