Transcorp Hotels Plc - FMDQ OTC Securities Exchange

Transcorp Hotels Plc
Nigeria Corporate and Bond Analysis
Rating class
Rating scale
Long term
National
Short term
National
Series 1: N10bn Fixed Rate Bond
National
Series 2: N10bn Fixed Rate Bond
National
Financial data:
(USD’m comparative)
31/12/13
31/12/14
N/USD (avg.)
N/USD (close)
159.3
161.1
165.1
182.6
Total assets
Total debt
Total capital
Cash and equiv.
Turnover
EBITDA
NPAT
Op. cash flow
400.6
0.0
257.4
53.6
96.4
43.8
27.7
51.2
370.2
0.0
272.3
14.7
91.5
31.2
19.5
(44.8)
Market cap*
USD301.4m
* As at 21/08/2015 @ N198.07/USD
Key Transaction Counterparties
Issuer: Transcorp Hotels Plc (“Transcorp Hotels”,
“THP”, or “the Company” or “the Group”)
Auditors: PricewaterhouseCoopers
Lead Issuing House: FSDH Merchant Bank Limited
Joint Issuing Houses: Stanbic IBTC Capital Limited
and United Capital
Reporting Accountants: Ernst & Young
Trustee: United Capital Trustees Limited
Solicitors to the Trustee: Alliance Law Firm
Solicitors to the Issue: G. Elias & Co
Receiving Bank: UBA Plc
Summary of Transaction:
Asset class
Programme size
Series 1 Bond
Tenor
Legal maturity Date
Series 2 Bond
Tenor
Legal maturity Date
Principal moratorium
Senior unsecured
₦30bn
₦10bn
7 years
2022
₦10bn
5 years
2020
1 year on both Series 1
Bond and Series 2 Bond
Related methodologies/research:
Criteria for rating Corporate entities, updated
February 2015
Glossary of terms/ratios, February 2015
GCR contacts:
Adekemi Adebambo
adekemi@globalratings.net
Senior Analyst
Tel: +23 41 462-2545
Committee Chairperson:
Dave King
king@globalratings.net
Analyst location: Lagos, Nigeria
Rating
Rating outlook
A-(NG)
A2(NG)
A-(NG)
A-(NG)
Stable
August 2015
Expiry date
August 2016
Summary rating rationale
 Transcorp Hotels is a leading player in the upscale segment of the
Nigerian hospitality industry, underpinned by its partnership with
Hilton, industry experience, a highly visible brand, and synergies that
have supported operations. The planned hotel refurbishment, business
diversification and expansion to other key markets (Lagos and Port
Harcourt) should see earnings improve significantly over the long term.
 Security challenges in the Company’s main market (Abuja) and other
incidents have led to declining occupancies over the review period.
Nevertheless, gross margins remained very robust, averaging 75% over
the review period. However, increased administrative expenses have
seen operating margins decline from a high of 41.3% in F10 to 28.1% at
1H F15 (F14: 27.3%). In view of the proposed hotel upgrade and
renovation works, and resultant business interruption, budgets indicate
sustained margin pressure over the medium term.
 THP reports robust operating cash flows and has maintained an
ungeared balance sheet over the review period. Together with a short
dated trade receivables book of sound quality and sizeable cash
balances, these strong cash flows have underpinned strong liquidity.
 Supported by revaluation of assets to their fair value and the recent
capital raising exercise, shareholders funds reached the N50bn level at
FYE14. Total debt is budgeted to register at N20bn at FYE15, following
the Series 1 Issue. Net gearing is anticipated to remain below 40% over
the forecast period, peaking at 33% in both F17 and F18. Net debt to
EBITDA is expected to peak at 189% in each of F16 and F17, and
decline thereafter.
 Given the challenges/risks associated with expansion projects, earnings
underperformance may ensue if the projects are not completed
timeously. Cognisance is also taken of the Company’s reliance on the
Abuja hotel, which accounts for over 95% of earnings at present.
Accordingly, delays in renovations/expansion or any other business
interruption affecting this hotel could severely impact earnings.
 As the Bonds will be senior unsecured obligations of the issuer, and the
bond programme features a negative pledge, the Series 1 and Series 2
bonds will bear the same rating as the Issuer, and any change in the
rating assigned to the Issuer will directly affect the Bonds ratings.
Factors that could trigger a rating action may include
Positive change: Attainment of revenue forecasts, combined with
effective cost management, would lead to improved earnings margins.
Successful and timeous implementation of the hotel upgrade and the
planned expansion into key business hubs should boost earnings over the
longer term. Upward rating migration is only likely once the current capex
programme is successfully bedded down.
Negative change: As evidenced in F12 and F14, the hotel business is
susceptible to the vagaries of the operating environment. Coupled with
infrastructural deficits and erratic power supply that have resulted in rising
operating costs, increased competition or other exogenous factors may
constrain demand or elevate pricing pressures. This could adversely affect
earnings and thus credit risk metrics, placing downward pressure on the
ratings.
Website: http://www.globalratings.com.ng
Nigeria Corporate and Bond Analysis | Public Credit Rating
Company profile
Transcorp Hotels, formerly known as Transnational Hotels
and Tourism Services Limited (“THTSL”), is the
hospitality subsidiary of Transnational Corporation of
Nigeria Plc (“Transcorp”), a diversified conglomerate with
interests in the power, hospitality, agriculture and oil and
gas sectors. Following a privatisation exercise in 2005,
Transcorp acquired a majority stake in NIRMSCO
Properties Limited (“NIRMSCO”), the erstwhile owner of
NICON Hilton Hotel, which is now Transcorp Hilton
Abuja. NIRMSCO had a name change to THTSL in 2007
and was rebranded as Transcorp Hotels Plc in 2014.
Details of THP’s evolution are reflected in Table 1. THP
undertook an initial public offer (“IPO”) during the fourth
quarter of 2014 and subsequently listed on The Nigerian
Stock Exchange (“NSE”) in January 2015, following the
granting of regulatory approvals.
Table 1: History of Transcorp Hotels Plc
Year
Key event /milestone
1987
NICON Hilton Abuja commenced operations.
1994
NIRMSCO acquired the NICON Hilton Hotel Abuja.
Transcorp purchased a majority interest (51%) in NIRMSCO
following a privatisation exercise by the Federal Government of
2005
Nigeria via a wholly owned subsidiary, namely Capital Leisure and
Hospitality Limited.
NIRMSCO changed its name to Transnational Hotels and Tourism
2007
(“THTSL”) and renewed its partnership with Hilton International.
THTSL bought 100% stake in Metropolitan Hotels and Conferencing
2012
Limited, Calabar (now Transcorp Hotels Calabar).
Transcorp increased its shareholding in THTSL through a rights
2013
issue.
THTSL was rebranded as Transcorp Hotels Plc and undertook an
2014
IPO.
THP is a leading hospitality company in the luxury
segment of the hotel industry, with assets in Abuja,
Calabar, Ikoyi and Port Harcourt. At present, the Company
reports hotel services at two locations, being Transcorp
Hilton Hotel Abuja (“THA”) and Transcorp Hotels
Calabar. The Company reports 816 rooms and 27 multipurpose rooms across its two existing hotels, albeit that
over 95% of turnover is generated from THA. Earnings
derive from room sales, food and beverages, and others
income streams such as shop rentals and service charges.
Transcorp Hotels presently has three operating
subsidiaries, while the Abuja hotel is directly held by the
Company. THP’s subsidiaries are:
i) Transcorp Hotels Calabar Limited (“THC”), Cross
River State, being the holding company of the THC
hotel;
ii) Transcorp Hotels Ikoyi Limited, Lagos State, being the
subsidiary through which the Lagos hotel will be
developed; and
iii) Transcorp Hotels Port Harcourt Limited, Rivers State,
being the subsidiary through which the Port Harcourt
hotel will be developed.
The Ikoyi and Port Harcourt assets are in development
phase, with construction anticipated to begin in 2016.
Corporate governance and shareholding
Transcorp currently holds an 83% stake in the Company,
while the remainder is held by the Federal Government of
Nigeria (“FG”) and the Nigerian public. The FG’s interest
is represented by the Ministry of Finance Incorporated and
Nigeria Corporate and Bond Analysis | Public Credit Rating
Bureau of Public Enterprises. Only Transcorp and the FG
hold more than 5% of the issued share capital of the
Company.
Table 2: Shareholding structure
Transcorp
FG
Nigerian Public
Total
Holding (%)
83.0
11.0
6.0
100.0
Source: Transcorp Hotels Plc
THP’s Board comprises two executive directors, six nonexecutive directors and a non-executive chairman. Per
management, the Company places great importance on
maintaining high standards of corporate governance
through a culture of strong business ethics, sound policies
and procedures, and effective internal control systems.
THP practices Kaizen (a system of continuous
improvement), and reflects a robust culture of training and
ethics.
The Board Governance and Board Committees
Governance Charter provides the framework for corporate
governance and regulates the powers, functions and
responsibilities of the Board and its Committees. Board
members reflect a diversity of experience covering
finance, banking, insurance law, accountancy, sales
management, business, administration, hospitality, and
telecommunication (amongst others). Each board member
has at least 20 years of relevant work experience. The
Board composition is in line with Securities and Exchange
Commission’s Code of Corporate Governance and the
Companies and Allied Matters Act (“CAMA”). Oversight
functions are carried out through the Board and its
committees as detailed in table 3.
Table 3: Corporate governance summary
No. of directors
1
Independent non-executives
6 (includes the Chairman)
Other non-executives
2 (Including Managing Director)
Executives
3 years for a maximum of 2 cycles
Tenure of MD/CEO
5 years each for a maximum of 2 cycles
Tenure of non-executives
Yes.
Separation of the chairman
Minimum of quarterly.
Frequency of meetings
Board committees
Nomination and Governance, Finance and
Investment, Audit, and Statutory Audit
Committees.
Internal control and compliance
External auditor
Yes, independent reports to board.
PricewaterhouseCoopers
The Statutory Audit Committee (comprising an equal
number of shareholders and directors) was recently
constituted in line with CAMA (at THP’s first AGM as a
public company). Transcorp Hotels’ financial statements
were prepared in accordance with International Financial
Reporting Standards (“IFRS”), as well as the requirements
of CAMA and the Financial Reporting Council of Nigeria
Act. THP’s external auditor, PricewaterhouseCoopers,
issued a clean audit opinion on the 2014 financial
statements, as well as on preceding financial statements
over the review period.
Transcorp profile
As the parent company of THP, the financial position and
general credit strength of Transcorp has a bearing on its
ability to support THP both financially and technically.
Page 2
Incorporated in November 2004 and listed on NSE in
December 2006, Transcorp is a conglomerate focused on
acquiring and managing strategic businesses that create
long term returns to shareholders and have a positive
socio-economic impact. Key investments are in the
hospitality, agriculture, power and energy sectors.
Transcorp’s prominent business operations include
Transcorp Hotels; Teragro Commodities Limited (operator
of Teragro Benfruit Plant in Benue State); Transcorp
Ughelli Power Limited (which acquired Ughelli Power
Plc, owner of the 972MW Ughelli Power Plant in Delta
State); and Transcorp Energy Limited (operator of OPL
281 in Delta State). Heirs Holdings Limited (“Heirs”), a
pan-African private investment company, holds the
majority stake in Transcorp.
Table 4: Transnational Corporation of Nigeria profile
Market capitalisation#
NGN90.6bn/USD457.4m
P/E ratio (x)^
44.6
Transcorp Hotels Plc (83%)
Key investments/ subsidiaries Transcorp Energy Limited (100%)
(% stake)
Transcorp Ughelli Power Limited (50.01%)
Teragro Commodities Limited (100%)
Hospitality, Agriculture, Power and Oil and
Underlying industries
Gas
Hospitality (36.6%)
Power (62.2%)
Major divisions (F14 revenue
Juice concentrate (0.05%)
contribution)
Other ancillary services and operating
revenue (1.15%)
Abuja (36.6%)
Key geographies (F14 revenue
Delta State (62.2%)
contribution)
All revenue was derived in Nigeria
Financial summary
F13
F14
(NGN'm)
Revenue
18,825.3
41,338.1
Operating profit*
5,160.6
15,353.4
Net finance charges
(1,218.4)
(5,893.9)
NPAT
6,957.9
3,304.3
Operating cash flow
(2,509.7)
7,731.2
Shareholders interest
Interest-bearing debt
Revenue growth (%)
Operating margin (%)
Net interest cover (x)
Net debt : equity (%)
Net debt : EBITDA (%)
86,676.5
43,109.3
89,754.9
47,778.0
42.1
27.4
4.2
39.1
507.7
119.6
37.1
2.7
50.0
204.1
#
As at 21 August 2015 @ N198.07/USD.
^ Current market value price of share divided by Basic EPS as at 30 June 2015.
* Excluding other income, fair value and forex gains.
Operations and earnings diversification
Transcorp Hilton Abuja
Transcorp Hilton Abuja (“THA”) is situated in Maitama1
in Nigeria’s Federal Capital Territory, a 40-minute drive
from the Nnamdi Azikiwe International Airport. Transcorp
Hilton Abuja is a 5-star hotel that provides luxury
accommodation, exotic cuisines, fully equipped meeting
rooms and leisure facilities. The hotel has 670 rooms,
including 427 standards rooms, 116 deluxe rooms and 127
executive suites.2 Furthermore, it reports 24 meeting
rooms, one banquet hall, 7 restaurants and bars. THA is
operated under a management agreement by Hilton
International Manage LLC (“Hilton”), a leading global
hospitality company. For its services, Hilton earns basic
management fees (being a fixed percentage of revenue)
1
2
An affluent area in Abuja.
Including 30 Presidential suites and 20 Ambassadorial suites.
Nigeria Corporate and Bond Analysis | Public Credit Rating
and a proportion of gross operating income as incentive
fees, with the latter based on agreed terms and
performance targets. These fees amounted to N1bn and
N945m in F13 and F14 respectively, translating to 7% and
6% of the top line.
The management agreement with Hilton was renewed in
2008 and will be in effect for 10 years, subject to renewal
thereafter. THA reflects an international-standard guest
reward programme, Hilton Honors, which awards points
and miles to members who stay at any of the Hilton
Group’s hotels. Transcorp Hilton Abuja successfully
hosted the World Economic Forum on Africa (“WEFA”)
in May 2014.
THA is one of the biggest and the most profitable hotels in
Nigeria, and has won several awards internationally from
Hilton Worldwide and World Travel Awards (“WTA”) 3
on an annual basis. In June 2015, Transcorp Hilton Abuja
won five WTA awards (Africa’s Leading Business Hotel,
Nigeria’s Leading Business Hotel, Nigeria’s Leading
Hotel, Nigeria’s Leading MICE Hotel, and Nigeria’s
Leading Hotel Suite). Bookings for THA are received via
Hilton worldwide reservation centres, online travel
agencies and walk-in customers. THA participates in
Hilton brand-wide and hotel specific promotions and
loyalty schemes, which enable it to maximise earnings
during peak and off-peak periods. The Company’s
partnership with Hilton yields significant business volumes
and cross-selling opportunities.
Transcorp Hotels, Calabar
THC is located in Calabar, a budding tourist destination,
and is owner-managed. The 146-room hotel (3-star) has
been designed for leisure and business meetings. THC
provides conferencing facilities, fine dining, 24-hour room
service, a fitness centre, complimentary airport pick up,
free Wi-Fi, and discounts with local merchants. THP is
developing medium and long term strategies designed to
consistently position the hotel as a key industry player.
THP has invested in the upgrade of recreational facilities,
refurbishment of the swimming pool, reception area and
lounge over the past three years. This facility enhancement
has been undertaken with the intention of increasing room
sales and driving an overall improvement in earnings.
However, the hotel market in Calabar has been somewhat
challenged by low leisure and business tourist numbers in
the state, which have constrained the benefits of the
recently completed upgrades/refurbishments.
To address the above, the new government in Calabar is
renewing efforts to stimulate tourism. The Calabar
International Convention Centre (“CICC”), a multipurpose state of the art facility, will be opened in the third
quarter of 2015, and is expected to drive demand for hotels
in Calabar in the near future (the total capacity of CICC
exceeds 5,000 across 21 venues). General Electric (“GE”)
is also investing USD250m in manufacturing and
assembly facilities in Calabar, and this is expected to boost
economic activity in the region. The new facility in
Calabar will serve as a regional hub for GE Oil & Gas as
3
World Travel Awards serves to acknowledge, reward and celebrate excellence across all
sectors of the global travel and tourism industry.
Page 3
well as other GE industrial activities, which should
underpin increased business visitors to the region.
Earnings diversification
Hotel owners and brands typically operate through leases,
franchises or hotel management agreements. As such, and
although some hotels are owner managed, two or more
parties are typically involved (depending on the
complexity of the business model).4 For THA, the manager
and brand owner are the same, while the Calabar hotel is
owner-managed. Hotel management agreements are more
common in Nigeria, as these provide the owner with strong
upside potential after management fees are settled. Under
such arrangements, all risks are borne by the property
owner, while the management company oversees the
marketing and day-to-day operation of the hotel.
In Nigeria, hotel occupancy levels fluctuate at certain
times of the week and year. Occupancies are usually lower
towards weekend, as business rather than tourism is the
key driver of volumes. Demand also wanes in December,
January and August due to the holiday period. Besides the
aforementioned reasons, other exogenous factors such as
the general economic climate, security issues, and the
Ebola epidemic have also had an impact on occupancy
levels in recent times. For Transcorp Hilton Abuja, there
are periods when it is overbooked and other times where
occupancy levels drop below 60%. Nevertheless, THA has
historically exceeded the average market occupancy. THA
reported average occupancy of 63.2% over the review
period. Following its acquisition by THP, occupancy
levels at the Calabar hotel have increased from just 20.8%
in F11 to 37.6% in F14, albeit that the bulk of group
earnings (over 95%) are generated from Transcorp Hilton
Abuja. THA is the market leader in Abuja and the only
“Upper Upscale” hotel in its niche market, making it the
first choice of visitors requiring premium service.
Furthermore, being the seat of the central government,
Abuja reports around 300 parastatals and government
agencies, which also drive demand by corporate and
individual travel. Similarly, private company meetings,
conferences, conventions, and embassies also generate
demand for hotel services in the city.
Table 5: Earnings
diversification (N’m)
Rooms
Food and beverages
Other revenue
Total
Revenue
F13
F14
9,740.8
9,624.1
4,406.1
4,186.6
1,201.9
1,294.0
15,348.7 15,104.8
Gross profit
F13
F14
8,727.2
8,840.0
2,229.2
1,991.5
1,075.3
1,127.8
12,031.7
11,599.3
Source: Audited accounts, THP
Room revenue has historically accounted for around 64%
of turnover and 73% of gross profit, while the top 20
customers account for around 22% of room revenue
annually. These are mainly embassies, airlines,
government agencies, banks and oil and gas firms. Most
sales are cash based, while credit (not exceeding 30 days)
is offered based on approved criteria.
Aside from room revenue, food and beverages income is
the other significant contributor to revenue and earnings,
contributing around 30% of revenue and 18% of gross
profit. The restaurants have diverse menus/cuisines suited
4
to various customer preferences, designed to capture the
maximum spend from each traveller staying at the hotel, as
well to attract locals and other visitors not staying at the
hotel.
THP plans to raise N20bn via a domestic bond issue under
a N30bn programme, intended to fund the renovation of
THA and partly finance the construction of a 5000capacity multipurpose banquet hall at same location. The
Company has extensive undeveloped land in Abuja, which
will be used for this purpose (per management, 12ha of
land is still available). THP has also built synergies with
various overseas and local suppliers, and this guarantees
the availability of equipment spares and consumables.
Agreements are also in place with various vendors to
ensure the facilities are well maintained. Furthermore,
THP is expanding to Lagos and Port Harcourt in a bid to
diversify business risk and expand operations.
Management agreements have already been executed with
Hilton in this regard, and the projects should be completed
within the next 3-4 years.
Insurance
As THP’s revenue is highly concentrated towards THA,
any damage to its assets and/or interruption to its business
activities would have an adverse impact on the Company.
As such, buildings (including facilities), machinery,
equipment and computer systems, as well as other fixed
and movable assets, have been adequately insured against
housebreaking, burglary, theft, fire and special perils.
There is also a consequential loss insurance policy
(covering fire and extraneous peril) in place to insure
profits, allowances and wages covering about N5.8bn. In
addition, THA has general third party liability and crime
insurance, with a total sum insured of USD100m (about
N20bn). All ‘Non-Life’ insurance policies of Transcorp
Hilton Hotel Abuja are underwritten by a consortium of 16
insurers led by Standard Alliance Insurance Plc.
Foreign exchange risk management
THP is exposed to Naira/USD exchange rate fluctuations,
as the bulk of engineering spares and hotel supplies are
imported. Furthermore, materials required for renovation
and maintenance works are mainly imported. As such, the
Company has been impacted by the adverse exchange rate
movement currently being witnessed in Nigeria. This is
particularly severe when the Naira depreciates rapidly, as
the Company risks being saddled with more expensive
creditors, while being unable to adequately adjust room
rates and food and beverages prices. However, room rates
are usually Dollar indexed and converted to Naira at
These include the property owner/landlord, tenant, manager and the brand owner.
Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 4
prevailing exchange rates for most hotel guests, except for
those with whom long term stay contracts have been
executed. Some revenue is also received in USD, and this
largely offsets dollar based expenses. The Company also
maintains a stock of forex. Other measures adopted to
reduce forex risk include import substitution (by
increasing local content for supplies in order to manage
exposures), negotiating contracts in Naira to limit exposure
and payment gap, and (where practical) passing additional
costs onto guests.
Economic overview
The 6-week postponement in the general elections resulted
in political uncertainty in the early months of 2015 and
also heightened fears in the polity. As such, security
concerns were elevated, resulting in reduced travel and
tourism activities. Nevertheless, the successful conclusion
of the general elections in April 2015 culminated in the
orderly transfer of power to a new government. Coupled
with the renewed military offensive against insurgents in
the North Eastern part of the country, this has helped to
create a more stable political and economic environment.
However, in contrast to these positive developments, the
sustained slump in the international price of crude oil has
severely affected the Nigerian economy. Specifically, as
crude oil prices have halved since 1H 2014 to trade
between USD50 and USD60 per barrel, the oil price
benchmark has been reduced to USD53 per barrel for 2015
(from an initial forecast of USD78 per barrel for 2014).
This has forced the FG to revise budgets downwards (as
indicated in the Medium Term Expenditure Framework for
2015-2017). With budget deficits now expected to
materialise in 2015 and beyond, the government is
expected to cut non-essential expenditure and reduce the
salaries and allowances of certain public servants, while
increasing non-oil revenue by raising consumption taxes
on some luxury goods. Investment activity in certain areas
(including infrastructure development) is also expected to
be affected.
The non-oil sector has, however, remained the main driver
of the economy over the last few years, contributing in
excess of 80% of GDP (on the back of solid growth in
trade, textile, telecommunication, real estate and
agriculture); albeit that such growth has largely resulted
from the multiplier effect of oil revenues across the
economy. This dynamic helped the economy sustain an
improved 6.23% GDP growth in 2014. However, the
impact of falling oil prices has been more evident in 1Q
2015, compounded by stagnant output in the oil sector,
which has occurred as a result of supply disruptions due to
theft and pipeline vandalism. Although, crude oil
production remained unchanged at 2.18m barrels per day
in 1Q 2015,5 GDP growth registered at a much lower
3.96%, from 5.94% in 4Q 2014.
To support macro-economic stability and halt the decline
in foreign reserves, Central Bank of Nigeria (“CBN”)
devalued the mid-point of the official currency trading
band in November 2014 from N155/USD to N168/USD,
and widened the band to ±5% (from ±3%). Nevertheless,
demand for US Dollars has continued to exert downward
5
pressure on the Naira in 2015, as revenue from crude oil
exports has drastically reduced. CBN further adjusted the
official exchange rate to N196.9/USD in June 2015 in the
light of market conditions. Foreign reserves had declined
to USD29bn at June 2015, from USD34.9bn in December
2014. However, due to CBN’s recent efforts to block
leakages and other restrictive measures, foreign reserves
had increased to USD31.9bn by 7 July, 2015.
Table 6: Economic
indicators
GDP (USD'bn)
GDP growth (%)
GDP per capita (USD)
Debt to GDP (%)
Naira/USD (avg.)
2011
2012
2013
2014
2015f
411.7
7.4
1,015.8
18
155.7
461.0
6.6
1,030.2
19
158.8
515.0
5.4
1,055.8
11
159.3
568.5
6.2
1,091.6
10.5
165.1
581.0
3.02
1,144
8.41
197.2*
Source: NBS, Central Bank Plc, World Bank, Bloomberg
*YTD
To further support financial stability, the cash reserve
requirement (“CRR”) on public and private sector deposits
in commercial banks was harmonised to a composite 31%,
from 75% and 20% respectively in May 2015. The
relaxation of the CRR of commercial banks is expected to
increase liquidity in the economy, and partly
counterbalance reduced government spending. Inflation
rose for the seventh consecutive month to 9.2% in June
2015 (a two-year high), from 9% in May and an average of
8.1% in 2014. Inflation was largely driven by increases in
food prices resulting from higher transportation costs (due
to a scarcity in petroleum products) and the
commencement of the domestic planting season. Despite
these developments, the benchmark interest rate remained
unchanged at 13%, having been increased from 12% in
November 2014.
Short to medium term economic prospects in Nigeria are
mixed. The stable political environment and the strong
investor interest in the economy are positive. However,
since Nigeria historically derives around 85% of its
revenue from crude oil, the impact of lower oil prices is
likely to be felt acutely in 2015 in terms of constrained FG
spending, while GDP growth expected to fall to around 3%
in 2015. This will delay efforts to reduce the infrastructure
deficit in the country, and the challenges of erratic power
supply, while security concerns are likely to persist
(especially in some parts of the North). However, over the
medium to long term, a youthful urban population with
increased spending capacity bodes positively for future
growth, and Nigerian GDP growth is expected to remain
around the 6% that has been attained over the last decade.
Nigerian hotel industry overview
The Nigeria hotel industry has grown markedly over the
past decade, with increasing occupancy rates (due to
political stability and firm economic growth) attracting
over USD3bn of investment since 2010. Investment has
been concentrated in Abuja, Lagos and Port Harcourt, as
local and foreign players have competed for market share
in these major business hubs. As at FYE2014, nine of the
foremost international hotel management companies were
operating in Nigeria in the upscale/ high-end segment in
which THP operates. Despite this, locally branded hotels
account for around 90% of hotel room supply. According
to industry sources, business travel accounts for 80% of
National Bureau of Statistics (“NBS”) figures.
Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 5
hotel demand, underpinned by corporate (mainly in oil and
gas, banking, telecommunications), government and
diplomatic travellers. Tourism currently accounts for a low
5% of all hotel nights, suggesting potential for further
growth. The average hotel occupancy rate in Nigeria of
around 60% is in line with global norms.
Industry fortunes are tied to general economic conditions,
as well as security and political stability. In this regard,
economic shocks or security issues can have an immediate
and adverse impact on demand. This was evident in recent
years, as the domestic hospitality sector came under
pressure due to security threats and plane crashes that
adversely impacted business activity and travel. The
operating environment was particularly challenging in
2014, as Boko Haram attacks escalated in certain parts of
the North including Abuja,6 which was compounded by
the outbreak of the Ebola Virus Disease (“EVD”) in West
Africa. According to management, THP lost around
N1.2bn in revenues due to cancelled bookings and lost
patronage (especially from foreign business travellers) due
to negative travel warnings from several major embassies.
This was somewhat mitigated by the fact that the
Company derives 65% of revenue from local travelers.
Few industry players are listed on NSE, and these are
primarily companies within the Ikeja Hotel Group,
including an associate. As such, there is limited public data
with which to estimate market share. Ikeja Hotel Plc
(“Ikeja Hotel”) owns the Lagos Sheraton Hotel, while its
subsidiary (Hans Gremlin Limited) holds a 51% interest in
Capital Hotels Plc (owner of the Sheraton Hotel, Abuja).
Ikeja Hotel is also a shareholder in the Tourist Company of
Nigeria, owners of Federal Palace Hotel and Casino,
Lagos. Other notable players in THP’s main market
(Abuja) are Nicon Luxury and Protea hotels.
Table 7: THP vs Capital Hotels
F14 (N'm)
Turnover
EBITDA
Op. Income
Net interest income
NPAT
Equity
Total debt
Cash and equiv.
Current assets
Total assets
Current liabilities
Total assets
Ratios (%)
Rooms
Rev. growth
Gross margin
Op margin
Net debt :EBITDA
THP*
14,487
5,160
4,231
278
3,330
52,089
0
2,625
16,074
69,472
10,168
69,472
Capital Hotels
4,553
798
495
50
245
3,475
0
2,307
3,506
7,036
1,652
7,036
670
2.8
77.3
29.2
n.a
540
(2.3)
29.0
10.9
n.a
* Company numbers
A report by STR Global7 indicates that the Transcorp
Hilton Abuja reported a market penetration index (“MPI”)8
6
7
8
Boko Haram insurgents attacked the United Nations office and other locations within the
metropolis in 2011.
STR Global is a global provider of benchmarking and information services to the hotel
industry.
MPI measures the hotel’s share of the segment’s demand. Lagos and Abuja were used as
a proxy for the market.
Nigeria Corporate and Bond Analysis | Public Credit Rating
of well over 100% based on occupancy, average daily rate
(“ADR”), and revenue per available room (“RevPAR”)
between 2012 and 2014. However, the 6-week
postponement of the general elections resulted in political
uncertainty in the first four months of 2015. As such,
security concerns were elevated and this resulted in
reduced travel and tourism activities. According to STR
Global, occupancy level in Nigeria declined by 0.8% YoY
to 52.4% in June 2015. Conversely, inflation pushed ADR
up 7.7% to N45,128, while RevPAR increased by 6.9% to
N23,662.4.
Notwithstanding the generally positive demand conditions,
challenges plaguing the domestic hospitality industry
include inadequate infrastructure, multiple taxation, erratic
power supply, and high maintenance and diesel costs.
Looking ahead, and according to a PwC report,9 the
Nigerian hospitality sector is expected to be the fastest
growing in Africa over the next five years, with a
projected CAGR in hotel room revenue of 22.6%.
However, increased competition from new entrants
(international and local) could lead to an overall reduction
in room rates, while downside risks also emanate from the
current economic uncertainty, as well as security-related
threats in the northern part of the country.
Regulations
The Nigeria Tourism Development Company (“NTDC”) is
responsible for coordinating, regulating and harmonising
tourism activities. Recent activities of NTDC and private
sector companies aimed at promoting travel and tourism
should yield positive benefits over the medium to long
term. In addition to NTDC, and following a Supreme
Court ruling in 2013, State Houses of Assembly are now
empowered to make laws on tourism or the licensing and
grading of hotels, restaurants and other hospitality
businesses. Other regulatory bodies overseeing activities in
the industry include NAFDAC10 and FEPA.11
Financial performance
Table 8: Group income
statement (N'm)
Revenue
Gross profit
EBITDA
Depreciation
Op. profit
Net interest
Forex gain
Other income
NPBT*
Key ratios (%)
Gross margin
EBITDA margin
Op. margin
Net int. cover (x)
F13
Actual
15,348.7 15,104.8
12,031.7 11,599.4
6,975.4 5,148.9
(1,302.9) (1,026.1)
5,672.6 4,122.8
402.9
277.7
46.3
139.0
0.3
0.5
6,122.1 4,540.0
78.4
45.4
37.0
n.a
76.8
34.1
27.3
n.a
F14
Budget Achvd.
15,703.1 96.2
12,298.3 94.3
7,133.3 72.2
(1,552.0) 66.1
5,581.3 73.9
0.0
n.a
n.a
n.a
n.a
n.a
5,581.3 81.3
78.3
45.4
35.5
n.a
-
1H F15
7,241.3
5,596.0
2,538.1
(505.7)
2,032.3
190.2
261.9
0.0
2,484.4
77.3
35.1
28.1
n.a
A five-year financial synopsis and the unaudited interim
results to June 2015 are appended to this report, while
commentary follows hereafter. The numbers in the F10F14 financial synopsis have been derived from the
Reporting Accountants’ report on the Issuer’s audited
9
10
11
PwC Passport to Africa report on hospitality outlook, 2014-2018
National Agency for Food and Drug Administration and Control.
Federal Environmental Protection Agency.
Page 6
financial statements. THP acquired 100% of THC in
September 2012, and accordingly, consolidated numbers
are reflected from F12 onwards.
THP has sustained sound revenue levels over the review
period, albeit growing at a low 2.6% CAGR (as compared
to its competitors who have reported contracting revenue).
This low growth has emanated from increasing
competition in core markets, as well as security threats in
Abuja (THP’s main market), both of which have resulted
in lower occupancy rates across the industry since F11.
Such attacks also continued into 2012, and were
exacerbated by the impact of the Dana plane crash and
industrial action by labour unions in two other airlines;
with the resultant reduction in air travel having a knock-on
effect for the hospitality industry. Consequently, THA’s
occupancy rates declined from 70% in 2010 to 56% in
2012. Following this, with no major adverse externalities
in 2013, strong revenue growth of 16% was reported in
F13, as occupancy levels rose to 62% before declining
marginally to 61% in F14. 2014 witnessed two consecutive
bomb blasts in Abuja and increased security threats in the
North, including the kidnapping of over 250 students in
Borno State. This had a negative impact on travel and
hospitality in Nigeria, which (together with the adverse
impact of the Ebola crisis) negatively affected THP and
saw revenue decline to N15.1bn in F14 (albeit remaining
largely in line with budget as a result of the weaker Naira).
Gross margin has averaged 75% over the review period, as
a result of well contained gross costs and the matching of
room rates to gross costs. However, due to rising operating
expenses and demand-related issues, the EBITDA margin
has declined from a historical high of 50.4% in F10 to
34.1% in F14. In this regard, administrative expenses have
more than doubled over the review period, mainly driven
by higher maintenance, staff and insurance costs. Other
operating expenses were significant in F14, and were
compounded by the erratic power situation, which drove
higher diesel and maintenance costs. Other key cost
drivers included marketing/promotional costs, and
expansion-related expenses (permits, professional fees
etc.). Furthermore, THP incurred additional expenses to
improve security, while the incremental cost of hosting the
WEFA event in May 2014 also added to expenses.
The operating margin shed eleven percentage points to
register at 34.1% in F14, as compared to 37% in F13 and a
budgeted level of 35.5%. This followed 21% lower
depreciation in F14, as more assets (furniture and fittings
Nigeria Corporate and Bond Analysis | Public Credit Rating
and machinery components in particular) were fully
depreciated per THP’s depreciation policy.12
Aside from election-related challenges, Nigerian hotel
occupancies are typically lower in the first half of the year
as compared to the second half. On an annualised basis,
THP’s revenue declined marginally to N7.2bn in the six
months to June 2015 (“1H F15”), equating to 46% of the
annual forecast. Occupancy levels picked up in 2Q F15
following the incident-free conclusion of the general
election. Administrative expenses were more modest
during 1H F15, on the back of lower maintenance costs
and management fees. As such, the EBITDA margin
firmed slightly to 35.1%, being in line with forecast.
Operating profit remained around the F14 level on an
annualised basis, with the margin reported at 28.1% (F15
budget: 23.8%). Notably, however, budgets anticipate an
increase in depreciation costs, and thus operating profit is
forecast to decline to N3.7bn in F15.
The Company has reported no debt on its balance sheet
over the review period, and hence no finance charges,
while it has generated interest income off cash reserves.
Such interest income has supported earnings (especially in
F12 and F13), albeit that this tailed off in F13-1H F15 as a
result of lower average cash balances and reducing interest
rates. Forex gains of N46.3m and N139m were reported in
F13 and F14 respectively, arising mainly from the
translation of foreign currency cash balances at year end
and gains resulting from settlement of foreign currency
denominated transactions during the year.
Overall, following strong earnings growth in F13, NPBT
fell 26% to N4.5bn in F14. A slight recovery has been
evidenced in 1H F15, with NPBT rising by an annualised
9.4% to N2.5bn. Nevertheless, current earnings trends and
forecasts suggest that the full year NPBT will remain well
below the high attained in F13.
Cash flows
Cash generated by operations has been robust and largely
aligned to the EBITDA trend over the review period;
reaching the N7bn level in F10 and F13, before declining
significantly to N5.3bn in F14. Audited financials indicate
significant working capital movements, mainly attributable
to large intercompany balances. Such intercompany
receivables mostly relate to outstanding legacy balances
(due to THP from Transcorp and Heirs), as well as
bridging loans granted to THP’s parent and sister
companies. According to management, the loans attract an
interest rate of 17% and are usually payable in three
months, albeit that the outstanding legacy receivables will
be fully settled over a three-year period. THP also reports
related party payables, mainly pertaining to accrued
dividends. Excluding these balances, working capital
requirements are largely predictable. In this regard, trade
debtors’ and inventory days on hand are approximately 27
days and 28 days respectively, as compared with creditors’
payment period of 45 days; equating to a cash conversion
cycle of around 10 days.
12
Following the adoption of IFRS, the useful lives of fixed assets were reviewed and based
on componentisation of fixed assets per IFRS requirements; most components of fixed
assets (especially machinery, furniture and fittings) became fully depreciated.
Page 7
THP reported working capital releases of N2.1bn to
N2.3bn in F10, F12 and F13, which sharply reversed to a
large N11bn working capital absorption in F14. The
working capital absorption in F14 followed a N4bn deposit
for shares in F13, which unwound in F14 as the shares
were allotted. This was compounded by a N4.5bn
reduction in payables, mostly relating to the N3.8bn
reduction in intercompany payables, and a N1.6bn increase
in long term receivables. Working capital levels decreased
sharply in 1H F15, with a N4.6bn release reported for the
period. This followed the settlement of around N5.2bn of
intercompany loans in 1H F15 by Transcorp and Heirs
holdings, which was slightly counterbalanced by a decline
in creditors.
from N6.4bn at FYE10 to N47.4bn at FYE11. PPE has
since averaged 76% of total assets, closing at N48.9bn and
N49.4bn at FYE14 and 1H F15 respectively. Other long
term assets on balance sheet at 1H F15 were the group’s
N1bn investment property and additional development
costs (on the Port Harcourt and Ikoyi assets), together
accounting for 7% of total assets. Per management, the
outstanding legacy receivable balances should be fully
settled over a 3-year period. The remainder of the asset
base relates to cash (of N2.7bn at FYE14 and N4.7bn at
1H F15) and other current assets (of N13.2bn at FYE14
and N8.7bn at 1H F15); with these latter assets largely
relating to trade and other receivables (including short
term intercompany receivables).
After accounting for interest income and tax payments,
THP reported cumulative operating cash inflows of
N28.2bn between F10-F13. Thereafter, reduced earnings
and higher taxation compounded the significant working
capital absorption to see an operating cash outflow of
N7.4bn reported in F14, the first outflow of the review
period. In 1H F15, cash flow from operations rebounded to
N6.7bn, mostly due to the significant working capital
release.
THP is highly solvent, with N51.5bn/76% of funding
deriving from equity at 1H F15 (FYE14: N49.7bn/74%);
albeit with most of this equity arising from the revaluation
of the asset base in F11. This is stated after deducting
goodwill14 from the acquisition of THC, which has
remained around N2bn since FYE12. With no debt having
been reported over the review period, the balance of
funding relates to deferred tax on unrealised gains (1H
F15: N7.5bn/11% of funding) and short term liabilities
(1H F15: N8.6bn/13% of funding). These latter short term
liabilities included N3bn in current income tax payable
(FYE14: N3.1bn) and N5.7bn in trade and other payables
at 1H F15 (FYE14: N7.3bn).
Strong discretionary cash flows have allowed for
significant cumulative dividend payments of N21.6bn in
the five years to FYE14, translating to 99% of cumulative
comprehensive income. Except for F10, when major
renovations were undertaken at THA, there was no
significant capex between F11-F13 (with spend in these
periods related mainly to routine replacements of computer
equipments, furniture, fittings and machinery). Since then,
ongoing projects and related development costs have
necessitated increased expenditure, with capex amounting
to N2.4bn and N1bn in F14 and 1H F15 respectively; with
this 18-month period accounting for 52% of the total
N6.5bn capex spend between F10 and 1H F15. Apart from
capex, other investing cash flows over the review period
related to the N2.1bn spend in F12 for the acquisition of
THC, the N1.1bn spent in F14 on the purchase of an
investment property (in Port Harcourt), and the N3.7bn
spent in 1H F15 on ongoing projects within the
subsidiaries.
THP’s investing activities have been entirely financed by
operating cash flows and working capital, barring for F14
when shares of N7.8bn were issued. Despite this, the
Company reported a N6bn reduction in cash holdings in
F14 (mainly attributable to intercompany loans), which
reversed to a N2bn increase in 1H F15.
Financial profile
THP’s asset base has grown more than threefold over the
review period. The most significant increase occurred
between FYE10 and FYE11, and this was underpinned by
a revaluation of fixed assets to their fair value.13 In line
with accounting standards, property, plant and equipment
(“PPE”) were reported at fair values upon Transcorp’s
transition to IFRS in 2011. This saw fixed assets increase
13
Working capital position
Table 9: Working capital and related
parties (N'm)
Inventories
Trade receivables
Prepayments and other
Related-party receivables*
Working capital assets
FYE13
FYE14
1H F15
923.9
1,183.4
935.7
5,303.7
8,346.7
820.3
1,224.5
1,172.1
11,606.8
14,823.7
746.9
1,214.2
222.0
8,429.0
10,612.1
Trade payables and accruals
Deposits
VAT and WHT payable
Related party payables
Other
Working capital liabilities
1,167.7
4,859.6
1,831.1
3,857.2
52.2
11,767.8
4,838.6
162.7
2,166.4
15.3
92.3
7,275.3
2,811.7
152.8
2,117.1
138.5
464.9
5,685.0
Net working capital asset/(liability)
Net working capital movement
(3,421.1)
2,286.0
7,548.4
(10,969.6)
4,927.1
4,576.0
1,446.5
239.0
11,591.5
10,145.1
8,290.5
(3,301.0)
Net related party asset/(liability)
Net related party asset movement
* includes long term receivable of N1.6bn at FYE14 and the additional N2bn investment in
a subsidiary in 1H F15.
As reflected in table 9, THP reported a net working capital
liability of N3.4bn at FYE13, which reversed to a net
working capital asset of N7.5bn at FYE14 and N5bn at 1H
F15. This followed a large increase in related party
receivables in F14, with net related party assets of
N11.6bn reported at FYE14. With some repayment of
these receivables in 1H F15, the net related party asset
reduced to N8.3bn; underpinning the working capital
release for the period.
Gearing, liquidity and other credit risk metrics
With no debt on balance sheet over the review period, the
Company has reported an ungeared balance sheet in each
year under review. Furthermore, THP has maintained
A SEC registered external valuer, Messrs Jide Taiwo and Co, carried out the valuation of
THP’s fixed assets as at 31 December 2010.
14
Nigeria Corporate and Bond Analysis | Public Credit Rating
Per standard GCR methodology
Page 8
sizeable cash balances in each year under review, albeit
that cash has waned from N8.6bn at FYE13 to N4.7bn at
1H F15 (FYE14: N2.7bn). Together with sound operating
cash flows, and a short dated trade receivables book of
robust quality, these strong cash balances ensure sound
liquidity for THP. Cognisance is also taken of the Group’s
ability to raise debt through its banking partners (United
Bank for Africa Plc, Zenith Bank Plc and Skye Bank Plc)
or through its nascent medium term note programme.
N30bn Medium Term Note Programme
To optimise its capital structure and ensure adequate
financing for expansion and ongoing refurbishments,
Transcorp Hotels is initiating a N30bn Medium Term Note
Programme (“the Programme”). Under this programme,
THP may issue by private placement, book building, offer
for subscription, or any of the other methods described in
the relevant Supplementary Shelf Prospectus (“SSP”) or
applicable Pricing Supplement. By its Memorandum and
Articles of Association (“MemArt”), the Company is
authorised to raise debt or issue debt securities by various
methods, and does not reflect a limitation on indebtedness.
The bonds will be issued in series, with N20bn anticipated
to be raised in two tranches of N10bn each in F15. The net
proceeds from both Issues will be applied towards the
upgrade and refurbishment of Transcorp Hilton Hotel
Abuja (80%) and the construction of a (5000-capacity)
multipurpose banquet hall (20%) at same location. The
projects are anticipated to be completed by April 2017 and
December 2017 respectively.
The Series 1 Bonds and Series 2 Bonds have similar terms,
with the main difference being the tenor and method of
distribution. The N10bn Series 1 bond will be fully
underwritten by the joint issuing houses (underwriters) as
shown in table 10 below, while Series 2 Issue will be by
offer for subscription through book building.
Table 10: Underwriters
United Capital Plc
FSDH Merchant Bank Limited
Stanbic IBTC Capital Limited
Total
Amount (N’m)
3,500.0
3,250.0
3,250.0
10,000.0
Percentage (%)
35.0
32.5
32.5
100.0
Features of the Series 1 bonds and Series 2 bonds (“the
Bonds”) are as follows:
 The Bonds are direct, unconditional, senior and
unsecured obligations ranking pari passu with all other
senior and unsecured obligations of the Issuer.
 Tenor of the Series 1 bond will be 7 years, with legal
maturity in 2022. The Series 2 bond has a 5 year tenor,
with legal maturity in 2020.
 Interest on the bonds will accrue from the allotment date
(or the date of receipt of proceeds) and will be payable
semi-annually in arrears.
 There will be a one year moratorium on principal
repayments.
 Principal will be repaid on an amortising basis in twelve
(12) scheduled instalments paid semi-annually, following
the expiration of the moratorium period.
 Source of repayment for the Bonds will be THP’s
operational cash flows.
 The Bonds bear a negative pledge; whereby as long as
any of the bonds remain outstanding, the Issuer is
Nigeria Corporate and Bond Analysis | Public Credit Rating
restricted from encumbering its assets/future rights.
However, where the Trustee’s consent is obtained, the
same security (as that intended for the new indebtedness)
can be granted to the Trustee for the bondholders’
benefit.
 The bonds are exempt from taxation in Nigeria.
 An application will be made to list the Bonds on The
Nigerian Stock Exchange and FMDQ OTC platform.
The Trust Deed contains various covenants binding the
Issuer to repay the bond, pay interest and also comply with
the provisions of the Trust Deed and all applicable laws.
Events of default and the various remedies are also stated
in the Trust Deed and detailed below. The Trustee will
hold the payment obligations and other covenants of the
Issuer in Trust for the benefit of the Series 1 and Series 2
bondholders, and perform the duties contained in the Trust
Deed. United Capital Trustees Limited (formerly UBA
Trustees Limited)15 has been appointed to monitor
compliance with the various clauses and covenants of the
Trust Deed.
Covenants
The Series 1 and Series 2 SSPs indicates that the following
financial covenants will be imposed on the Issuer over the
tenor of the bonds:
 Maximum net debt to EBITDA ratio of 3.0 times from
the Issue Date to the Final Maturity Date.
 Minimum Historical Debt Service Coverage Ratio
(“DSCR”) to be maintained at 1.2 times.
 Minimum Interest Cover to be maintained at 2.0 times
(this will be calculated as: the historical EBITDA/net
interest expenses).
 Secured Indebtedness shall not exceed 50% of the
Issuer’s net asset as stated in the most recent
consolidated financial statements (this is only applicable
in the event that the Trustee’s consent was obtained to
pledge assets as security as discussed above).
In line with the Series 1 bonds SSP, the bond principal will
be repaid in the manner set out in table 11 below:
Table 11: Proposed Series 1 bond repayment schedule
Repayment dates*
% repaid
Quantum repaid
2016
0.0
0.0
2016
0.0
0.0
2017
5.0
519.2
2017
6.0
562.0
2018
6.0
608.4
2018
7.0
658.6
2019
7.0
713.0
2019
8.0
771.7
2020
8.0
835.4
2020
9.0
904.3
2021
10.0
978.9
2021
11.0
1,059.7
2022
11.0
1,147.1
2022
12.0
1,241.7
Total
100.0
10.000.0
* Exact dates are still to be finalised.
In line with the Series 2 bonds SSP, the bond principal will
be repaid in the manner set out in table 12 below:
15
Established in 1964, it has conducted transactions with aggregate value in excess of
N500bn to date.
Page 9
Table 12: Proposed Series 2 bond repayment schedule
Repayment dates*
% repaid
Quantum repaid
2016
0.0
0.0
2016
0.0
0.0
2017
9.0
931.7
2017
10.0
1,008.6
2018
11.0
1,091.8
2018
12.0
1,181.8
2019
13.0
1,279.3
2019
14.0
1,384.9
2020
15.0
1,499.1
2020
16.0
1,622.8
Total
100.0
10,000
* Exact dates are still to be finalised.
costs and depreciation costs increase. Although EBITDA
is budgeted to reach the N8bn level in F17, increasing
yearly thereafter, earnings margins will remain below
historical highs attained in F10.
Table 12: Medium term
projections (N'm)
F14
F15
F16
Actual
F17
F18
Budget
Revenue
15,104.8
15,735.5
14,557.0
17,615.8
21,019.9
Gross profit
11,599.4
12,094.7
11,610.7
14,061.8
16,787.1
EBITDA
5,148.9
5,469.1
6,470.9
7,859.2
9,413.1
Op. profit
4,122.8
3,749.4
3,749.4
5,107.8
7,125.0
Net interest
277.7
(306.5)
(1,644.5)
(3,878.5)
(3,379.7)
Cashflow from ops.
(7,390.7)
3,019.4
7,824.0
9,911.5
8,888.0
Dividends paid
(2,812.1)
(577.3)
(338.4)
(197.1)
(1,257.2)
Events of default
These include the following events:
 If the Issuer does not pay any amount payable (principal
or interest) under the Bonds within five (5) business days
of the due date;16
 Winding-up of the Issuer, other than for reconstruction,
amalgamation, merger or consolidation on terms
previously approved by the Trustee; or
 Breach of other obligations/undertakings with respect to
the bonds, where such a breach is not remedied within 15
days of such a breach.
Cashflow from investing
(3,577.1) (11,000.0) (15,000.0) (8,751.9)
Rating considerations for Series 1 and Series 2 Bonds
Being senior unsecured debt, the Bonds bear the same
probability of default as the Issuer. Moreover, as the
Issuer’s asset base is entirely unencumbered, while the
Bonds will be unsecured, the Bonds would reflect similar
recovery prospects to senior unsecured creditors in the
event of a default. As such, the Series 1 and Series 2
Bonds will garner the same long term rating as that
accorded to the Issuer. Accordingly, any change in the
Issuer rating would impact the Bonds ratings.
Outlook
Cash flow from financing
Net cash flow
Cash
Interest bearing debt
Equity
7,829.6
(4,635.9)
20,796.5
(3,835.6)
3,881.5
(7,586.6)
(5,950.3) 12,238.6
(11,349.9)
4,844.0
(4,591.6)
2,688.6
16,951.2
5,588.9
10,432.9
5,841.3
0.0
20,012.4
17,837.6
25,303.6
21,253.1
49,722.4
49,139.2
47,249.1
44,948.8
46,395.1
Revenue growth (%)
(1.6)
4.2
(7.5)
21.0
19.3
Gross margin (%)
76.8
76.9
79.8
79.8
79.9
Operating margin (%)
27.3
23.8
25.8
29.0
33.9
Net interest cover (x)
n.a
12.2
2.3
1.3
2.1
Gross debt : equity (%)
n.a
40.7
37.8
56.3
45.8
Net debt : equity (%)
n.a.
6.2
25.9
33.1
33.2
Gross debt : EBITDA (%)
n.a
365.9
275.7
322.0
225.8
Net debt: EBITDA (%)
n.a
56.0
189.3
189.2
163.7
In view of the proposed Bond Issue, net finance charges
are expected to reach N1.6bn in F16 and more than double
in F17 after the second tranche is drawn. This would see
net interest cover decline to just 1.3x in F17, before
recovering to 2.1x in the subsequent year. NPBT is
forecast to decline around 3-fold between F15 and F17,
due to the anticipated spike in finance charges. Over the
longer term, NPBT is forecast to exceed review period
high of N5.9bn (from F18 onwards).
Over the next five years, the Company will take a phased
approach in developing high-end hotels in Lagos and Port
Harcourt, in addition to a convention centre and apartment
complex planned in Abuja. The Issuer has prepared its
financial forecasts taking into cognisance the challenging
operating environment and the planned upgrade and
renovation of the Transcorp Hilton Abuja, as well as the
construction of the multipurpose banquet hall and a high
profile night club. Designs have been approved, while
various agreements have already been executed with
contractors, project managers and other relevant parties.
Global Credit Rating Company Limited (“GCR”) has been
provided with 10-year forecasts for the period spanning
F15 to F24. Per these forecasts, revenue is anticipated to
grow by 4% to N15.7bn in F15, which looks to be
achievable given that THP had already generated 46% of
this revenue in 1H F15. Occupancy levels are anticipated
to decline to 50% in F16, when the major aspects of the
refurbishment will take place, before rising to 58% in the
following year. Budgets indicate that operating margins
will remain below 30% in the medium term, as operating
16
Cash generated by operations is expected to mirror
EBITDA growth. Budgets indicate that dividend payouts
will be conservative over the medium term (at around 25%
of NPAT), so as to preserve funds for capex. Scheduled
principal repayments on the Bond should commence in
F16. Net expansionary capex will be around N22bn
between F15 and F17.
The Issuer shall not be in default if, during the 5 business days’ grace period, it satisfies
the Trustee that withheld amounts were not paid in order to comply with any law,
regulation or court order.
Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 10
Total debt is expected to peak at N25.3bn at FYE17 after
the second tranche is drawn, and taper off as maturing
obligations are repaid. Net gearing should peak around
33% at FYE17 and decline yearly from FYE19. In line
with budgets, net debt to EBITDA would peak at 189%
and should decline to below 160% from FYE19 onwards.
However, if forecast earnings do not materialise, gearing
metrics would be higher than anticipated. Per
management, THP is implementing a robust funding
strategy which includes the use of debt, equity and quasiequity over the medium term, and this includes a net
gearing limit of 60%.
Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 11
Transcorp Hotels Plc
(Naira in millions except as noted)
31 December
Statement of Comprehensive Income
NGAAP
2010
2011
2012
IFRS
2013
2014
1H F15
13,641.2
6,875.2
(1,235.1)
5,640.1
216.4
0.0
0.0
5,856.5
(1,547.5)
4,309.0
0.0
4,309.0
13,724.7
6,477.7
(1,371.2)
5,106.5
260.1
57.8
0.0
5,424.4
1,531.1
6,955.5
0.0
6,955.5
13,258.1
4,932.2
(1,360.9)
3,571.4
453.7
23.8
0.7
4,049.5
(1,139.7)
2,909.8
180.9
3,090.7
15,348.7
6,975.4
(1,302.9)
5,672.6
402.9
46.3
0.3
6,122.1
(1,712.7)
4,409.3
0.0
4,409.3
15,104.8
5,148.9
(1,026.1)
4,122.8
277.7
139.0
0.5
4,540.0
(1,319.4)
3,220.6
0.0
3,220.6
7,241.3
2,538.1
(505.7)
2,032.3
190.2
261.9
0.0
2,484.4
(726.4)
1,758.0
0.0
1,758.0
Cash generated by operations
Utilised to increase working capital
Net finance charges/Net interest paid
Taxation paid
Cash flow from operations
Maintenance capex‡
Discretionary cash flow from operations
Dividends paid
Retained cash flow
Net expansionary capex
Investments and other
Proceeds on sale of assets/investments
7,010.4
2,093.4
216.4
(516.0)
8,804.2
(1,235.1)
7,569.1
(4,453.8)
3,115.3
(258.9)
0.0
10.3
6,535.5
(97.1)
260.1
(1,224.2)
5,474.3
(497.4)
4,976.8
(5,555.6)
(578.7)
0.0
0.0
2.5
4,967.9
2,232.9
453.7
(1,925.3)
5,729.2
(641.9)
5,087.2
(4,560.2)
527.0
0.0
(2,141.3)
33.5
7,033.1
2,286.0
402.9
(1,564.8)
8,157.2
(450.2)
7,707.0
(4,200.0)
3,507.0
0.0
(1.2)
3.0
5,332.4
(10,969.6)
277.7
(2,031.2)
(7,390.7)
(1,026.1)
(8,416.8)
(2,812.1)
(11,228.9)
(1,407.2)
(1,144.3)
0.5
2,799.9
4,576.0
190.2
(864.5)
6,701.8
(505.7)
6,196.0
0.0
6,196.0
(459.3)
(3,688.0)
0.0
Shares issued
Cash movement: (increase)/decrease
Borrowings: increase/(decrease)
Net increase/(decrease) in debt
0.0
(2,866.8)
0.0
n.a
0.0
576.2
0.0
n.a
0.0
1,580.8
0.0
n.a
0.0
(3,508.8)
0.0
n.a
7,829.6
5,950.3
0.0
n.a
0.0
(2,048.7)
0.0
n.a
7,655.3
0.0
0.0
7,655.3
0.0
0.0
0.0
13,880.3
21,535.5
6,434.6
0.0
7,286.9
7,814.0
21,535.5
44,693.6
0.0
0.0
44,693.6
0.0
0.0
0.0
16,432.8
61,126.4
47,353.1
0.0
6,710.7
7,062.6
61,126.4
41,257.3
0.0
0.0
41,257.3
0.0
0.0
0.0
18,430.0
59,687.2
48,422.8
0.0
5,130.0
6,134.5
59,687.2
41,476.8
0.0
0.0
41,476.8
0.0
0.0
0.0
23,076.1
64,552.9
47,567.4
0.0
8,638.9
8,346.6
64,552.9
49,722.4
0.0
0.0
49,722.4
0.0
0.0
0.0
17,871.8
67,594.2
48,943.8
2,754.2
2,688.6
13,207.7
67,594.2
51,466.9
0.0
0.0
51,466.9
0.0
0.0
0.0
16,143.4
67,610.3
49,403.0
4,812.6
4,737.3
8,657.3
67,610.3
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
neg
neg
n.a
n.a
Turnover
EBITDA
Depreciation
Operating income
Net finance charges
Forex and reserving gain
Other operating income
NPBT
Taxation charge
Profit from continuing operations
Other comprehensive income
Total comprehensive income
Statement of cash flows
Statement of financial position
Ordinary shareholders interest
Outside shareholders interest
Pref shares and conv debentures
Total shareholders' interest
Current debt
Non-current debt
Total interest-bearing debt
Interest-free liabilities
Total liabilities
Property, Plant and Equipment
Investments and other non-current assets
Cash and cash equivalent
Other current assets
Total assets
Ratios
Cash flow:
Operating cash flow : total debt (%)
Discretionary cash flow : net debt (%)
Profitability:
Turnover growth (%)
Gross profit margin (%)
EBITDA : revenues (%)
Operating profit margin (%)
EBITDA : average total assets (%)
Return on equity (%)
Coverage:
Operating income : gross interest (x)
Operating income : net interest (x)
Activity and liquidity:
Trading assets turnover (x)
Days receivable outstanding (days)
Current ratio (:1)
Capitalisation:
Net debt : equity (%)
Total debt : equity (%)
Total debt : EBITDA (%)
Net debt : EBITDA (%)
5.0
0.6
(3.4)
15.8
(1.6)
(5.6)
67.1
50.4
41.3
47.8
58.2
77.9
47.2
37.2
18.9
26.6
74.1
37.2
26.9
9.1
6.8
78.4
45.4
37.0
12.6
10.7
76.8
34.1
27.3
8.5
7.1
77.3
35.1
28.1
7.9
6.9
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
n.a
19.2
1.3
17.1
28.2
1.8
9.8
38.5
1.1
10.5
30.8
1.1
9.3
29.1
1.5
10.2
30.7
1.6
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
n.a
0.0
‡ Depreciation used as a proxy for maintenance capex expenditure
* 2010 and 2011 are Company numbers
Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 12
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based
solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the
risks and merits of the rated entity, security or financial instrument; and d.) the ratings expire in August 2016.
Transcorp Hotels Plc participated in the rating process via face-to-face management meetings, teleconferences and other written
correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where
possible.
The credit rating/s has been disclosed to Transcorp Hotels Plc with no contestation of the rating.
The information received from Transcorp Hotels Plc and other reliable third parties to accord the credit rating included:
- the 2014 audited annual financial statements (plus four years of comparative numbers),
- budgeted financial statements for the years 2015 to 2022,
- unaudited management accounts to June 2015,
- a completed rating questionnaire containing information on Transcorp Hotels Plc,
- copies of vendor agreements and an insurance policy schedule,
- corporate governance and enterprise risk framework and industry data, and
- in respect of the Bond programme: the Draft Trust Deed, Draft Series 1 Trust Deed, Draft Series 2 Trust Deed Draft Shelf Prospectus, Draft
Series 1 Supplementary Shelf Prospectus, Draft Series 2 Supplementary Shelf Prospectus, signed reporting accountants report and legal due
diligence report.
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Nigeria Corporate and Bond Analysis | Public Credit Rating
Page 13