GCR affirms CBZ Asset Management (Private) Limited’s rating of A(ZW)(mq); Negative Rating Watch.

12 Dec 2018 In Rating Notifications

GCR affirms CBZ Asset Management (Private) Limited’s rating of A(ZW)(mq); Negative Rating Watch.

Johannesburg, 12 December 2018—Global Credit Ratings has affirmed the national scale manager quality* rating accorded to CBZ Asset Management (Private) Limited of A(ZW)(mq); with the rating placed on Negative Rating Watch. The rating is valid until May 2019.

 

SUMMARY RATING RATIONALE

The manager quality (“MQ”) rating of CBZ Asset Management (Private) Limited, (trading as “Datvest”, “the company”) reflects GCR’s assessment of its corporate profile, financial sustainability, track record and experience in portfolio management, and sufficiency of its risk management, controls and systems.

Corporate profile: Datvest has a strong brand name and an extensive track record in asset management. Datvest is the third largest (out of 16) asset managers in Zimbabwe with market share of assets under management (“AUM”) of 5.5% at 30 June 2018. The company is a wholly owned subsidiary of CBZ Holdings Limited (“CBZHL”, “the group”), the largest commercial bank in Zimbabwe and the largest listed financial services group on the Zimbabwe Stock Exchange (“ZSE”). Implicit linkages with the parent, such as, common management (ie, board membership) and intercompany loans/deposits, were also favourably considered. Datvest has a stable management team combined with experienced senior portfolio management.

Financial sustainability: GCR considers the company’s earnings generation to be adequate. Financial standing is also supported by its close association with the group (including access to technical, systems, credit, and research support), and its well capitalised position with core capital of USD3.9m at 31 August 2018 (regulatory minimum: USD0.5m), supported by sound internal capital generation. Funding is largely deployed in liquid assets constituting 72% of total assets at 31 August 2018 (FY17: 59.4%).

Portfolio management: AUM grew by 7.2% YoY to USD318.3m at 30 September 2018, supported by growth in the equities and fixed income portfolios. Datvest has four main portfolios namely; pension funds, private client fixed income/money market, private client equities and unit trusts. Portfolios are spread over three major asset classes: equities, fixed income/money market and property. Pension funds constituted 84.8% of AUM at 30 September 2018, down from 91.6% at 30 September 2017. Equities and fixed income were a higher 8.4% and 6.5% respectively of AUM at 30 September 2018 from 6.6% and 1.5% in the previous corresponding period, while unit trusts remained stable at 3% of AUM. The company implements a top-down investment approach that is monitored on a weekly basis by an executive committee. Fixed income investments are largely with highly rated financial institutions, taking cognisance of liquidity placed requirements. Asset selection is primarily based on research driven fundamental valuations (focusing on value investments that are under-priced by the market, and top tier companies). This is supplemented by technical analysis, in particular, when optimising entry and exit opportunities in relation to equity. The equities market has generally been weak in 2018 on account of price correction given strong performance in 2017. Going forward, value preservation strategies include reducing exposure to overvalued equities, increasing ‘safe-haven’ investments in unlisted properties, reducing exposures to fixed income investments and seeking other alternative investment exposure.

Risk management: Risk is managed holistically at senior management/board levels, with Datvest benefiting from the group’s operational risk control framework Risk management has become more prominent due to the volatility in the country’s capital markets. The company’s flat organisational structure has allowed management to be closely involved in all key transactions. Its operational and IT environment provides efficient work flow, matching the funds’ needs. Investment decision making is highly disciplined, primarily driven by a risk model, with implementation by the portfolio management team under strict portfolio volatility control. Despite this, the company’s investment portfolios exhibit high counterparty concentration due to its selective investment criteria coupled with the challenging economic conditions.

An improvement in the company’s market share, fund performance, portfolio diversification, and operating environment could lead to an upward movement in the rating. A negative rating action may arise from loss of market share/key clients, as well as reputational damage to the parent.

*Note that manager quality ratings are classified as ‘non-credit ratings’ (refer to GCR’s published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (December 2015)    
Management quality rating: A(ZW)(mq)    
Rating outlook: Stable

Last rating (November 2017)

Management quality rating: A(ZW)(mq)

Rating outlook: Stable

   

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Vimbai Muhwati   Matthew Pirnie
Credit Analyst   Sector Head: Financial Institution Ratings
(011) 784-1771   (011) 784-1771
.(JavaScript must be enabled to view this email address)   .(JavaScript must be enabled to view this email address)
     
Secondary Analyst    
Victor Matsilele    
Junior Credit Analyst    
(011) 784-1771    
.(JavaScript must be enabled to view this email address)    

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Funds and Asset Managers, updated March 2017

Datvest rating reports (2015-17)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: http://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  http://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT http://GLOBALRATINGS.NET.

 

SALIENT FEATURES 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

CBZ Asset Management (Private) Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The rating has been disclosed to CBZ Asset Management (Private) Limited.

Information received from CBZ Asset Management (Private) Limited and other reliable third parties to accord the rating included:

  • Audited financial results as at 31 December 2017 (and one year of comparative numbers)
  • Unaudited interim results at 30 June 2018
  • Asset allocation information from January 2012 to 30 September 2018

The rating above was solicited by, or on behalf of, CBZ Asset Management (Private) Limited, and therefore, GCR has been compensated for the provision of the rating.

 

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY

Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Audit Report A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).
Capital The sum of money that is invested to generate proceeds.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Equity Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Liquid Assets Assets, generally of a short term, that can be converted into cash.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. 
Long-Term Not current; ordinarily more than one year.
Long-Term Rating Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Operational Risk The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Outlook Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short-Term Current; ordinarily less than one year.
Short-Term Rating An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Stock Exchange A market with a trading-floor or a screen-based system where members buy and sell securities.
   

For a detailed glossary of terms please click here

 

 

 

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