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Budget tabled, but still no sign of the detailed numbers

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MOFThe Namibian budget was tabled on the 25th of February, but now, four days later, the estimates of revenue and expenditure, which are in effect the budget, are still not available to the public, and it appears, still not available to parliamentarians either.

As such, the budget was tabled with little more than high-levels numbers, captured in the speech, and a few more detailed numbers in the Medium Term Expenditure Framework (also not yet digitally available and hard to come by in hard copy). However, noteworthy in its absence was the estimates document, which raises the question as to whether the budget has yet been genuinely tabled at all?

That this is a great blow for transparency, little doubt can exist. Access to the estimates documents is vital for accountability, as it is the only way that the public can assess how public funds, for whom the Government is entrusted as custodian, are being spent. This forms part of a vital social contract between the public and the Government, and this contract is currently being flaunted.

Moreover, with debt levels increasing, investors, domestic and external, are likely to be keeping a close eye on the fiscus, and this lack of transparency is unlikely to be viewed in a positive light. In this regard, the budget speech made emphasis of the importance of international funding and the role it has played over the past financial year. However, not a lot of gratitude appears to be shown towards these investors, with a late dissemination and a lack of electronic availability of these critical documents. We are further concerned that this is the second time in as many years that the estimates documents have not been made available to the public for many days after the tabling of the budget, and we remain cognisant of the fact that if this remains unchallenged, it may not be the last time either.

While a conspiracy theorist may suggest that this act of withholding the detail of revenue and expenditure is due to a willful effort to hide something from the analysts and public, we feel this is unlikely. However, the alternative, options; that either the numbers are not yet complete, or that there is simply a lack of interest and urgency in sharing these; are hardly any better. Moreover, the Ministry has been eerily quiet on the issue, and has yet to say anything publicly as to why these numbers are not yet available.

There is generally a lot of hype around the budget release, but this hype fast becomes old news. By the time the Ministry finally releases their numbers, it may well be the case that much of the public has lost interest. This is highly concerning given that the Government is spending in excess of N$66 billion of the public’s money in the next calendar year alone. Moreover, there has been a historical disconnect between the budget speech’s stated priorities, and actual expenditure priorities, which is likely to go unchecked should the detailed numbers remain unreleased.

What should be done?

All of the budget documents should be completed and uploaded to the website of the Ministry of Finance as the Minister starts his speech in parliament. This will allow for the Namibian public, investors in Namibian debt and various analysts, to inspect the fiscal actions of Government, who it must be repeated, is but a custodian of public funds. As these funds remain the money of the people, the people have a right to know how Government plans to raise and spend them.

GCR affirms Oryx Properties Limited’s rating of BBB+(NA); Outlook Stable.

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SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Oryx Properties Limited (“Oryx”) based on the following key criteria:

Oryx is a leading player in the Namibian property sector. The fund’s local knowledge remains its core competitive advantage, and growth has been strongly supported by domestic financial institutions and unitholders, who have demonstrated a willingness to provide funding. Nevertheless, its small size constrains the rating.

High concentration is inherent to Oryx, with the largest and second largest properties comprising 48% and 13% respectively. As the majority of planned development activity is to focus on the two largest properties over the short to medium term, this concentration will become even more acute. This risk is mitigated by the fund’s high quality tenant profile, with the majority of leases with South African national retailers or large local companies. In addition, close relationships with tenants have resulted in a retention rate of around 90% and a vacancy rate below 1% over most of the review period, despite rising competition from new developments.

Rental income rose by 32% to NAD266m in F15, reflecting the contribution of acquisitions and expansions, while escalations of around 8% and the initial contributions from electricity generation and provision saw annualised rentals climb 11% in 1H F16. Efforts to expand income streams through the provision of electricity and the potential investment in listed investments could provide some income diversification. Although the property expense ratio has increased, this is a result of the provision of electricity. Aside from this, Oryx has managed its costs by renegotiating service level agreements and internalising the core property management functions.

The reduction in debt to NAD692m at 1H F16 (FYE15: NAD872m) saw the gross LTV ratio reduce to 30.4%, from around 40% over the prior three years, and gross debt to EBITDA fall to 381% (FYE15: 488%). Both metrics are within GCR’s benchmark for highly rated property funds, but GCR expects gearing to rise over the next 2 years as funds are drawn for developments. Interest coverage of 2.4x is in line with similarly rated funds, but the low hedged position does expose Oryx to the rising interest rate environment. Funding flexibility is considered high, given the NAD281m in utilised revolving credit facilities. This is complimented by the relatively high level of unencumbered properties, which suggests an ability to raise additional facilities through other institutions. The fund has also established a DMTN programme to provide an alternative source of funding, but no notes have been issued to date.

The property environment in Namibia is challenging, with the retail sector evidencing an oversupply of GLA, exacerbated by the high asking prices for acquisitions. Accordingly, Oryx plans to focus on developing its existing properties further as such a strategy entails less risk, further mitigated by the staggered nature of the development pipeline.

Positive rating movement is dependent on sustained long term earnings growth, despite the challenging operating environment. The successful implementation of one of the larger medium term projects, or an acquisition that substantially enhances the size of the fund (and reduces concentration) would also be positive considered. Conversely, a weak performance from Maerua Mall would have a negative impact on the results of the group as a whole. A sustained increase in the LTV ratio above 40% and/or an inability to raise capital for further growth would be negatively viewed.

https://globalratings.net/news/article/gcr-affirms-oryx-properties-limiteds-rating-of-bbbna-outlook-stable