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Investor Relations |
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Information about C & I Business |
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Security class outlook
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Rating scale
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Currency
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Rating
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Expiry date
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Rating
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Short term
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National
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Naira
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A3
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06/2007
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Stable*
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Long term
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National
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Naira
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BBB
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06/2007
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Stable*
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Rating rationale
The ratings are supported by the following factors:
x_C&I’s management are well qualified with an
established track record in Nigeria. C&I is the only listed
leasing
company in Nigeria, is one of the largest independent
players and is licenced by the Central Bank.
x_Although not regulated, provisions are raised in line with
the Central Bank of Nigeria’s (CBN) guidelines, with
a 1% provision raised against performing loans. Exposures
are adequately secured by the leased asset, with
market demand and resaleability of the asset as key
considerations in contract approval. Assets are
comprehensively insured with reputable insurers.
Non-performing loans related primarily to the lending book,
which is being run down, and were 100% covered by
provisions.
x_Due to the company’s size, solid track record and listed
status, bank funding has been readily available.
x_To reduce gearing and expand operations, the company has
proceeded with a public offer to raise N1.6bn,
scheduled to close on 30 June 2006 and underwritten by
Diamond Bank. The offer will increase the market
capitalisation of the company to N2.3bn, from around N690m.
The ratings are constrained by the following factors:
x_Due to the lack of adequate laws governing leasing
transactions in Nigeria, the repossession of leased assets
can
be problematic. A leasing Bill has, however, been passed by
the Senate in June 2006. If assented to by the
president, leasing practitioners would be required to
register with a constituted regulatory body, while the
regulatory framework will be enhanced.
x_Although unused committed bank lines amounted to 65% of
outstanding debt securities, liquidity risk remains a
significant factor, with bank facilities withdrawable at
short notice and highly concentrated.
x_Operating income has declined for two successive years,
which has partly been due to the strategic refocus to
operating leases and escalating financing costs.
Funding and liquidity
C&I is primarily funded via the issue of commercial paper,
which is generally taken up by banks, insurance
companies and individuals. In addition, C&I has secured
credit lines with a number of local and foreign banks.
Commercial paper issues have also generally been rolled
over, although this cannot be guaranteed going forward.
Since the majority of the operating lease contracts are
longer dated, while funding in Nigeria is generally short
term, liquidity risk poses a significant risk. In this
respect, funding is generally linked to specific leasing
contracts
in terms of leveraged leases. Total capital and reserves has
grown consistently over the review period solely on the
back of retained earnings. Shareholders funds increased 9%
in F06. Total capital/assets amounted to 21% at
FYE06, and will escalate to around 53%, which is well ahead
of most banks in Nigeria.
Potential risks
x_Liquidity remains the key risk facing C&I, but could be
mitigated by the public offer in the short term.
x_Competition in a largely unregulated industry with a low
barrier to entry is increasing and may impact margins
going forward. The lack of adequate laws governing the
repossession of assets in Nigeria remains a concern.
The public offer was a significant factor underpinning the
award of the current ratings.
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