Fitch Ratings, the foremost global rating agency, has assigned an expected rating of ‘B+(EXP)’ to Zenith Bank Plc’s proposed $500 million five-year senior unsecured notes (the Issue). Nigeria’s second largest lender by asset size said it plans to raise funds under its updated USD1 billion global medium term note (GMTN) to support its general banking business.
The rating is however indicative as Fitch said it will give the final rating when it confirms information it has received as at the time of issuing the expected rating.
“The assignment of the final rating is contingent on the receipt of final documents conforming to the information received to date,” Fitch said in a ratings release it issued Friday, May 12 in London
Nigeria-based Zenith Bank had notified investors that it plans to revalidate the US$1bn Global Medium Term Note Programme it established in 2014, to raise up to US$500 . The planned fund raise is will be done under the Programme’s second tranche of Notes (the Notes) as the lender had previously raised an equivalent amount under the first tranche.
The Bank expects to issue the Notes directly, but will also be flexible to issue it through an offshore special purpose vehicle within the limits of market conditions; the Bank will pay net proceeds from the Note issuance to its foreign currency domiciliary account, and may be converted into Naira or retained in foreign currency.
The Recovery Rating is ‘RR4’, which denotes average recovery prospects in the event of default.
Fitch said the Notes are rated in line with Zenith’s Long-Term Issuer Default Rating (IDR) of ‘B+’. In the agency’s view, the likelihood of default on these notes reflects the likelihood of default of the bank.
However, Fitch noted that the rating on the Notes is sensitive to a change in the lender’s IDR, which could be triggered by a material asset quality and capital deterioration as well as continued pressure on foreign currency funding and liquidity.
Zenith said in the investors’ notification that it will make principal and interest payments on the notes from its foreign currency reserves since it will not be able to access the Nigerian foreign exchange market in order to make such payments. But in the event that there are insufficient funds make the interest and principal payments on the Notes, the Bank said that it will seek approval from the country’s apex bank, the Central Bank of Nigeria, to allow it access the official foreign exchange market
Renaissance Capital, a leading emerging and frontier markets investment bank with operations in Sub-Saharan Africa, Russia, Middle East, and Asia, had said in a research report it released on Monday that Zenith made its list of the top 6 stocks in the sub-Saharan African region on the back of low exposure to oil and gas industry, the most troubled sector in the Nigerian economy.
“Zenith’s asset quality trends have been among the most stable in our coverage universe. We also take some comfort in the fact that Zenith has the lowest exposure to the sectors we are most worried about in this challenging environment. Overall, we continue to think the fundamentals of the business remain strong,” the investment bank had observed.
CSL Stockbrokers, Lagos-based investment firm, said in its bank sector update released yesterday that it maintains its ‘buy’ rating on Zenith and a price target of N20.11.
“We arrive at our target price by applying an implied 0.9x PBV to our 2017e BVPS estimate of N22.7/s. Key inputs to our forecast are a 23.0% long-term return on assets employed (RoAE), a 23.8% cost of equity (COE) and an 8.0% long-term growth rate.”
“Zenith’s ratings are among the highest assigned by Fitch to a Nigerian bank”, Fitch said in the ratings release. “This reflects its sound company profile and management, solid capital base and strong through-the-cycle performance.”
