GCR Affirms FG-Backed Family Home Funds BBB+ Rating
GCR Ratings has affirmed the national scale long-term and short-term Issuer ratings of BBB+ (NG) and A2 (NG) respectively accorded to the federal government of Nigeria-backed Family Homes Funds Limited, with the outlook accorded as stable.
According to GCR, the ratings are underpinned by the company’s strong capitalisation, solid funding and liquidity profile, and moderate credit risk. It noted that these rating strengths are, however, counterbalanced by a weak competitive position given its limited scale and track record.
FHF, a public purpose institution, owned by Nigeria Sovereign Investment Authority and Ministry of Finance Incorporated, with 49% and 51% stakes respectively, was set up specifically as part of the Federal Government’s Social Intervention Programme to promote affordable housing in Nigeria.
While the Company started off as a real estate developer, GCR said the focus has recently shifted to real estate financing (lending), providing funds for the construction of housing units in addition to its development activities in order to achieve scale and meet its mandate.
“FHF’s competitive position is considered low given its limited track record and scale, having only operated for barely four years, with weak franchise within the Nigerian homes financing market”, the ratings agency stated.
Reflective of the change in its operating model, it is noted that interest income now dominates earnings with less reliance on FGN securities-related income. However, limited funding sources have constrained the ability to scale up lending and achieve set targets.
Capital and leverage are considered a key rating strength for FHF, GCR added. It said operations have historically been funded by Federal Government grants amounting to N65 billion at FY20, which have been committed to lending, marketable securities and real estate properties.
In July 2021, the Company successfully raised N10 billion in Series 1 Sukuk Issue under its N30bn Sukuk Issuance Programme through a special purpose vehicle, Family Homes Sukuk Issuance Programme Plc.
The Sukuk net proceeds is to be utilised to support business operations. Based on GCR’s computation, FHF’s leverage ratio is considered exceptionally strong (averaging 90% over the years) and is expected to remain solid over the outlook period. However, the Company has yet to generate sufficient internal cash flows to enhance funding flexibility.
Risk is a neutral factor to the ratings. FHF’s credit risk exposure is considered moderate, with total gross loans representing only 59% of the total assets as of 2020.
The loans are mostly to State governments and are secured by Irrevocable Standing Payment Order as the first-line charges on the states’ statutory allocations, thus enhancing asset quality.
While the Company’s ability to effectively manage its credit risk has yet to be tested given the limited track record in lending, GCR expects asset quality to remain stable in the short term.
Nevertheless, the position could weaken in the coming years as FHF increases its appetite towards lending to the private sectors. FHF’s liquidity profile is viewed to be strong, given the substantial level of its marketable securities over the review period.
This is further enhanced by the unutilised committed facility of N3.5 billion from the FGN Stabilisation Fund and an outstanding balance of N35 billion out of the N100 billion earmarked for FHF’s operations under the FGN’s Social Investment Programme.
The proceeds from the Series 1 Sukuk Issue is expected to further support its liquidity profile.
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GCR explains that the stable outlook reflects its view that FHF will continue to benefit from strong financial support from the Federal Government of Nigeria. It also expects capital and leverage to remain strong, with sufficient headroom in liquidity.
