Fitch Affirms RCS at 'BBB'; Upgrades National Rating to 'AA(zaf)'
The rating actions follow the downgrade of South Africa's sovereign ratings (see 'Fitch Downgrades South Africa to 'BBB-'; Outlook Stable' dated 4 December 2015 at www.fitchratings.com).
KEY RATING DRIVERS
IDRS AND SUPPORT RATING
RCS's IDRs, National Ratings and Support Rating reflect a high probability of support available from its ultimate parent, BNP Paribas (BNPP; A+/Stable) and BNP Paribas Personal Finance, if required.
RCS's IDRs are notched down four times from BNPP's 'A+' IDR. The notching takes into account the increasing operational integration of RCS into BNPP's sizeable personal finance division and our expectation that BNPP will remain a majority owner of RCS (currently at 100%) in the medium term. In addition, the ratings consider sizeable undrawn funding and liquidity facilities in place with the parent. However, the ratings also reflect RCS's small size in terms of assets and earnings compared with BNPP and that RCS is based in a different jurisdiction and a market that we do not view as core for BNPP.
The affirmation of RCS's Short-term IDR at 'F2', the higher of the two possible Short-term IDRs for an issuer with a 'BBB' Long-term IDR, primarily reflects BNPP's sizeable funding guarantees for RCS, the absence of a domestic deposit base and RCS's small size compared to BNPP. As a result, transfer and convertibility risks (as expressed in South Africa's Country Ceiling), while still present, are to some extent mitigated.
NATIONAL RATINGS AND SENIOR DEBT
The upgrade of RCS's National Long-term rating to 'AA(zaf)' primarily reflects our view that following the sovereign downgrade, BNP's ability and propensity to support RCS has remained unchanged. Therefore, RCS's creditworthiness relative to other South African entities rated on Fitch's National Rating scale has improved.
RCS's domestic medium term note (DMTN) programme and notes are rated in line with RCS's National Ratings, reflecting our view that non-payment of these senior unsecured obligations would reflect the uncured failure of the entity in accordance with Fitch's rating definitions.
IDRS, NATIONAL RATINGS, SUPPORT RATING AND SENIOR DEBT
RCS's IDRs, National Ratings and Support Rating are sensitive to a reduction in the perceived ability or willingness of BNP to provide support to RCS. RCS's IDRs and Support Rating are also sensitive to a further downward revision of South Africa's Country Ceiling.
A downgrade of BNPP could lead to a downgrade of RCS. However, further operational integration into BNPP's personal finance division, additional funding support, a longer track record of operating successfully as part of BNPP and increasing strategic importance for BNPP could, in the medium term, lead to a narrowing of the notching between BNPP's and RCS's ratings.
Ultimately, given RCS's small size relative to BNPP (which indicates a strong ability to support RCS), RCS's ratings are more sensitive to a weakening of BNPP's willingness to support RCS. Any indication that BNPP plans to exit the currently challenging South African market, an intention to sell RCS or public statements by BNPP that RCS would no longer fit in with its personal finance strategy, could lead to wider notching between BNPP's and RCS's ratings. A reduction of BNPP's liquidity facility for RCS, not expected by Fitch, could also be negative for RCS's ratings.
RCS's ratings are also sensitive to a downgrade of South Africa's sovereign ratings and notably a downward revision of the South African Country Ceiling (BBB). A further downward revision of the Country Ceiling would lead to a downgrade of RCS's foreign currency IDRs. A revision of South Africa's Country Ceiling to 'BB+' or below would also lead to a downgrade of RCS's Support Rating given Fitch's mapping approach.
RCS's DMTN and senior debt ratings are primarily sensitive to a change in RCS's National Ratings.
RCS is a South African non-bank financial institution established in 1999. It has a strong niche franchise as the third-largest network provider in the country. It has strong links to many large South African retailers and generates a significant amount of its business via the distribution of general purpose, co-branded and private label credit cards to its retail partners' respective client base. It also offers personal loans and insurance products.
The rating actions are as follows:
RCS Investment Holdings Limited
Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
Long term local currency IDR: affirmed at 'BBB'; Outlook Stable
National Long-term Rating: upgraded to 'AA(zaf) from 'AA-(zaf)'; Outlook Stable
National Short-term Rating: affirmed at 'F1+(zaf)'
Support Rating: affirmed at '2'
DMTN programme: National Long-term Rating: upgraded to 'AA(zaf) from 'AA-(zaf)'; National Short-term Rating: affirmed at 'F1+(zaf)'
Senior unsecured debt: upgraded to 'AA(zaf)' from 'AA-(zaf)'