GCR Touched FCMB Credit Status with Rating Watch Negative
Africa’s leading credit ratings agency, GCR Ratings, has downgraded FCMB’s creditworthiness and kept group outlook under rating watch negative. The final ratings apply to its debt notes sold to investors last year. In the stock market, FCMB market valuation moderated to N158 billion after slight bearish display on the group shares which closed at N8, accoridng to data from the Nigerian Exchange.
In its latest release, GCR Ratings assigned a national scale long-term issuer rating of BBB-(NG) to FCMB Group Plc’s N26 billion series 2 Additional Tier 1 subordinated bonds, with a rating watch negative accorded to its outlook.
The firm explained that the series 2 perpetual, non-cumulative, fixed-rate, resettable, additional tier 1 capital subordinated bonds are the second to be issued under FCMB Group Plc’s N300 billion Debt Issuance Programme. In October 2023, FCMB raised N26 billion through the Series 2 Bonds, at a resettable fixed coupon rate of 16%, with no scheduled maturity date.
GCR stated that the Series 2 additional tier 1 capital Bonds qualify as additional tier 1 capital of the issuer under the approval of the regulator, Central Bank of Nigeria (CBN), and will constitute direct, unsecured, and subordinated obligations of the Issuer.
According to its latest release on FCMB group, GCR ratings said the Series 2 additional tier 1 capital Bonds shall rank pari passu among themselves and with any present and future parity obligations.
The net proceeds from the Series 2 additional tier 1 capital Bonds will be exclusively utilised for the provision of qualifying additional tier 1 capital to First City Monument Bank Limited, according to the rating note.
GCR added that the Series 2 Bonds’ structure is to be solidified through intercompany notes agreement. The rating note explained that the terms and conditions mean that the bank which is the major operating entity of the Group is contractually obliged to support the notes in line with the bank’s additional tier 1 capital ranking.
The notes rank alongside such parity obligations of the bank, GCR Ratings said in the report. As a result, GCR said it has chosen to notch down from the bank’s national scale long-term issuer rating of A-(NG), and not from the Group’s national scale long-term issuer rating of BBB+ (NG).
Also, GCR said it has chosen to apply a 3-notch differential from the senior unsecured ratings of the bank, reflecting the contractual subordination of the note which ranked below senior unsecured and subordinated bonds. The ratings firm said interest payments on FCMB bonds are deferrable and non-cumulative. Payments are subject to the group’s discretion.
The rating note indicates that the financial services group’s series 2 additional tier 1 capital bonds can be written down when its common equity tier one (CET1) ratio reaches 10.75%, which is 0.25% above the regulatory minimum or when the CBN considers the bank to be at a point of non-viability.
GCR said as a result, it has assigned a final public national scale long-term issue rating of BBB-(NG) to the series 2 additional tier 1 capital bonds and the firm analysts believe the notes qualify for intermediary levels of capital under its methodology. On outlook statement, the emerging market ratings agency said FCMB’s stable outlook reflects that of the bank’s national scale ratings and adequate room over deferability or write down clauses.
In its February 2024 review, Fitch Ratings said it maintained the rating watch negative on First City Monument Bank, reflecting a view that the banks are at risk of breaching the requirement. >>> Naira Suffers Big, CBN Goes Ballistic Against FX Whales
The global rating firm attributed this to further capital pressure emanating from further naira depreciation and credit losses considering already high Stage 2 and Stage 3 loans which settled at 31% of gross loans at the end of the third quarter of 2023. #GCR Touched FCMB Credit Status with Rating Watch Negative
