SME financier keeps its rating

Local and international investors look to place more funding with the lender.

Despite a low growth economy, which was hit even harder by Covid-19, local small and medium enterprise (SME) financier Retail Capital has retained its national BB+ credit rating.

While its international rating has dropped by one notch to Bin line with South Africa’s credit downgrade in March, both ratings have a stable outlook.

This has resulted in local and international investors looking to place more funding with the lender. This will ultimately fall into the hands of South African SMEs that need it.

This is according to Guy Hosking, chief financial officer at Retail Capital, who says this result is a vote of confidence in the stability of the business.

“It shows that the GCR rating agency still sees the company in the same positive light in spite of the economic circumstances.”

In its report, GCR said that the national rating was affirmed, based on the alternative lender’s healthy balance sheet metrics, which saw strong capitalisation, adequate funding and liquidity.

The agency maintained its stable outlook on an expectation of strong leverage, buoyed by good earnings and shareholder support. Despite an expected spike in the cost of risk due to the effects of the pandemic, the financier holds adequate capital to see it through the crisis.

A strong balance sheet

Hosking said the strength of the company’s balance sheet was key to the retention of its credit rating and that there were three legs to maintaining this position.

“We have been conservative in managing the balance sheet even before the crisis,” he said.

“We went into February/March with a positive debt to equity ratio, higher than required and had equity to fall back on if needed.”

The second leg was ensuring liquidity. “We noted the effects of the pandemic in other countries, so we made sure we had sufficient money in the bank.”

“This meant we were able to weather the Covid-19 storm with enough working capital, giving us that runway to survive a lockdown.”

The third leg was engagement with funders. Hosking said they kept their funders updated with regular reports, which was key to getting stakeholder support.

As such, Retail Capital now has both local and international funders who want to place money with the company.

Stable rating is testament to resilience of small businesses

The credit report notes Retail Capital’s high exposure to SMEs, which were massively affected by the shutdown.

“Ninety percent of the SMEs we fund are in consumer facing businesses, such as restaurants and hospitality, and, as such, the vast majority of our clients were unable to trade in April.”

However, the equipment leasing side of Retail Capital remained stable throughout.

“Sixty percent of this was in the medical field, such as equipment for doctors and laboratories, and almost all of these businesses could continue to operate.”