GCR Assigns an Indicative Rating of BBB (NG)(IR) with a Positive Outlook to Fidson Healthcare Plc

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Monday, June 14, 2021 / 10:11 AM / by GCR Ratings / Header Image Credit:  Fidson Healthcare

 

GCR Ratings ("GCR") has assigned a national scale long term indicative Issue rating of BBB+(NG)(IR) to Fidson Healthcare Plc's proposed N4bn Series 1 Senior Unsecured Bonds with a Positive Outlook.


Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook / Watch

N4bn Series 1 Senior Unsecured Bond

Long Term Issue

National

BBB+(NG)(IR)*

Positive

 

*IR stands for Indicative Rating.


Rating Rationale

Fidson Healthcare Plc ("Fidson" or "the Issuer") has filed an application with the Securities and Exchange Commission to issue bonds into the Nigerian capital market, under a N10bn Bond Issuance Programme and is in the process of raising an initial N4bn of Series 1 Senior Unsecured Bonds ("Series 1 Bonds"). The Series 1 Bonds shall constitute senior, direct, irrevocable, and unsubordinated obligations of the Issuer, and shall rank pari passu without any preference among themselves with all unsecured and unsubordinated indebtedness and monetary obligations of the Issuer, present and future, but in the event of insolvency, only to the extent permitted by applicable laws relating to creditors' rights.


Fidson is a leading Nigerian pharmaceutical manufacturer, incorporated in 1995. GCR affirmed the national scale long and short term Issuer ratings of BBB+(NG) / A2(NG) assigned to the Issuer on the back of strong competitive position, a well-diversified products portfolio with significant market share in key products, sound earnings profile and moderate leverage metrics.


The Issuer and the Joint Trustees are entering into a covenant, pursuant to which the Issuer absolutely, irrevocably, and unconditionally undertakes to make punctual and full payment of all debts and obligations owed under the Programme.


Given that Fidson offers timely and full coverage of all payments due to the bondholders under the Series 1 Senior Unsecured Bonds, the Bonds bear the same default risk as the Issuer and would reflect similar recovery prospects to senior unsecured creditors in an event of default. As such, the long term rating for the proposed Series 1 Bonds is equivalent to the Issuer's long-term senior unsecured rating.


Outlook Statement

The Positive Outlook reflects GCR's expectation of a likelihood for strong earnings growth over the medium term. Revenue appears well placed to post solid growth over the medium term, while there are some opportunities for margin enhancement through economies of scale and cost containment. Such earnings growth should support improved debt service coverage, even if gross debt increases.


Rating Triggers

Given that the indicative rating is intrinsically linked to the Issuer's long-term rating, any change in the rating assigned to the Issuer will directly affect the Bond rating.


Positive rating action could emanate if Fidson attains or exceeds earnings targets. This would support firmer cash flows and reduce its reliance on short-term debt funding, as well as support stronger debt service coverage. A meaningful extension of the debt maturity profile would also help ease liquidity concerns.


The ratings could be downgraded if 1) debt spike substantially even if due to expansion 2) the Company is unable to refinance its short-term debt or the portion of short term debt rises further 3) there are material cost overruns that impact the attainment of earnings targets and increase the recourse to working capital funding.


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