GCR Affirms Novare Fund Manager Nigeria Ratings with Stable Outlook
GCR Ratings (GCR) has affirmed Novare Fund Manager Nigeria Limited’s national scale long-term and short-term issuer ratings of BBB+(NG) and A2(NG) respectively.
The ratings agency also accorded the issuer rating outlook as stable. According to GCR, the ratings of Novare Fund Manager Nigeria Limited reflect the broad strengths and weaknesses of Novare Fund Manager Limited Mauritius.
Ratings analysts explained that this is because Novare Nigeria is a core operating subsidiary of Novare Mauritius whose ultimate parent is South Africa-based Novare Holdings Proprietary Limited.
The ratings balance the fund manager’s strong leverage and liquidity position against a relatively weak business profile due to its modest portfolio size and the volatile operating environments where real estate assets are located, GCR said.
Novare Mauritius’ business profile reflects its modest size and concentrated pool of assets under management (AUM), managing USD181.4 million of commercial real estate investments held in closed-end funds under Novare Africa Fund PCC (a listed Mauritian fund structure) as at December 2024 from USD217.4 million in 2023.
GCR said of the 9 assets therein, most are commercial malls with some office exposure, added that the current asset portfolio is also biased towards Nigeria but shows some diversity to Mozambique and Zambia.
The rating note explains that the overall portfolio does display sound fundamentals, with generally low vacancy rates due to prime positions and a strong tenant profile.
The process of establishing a real estate investment trust (REIT) scheme for the four Nigerian assets in the Novare Africa Fund PCC, has been significantly delayed over the past three years, but is expected by year end 2025 as registration has taken place, GCR said.
Novare Nigeria is expected to remain as fund manager, ratings analysts stated, adding that the REIT structure is expected to attract new capital to support additional property investments that could expand asset under management.
GCR highlighted that Novare Mauritius earnings are supported by annuity-type income, earning a fixed management fee of 1.25% of net asset value (NAV) and 1.5% of capital commitments in respect of funds I and II under Novare Africa Fund PCC.
However, earnings have been pressured over the past few years, given weak macroeconomic conditions across the operating countries which led to sharp currency devaluations in dollar terms and thus NAV.
“Since July 2022, the fund manager has also had to waive a portion of the management fee from Nigeria, accumulating receivables, due to cash constraints on the underlying assets.
“This has seen revenue decline further to USD2.9 million in financial year 2024 (which ended 30 June 2024) from USD3.2 million in financial 2023.
“Positively, EBITDA margins have remained stable at around 30%, due to good cost control. The nine-month interim 2025 results show a slight uptick in performance, and we expect this to continue on the back of less volatile exchange rates in Nigeria and improved macroeconomic fundamentals which may positively impact real estate values.
“Leverage and cash flow assessment is a strong rating support, given that Novare Mauritius has no debt. However, the currency mismatch of underlying debt – held under the individual SPVs of the property assets – against asset values exposes Novare Mauritius to earnings and asset quality risks”.
GCR said the respective debt funders to the asset SPV’s have first lien on pledged assets of the fund.
“We note that some of the Nigerian SPVs Loan-to-Value ratios are currently in breach of debt covenants. To address this, management has obtained a waiver from the creditor, and a restructuring is ongoing to extend the term of the loans by 12 months from June 2025”.
The liquidity position is adequate. This is predicated on strong balance sheet liquidity, cash holding and limited liability risk. However, GCR expects Novare Mauritius to exercise some level of discretion for dividend payment and additional investment.
The stable outlook reflects GCR view that Novare Mauritius will continue to maintain an ungeared balance sheet, with adequate cash flow and liquidity. Ratings analysts expect improved performance of the underlying portfolio to support earnings sustainability. #GCR Affirms Novare Fund Manager Nigeria Ratings with Stable Outlook#
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