Johannesburg, March 16, 2017 -- Moody's Investors Service today has assigned a Ba2 long term corporate
family rating (CFR) and a A3.za long term CFR national scale rating
to Consolidated Infrastructure Group Limited's (CIG or Group),
to replace the Ba2 long term issuer rating and A3.za long term
national scale issuer rating, previously assigned to the Group.
The ratings outlook is stable. Concurrently, Moody's
has withdrawn the Ba2 long term issuer rating and A3.za long term
national scale issuer rating.
RATINGS RATIONALE
The amended long term rating class description to Corporate Family Rating
from long term issuer ratings does not affect CIG's ratings position.
Moody's has withdrawn the ratings for its own business reasons.
Please refer to the Moody's Investors Service's Policy for Withdrawal
of Credit Ratings, available on its website, www.moodys.com.
CIG's Ba2/A3.za CFR reflect (1) CIG's position as a leading
niche market player in Sub-Saharan Africa, with over 29 years
of operating experience in its core business, Conco; (2) its
strong market position in most of the sub-sectors in which it operates;
(3) a growing order book of ZAR5 billion (US$340 million),
creating good visibility for the next 12 to 18 months; and (4) strong
energy infrastructure spend fundamentals throughout Africa. In
addition, the ratings are also supported by moderate financial metrics
with leverage (as measured by adjusted pro forma debt/EBITDA which includes
the Conlog acquisition) of 2.4x. All credit metrics and
data points are as of the year ended 31 August 2016 and are according
to Moody's standard definitions and adjustments.
These considerations are partially offset by (1) the small size of the
Group when compared to its larger global peers; (2) the weaker institutional
strength (risk of doing business) of the rest of Africa (41% of
Group revenue) relative to South Africa; (3) reliance on key customers
within its Conco operations (the top ten customers represent 51%
of the pipeline); (4) cyclical operating environment experienced
by its building divisions (11% of Group revenues); and (5)
exposure to contingent liabilities totalling ZAR1.9 billion in
the form of outstanding performance guarantees, although Moody's
acknowledges that over the last 29 years no performance guarantees have
been exercised by a customer.
The stable outlook reflects Moody's view that CIG will continue
to maintain its current operating profile in terms of EBITDA margins and
manage working capital demands in the face of a more challenging economic
environment, sustain a healthy order book going forward and continue
to maintain a sound liquidity profile at all times.
CIG's liquidity is expected to remain solid over the next 12 to 18 months,
supported by a sizeable cash balance of ZAR596 million; unutilised
committed liquidity facilities of ZAR704 million; and internal cash
flow generation. These sources comfortably address CIG's relatively
low debt-repayment profile, capital expenditure requirements
and higher working capital demands, which are driven by the short-term
cash requirements of its growing project pipeline.
FACTORS THAT COULD LEAD TO AN UPGRADE
• CIGs track record as a rated entity builds
• CIG significantly improves in terms of size and sector diversification
• Client concentration exposure reduces
• Evidence that financial performance under more challenging operating
conditions is maintained
FACTORS THAT COULD LEAD TO A DOWNGRADE
• Leverage in terms of gross debt/EBITDA exceeding 3.0x and/or
EBIT/Interest expense falling below 3.0x, both on a sustainable
basis
• Free cash flow-to-gross debt is negative
• Unexpected operating difficulties that negatively affect operational
performance or cash flows
• CIGs liquidity profile deteriorating
The principal methodology used in these ratings was Construction Industry
published in November 2014. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
Glossary of Terms and Acronyms
Capital Expenditures or Capex: This includes gross expenditures
for property, plant and equipment and intangible assets.
Corporate Family Rating: Moody's Corporate Family Ratings (CFRs)
are long-term ratings that reflect the likelihood of a default
on a corporate family's contractually promised payments and the expected
financial loss suffered in the event of default. A CFR is assigned
to a corporate family as if it had a single class of debt and a single
consolidated legal entity structure.
Credit Rating: A Credit Rating is an opinion from Moody's Investors
Service (MIS) regarding the creditworthiness of an entity, a debt
or financial obligation, debt security, preferred share or
other financial instrument, or of an issuer of such a debt or financial
obligation, debt security, preferred share or other financial
instrument, issued using an established and defined ranking system
of rating categories.
Debt: Long term debt (including liability for capital leases) plus
short term debt plus current portion of long term debt. May also
be adjusted to include other long term obligations, such as leases
and pensions.
EBIT: Pre-tax income plus interest.
EBITDA: EBIT plus depreciation plus amortisation of intangible assets.
EBITA and EBITDA may be used as an indication of earnings available to
service debt and capital expenses.
Issuer: The term Issuer means any entity by which a Security has
been issued, guaranteed, or by which the credit underlying
a Security has been otherwise supported. The term Issuer also includes
the corporate parent or majority-owned subsidiary of an Issuer.
Issuer Rating: Issuer Ratings are opinions of the ability of entities
to honor senior unsecured financial counterparty obligations and contracts.
National Scale Long Term Rating: Moody's long-term National
Scale Ratings (NSRs) are opinions of the relative creditworthiness of
issuers and financial obligations within a particular country.
NSRs are not designed to be compared among countries; rather,
they address relative credit risk within a given country.
National Scale Short Term Rating: Moody's short-term NSRs
are opinions of the ability of issuers in a given country, relative
to other domestic issuers, to repay debt obligations that have an
original maturity not exceeding one year. Short term NSRs in one
country should not be compared with short-term NSRs in another
country, or with Moody's global ratings.
Outlook: An Outlook is an opinion regarding the likely direction
of an issuer's rating over the medium term.
Rating Outlook: A Moody's rating outlook is an opinion regarding
the likely rating direction over the medium term. Rating outlooks
fall into four categories: Positive (POS), Negative (NEG),
Stable (STA), and Developing (DEV). Outlooks may be assigned
at the issuer level or at the rating level.
Withdrawn: When Moody's no longer rates an obligation on which it
previously maintained a rating, the symbol WR is employed.
For further information on these definitions or on Moody's ratings symbols,
please consult the Rating Symbols and Definitions document on www.moodys.com
REGULATORY DISCLOSURES
First Release Rating Date and Last Credit Rating Action Date
The rating for MDY: 823102129, NSR LT Issuer Rating,
ISSUER RATING, ZAR of Consolidated Infrastructure Group Limited
was initially assigned on 9 Mar 2012 and the last Credit Rating Action
was taken on 11 May 2016.
The rating for MDY: 823102129, LT Issuer Rating, ISSUER
RATING of Consolidated Infrastructure Group Limited was initially assigned
on 11 May 2016 and the last Credit Rating Action was taken on 11 May 2016.
Only credit rating actions issued by Moody's Investors Service South
Africa (Pty) Ltd are considered for the purpose of this disclosure.
Please see the ratings tab on the issuer page on www.moodys.com
for additional rating history details. The date on which some ratings
were first released goes back to a time before Moody's ratings were
fully digitized and accurate data may not be available. Consequently,
Moody's provides a date that it believes is the most reliable and
accurate based on the information that is available to it.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
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this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
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For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
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The main assumptions underlying the methodology used to determine the
credit ratings are:
1) Expected future trends for the relevant industry(ies) structure,
competitive dynamics, supply & demand, regulatory environment,
and technology are assumed to be predictive for the likelihood of default
and expected loss.
2) Expectations for competitive/market position and management's
capabilities and approach to business and financial risks are assumed
to be predictive for the likelihood of default and expected loss.
3) Indicators for profitability, interest coverage, and asset
quality are assumed to be predictive for the likelihood of default and
expected loss, and the rating category criteria are believed to
be appropriate.
4) Indicators for cash flow generation, leverage, and debt
coverage are assumed to be predictive for the likelihood of default and
expected loss, and the rating category criteria are believed to
be appropriate.
5) Expectations for legal, regulatory, liquidity, and
financial market risks, mergers/acquisitions and recapitalization
events, integrity of financial reporting, corporate governance,
and the likelihood and nature of support or weakening influence from a
parent, affiliate, government or financial party are assumed
to be predictive for the likelihood of default/expected loss.
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parties involved in the rating, parties not involved in the rating,
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or money market instruments.
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1) If Moody's assumptions for the relevant industry(ies) structure,
competitive dynamics, supply & demand, regulatory environment,
and technology are materially worse (better) than actual future results,
this could result in positive (negative) implications for the rating.
2) If Moody's assumptions for competitive/market position and management's
capabilities and approach to business and financial risks are materially
worse (better) than actual future results, this could result in
positive (negative) implications for the rating.
3) If Moody's assumptions about profitability, interest coverage,
and asset quality are materially lower (higher) than actual future results,
this could result in positive (negative) implications for the rating.
4) If Moody's assumptions about cash flow generation, leverage,
and debt coverage are materially lower (higher) than actual future results,
this could result in positive (negative) implications for the rating.
5) If Moody's assumptions about legal, regulatory, liquidity,
and financial market risks, mergers/acquisitions and recapitalization
events, integrity of financial reporting, corporate governance,
and the likelihood and nature of support or weakening influence from a
parent, affiliate, government or financial party are materially
worse (better) than actual future results, this could result in
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Definitions page on www.moodys.com for further information
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recovery.
Moody's credit ratings are opinions of the relative credit risk
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on the time horizon in which a credit rating action may be expected after
a review or outlook action took place.
I hereby attest, as a person with responsibility for this Credit
Rating Action, that to the best of my knowledge, based on
(i) my participation in the rating committee that determined to take this
Credit Rating Action, (ii) any materials I have reviewed in connection
with the rating committee, and (iii) the attestations I have received
from other members of the rating committee:
1) No part of this Credit Rating Action was influenced by any other business
activities of Moody's Corporation-- i.e.,
this Credit Rating Action was not affected by the existence of,
or potential for, other business relationships between Moody's
Investors Service or its affiliates and the Rated Entity or its affiliates,
or the non-existence of any such relationships;
2) This Credit Rating Action was based solely on the merits of the obligor(s),
security(ies) or instrument(s) being rated; and
3) This Credit Rating Action was an independent evaluation of the credit
risk of the obligor(s), security(ies), or instrument(s) assessed
in this Credit Rating Action and is subject to the potential limitations
of the Credit Ratings disclosed with this Credit Rating Action.
David Staples, MD-Corporate Finance
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
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for additional regulatory disclosures for each credit rating.
Dion Bate
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
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David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
