Cytonn earns rating downgrade

A South-African rating agency has downgraded Cytonn Investments Management Plc credit rating due to constrained access to capital from commercial banks and a short track record.

Global Credit Ratings (GCR) put the company’s rating at “B” for long- and short-term issuer compared to “BB” for long-term and “B” for short-term issuer ratings the firm received in September last year.

GCR said the organisation’s untested ability to execute multiple real estate projects was also a factor in the downgrading. The agency did not issue a definite outlook saying it is “evolving”.

“The ratings are currently constrained by Cytonn’s curtailed access to capital given limited recourse to bank facilities. As such, group debt largely comprises short-dated loans/notes from mezzanine investors (where financing has both equity and debt characteristics),” said GCR.

“While the rigour of governance and risk management structures is noted, the ratings are also constrained by Cytonn’s short track record and untested ability to execute multiple real estate projects at relatively competitive project LTVs [loan to value], timeously roll over capital while achieving targeted returns,” said the rating agency.

But GCR said securing long-term funding, such as through an equity raise, could support an upgrade in the rating going forward.

“Looking ahead, securing longer-term funding, in particular a successful equity raise, could support upward rating migration. Substantive upward rating movement in the medium term could also derive from Cytonn attaining profitability and positive cash flows through timely completion of large developments, translating to positive debt service and moderate gearing,” said GCR.

The agency, however, said things could deteriorate if there were delays in project execution or unmitigated regulatory, construction or market risks that impact the firm’s high-yield services or the group.

“An overly aggressive project rollout could also curtail liquidity and debt service,” GCR added.