On November 22, GCR made changes to the Issuer ratings of Mixta Real Estate Plc as well as the issue ratings for three of its bonds. The changes include: 

• Downgrade in their national scale long-term and short-term issuer ratings from BB+(NG)/B(NG) to CCC-(NG)/C(NG) with an evolving outlook.
• Upgrade of their Long term national scale issue rating on the Series 1 and Series 2  Tranche A Bonds to AAA(NG)(EL) with a stable outlook.
• Downgrade in their Series 2 Tranche B Bonds to B(NG)(EL) with an evolving outlook.

Here is an explainer on the ratings by GCR as well as the response of Mixta Real Estate Plc.

Mixta’s rating indicates the high vulnerability of its capacity and timeliness of payment of its obligations.

The national scale issuer ratings refer to the ability of a legal entity within a single country to meet its long-term or short-term financial obligations. Issue ratings on the other hand refer to the ratings of a specific debt issue or a specific class of financial obligations of the entity. Issue(r) ratings are usually assigned to legal entities and in this case, it is Mixta Real Estate Plc. 

Mixta is a leading real estate developer in Nigeria with up to 4,000 housing units in its portfolio and a market cap of ₦19,165,126,720 according to the NASD OTC (National Association of Securities Dealers). Being accorded a national scale rating of CCC-(NG)/C(NG) indicates that timely payment of its obligations is highly vulnerable relative to other issuers or obligations in the country in the short term. While their capacity for payment is highly vulnerable relative to other issuers or obligations in the country in the long term.

Mixta’s increasing debt and decreasing cash flow is the rationale for the downgrade.

In their publication dated November 22, 2021, GCR explained that Mixta Real Estate Plc.  is facing financial strain, which affects it’s overall creditworthiness. This strain reflects the material increase in its debt and a corresponding deterioration in its credit protection metrics. A major issue the GCR highlighted was the inability of Mixta to actualize cash flows from the extent of land banks that the company owns. One of the factors affecting this inability was; not meeting up with project deliveries as a result of the pandemic delay. In the short term, GCR sees Mixta’s solvency as dependent on debt funders continuing to roll their facilities. 

Mixta is not the only notable real estate developer facing financial strain. UPDC’s (Uacn Property Development Company), a leading real estate developer, has also been facing similar financial strains.

The upgrade was a result of its guarantor’s rating, which ensured 100% repayment if Mixta defaults.

As for the issue rating, the rationale of the upgrade of the Series 1 and 2 Tranche A bonds is as a result of the high credit rating of the Guarantor of the bond (Guarant.Co) who have promised a 100% repayment of the principal in any case of default by the issuer (Mixta Real Estate Plc.).

However, the downgrade of the Series 2 Tranche B bonds was accorded because of the national scale long-term issuer rating to  CCC-(NG) due to the company’s financial strain.

Mixta Real Estate’s strong track record is advantageous for its financial sustainability.

The outlook given by GCR to Mixta Real Estate was ‘evolving’, which reflects the possibility of Mixta’s return to financial sustainability especially if it is able to raise cash funds from property sales, debt refinancing, and/or a recapitalization. The strong track record of the company along with its extensive land bank puts the company in this advantageous position. However, in absence of any of the above-mentioned events, GCR believes that Mixta could default on its debt obligations or require a distressed debt restructuring.

Mixta Real Estate Plc.  disagrees with some of GCR’s conclusions on its ratings.

Mixta Real Estate Plc reacted to the ratings accorded by GCR by disagreeing with some of GCR’S conclusions. They attributed their debt increase to the deployment of funds mainly for the improvement of infrastructures and amenities, which is a phase prior to the development of some of their properties. They also mentioned that the conversion of some of their non-interest paying loans to interest-paying loans automatically increased the debt. 

However, they noted that expected cash inflow from sales between now and Q1:2022 should be able to take care of some of their maturing commercial papers. While about one-third of their interest-bearing loans are not due until after one year. They disagree with the advice from GCR to sell some of their assets in their land bank in order to reduce their debts but choose to follow their long-term strategy of a balance between preservation of their assets and cash generation.

What are your thoughts on the GCR’s ratings and Mixta’s response? Let us know by sending an email to [email protected] or reach out to us on estateintel.com for more information.

Read more about the issuer rating here on GCR’s website.

Also, read more about the issue rating here.

Read about Mixta’s reply here.