Dipula’s credit rating upgraded to BBB+(ZA) and A2(ZA) with a “stable” outlook

Izak Petersen, Chairman of the SA REIT Association
Izak Petersen, CEO of Dipula Income Fund.

Dipula Income Fund’s long- and short-term credit ratings have been upgraded by Global Credit Ratings (GCR) to BBB+(ZA) and A2(ZA) respectively, with a “stable” outlook.  

In terms of GCR’s international scale rating, the improved long- and short-term ratings reflect high certainty of timely payment of short-term obligations and average credit quality relative to other issuers or obligations in the same country.

GCR noted that the upgrade to Dipula’s ratings reflects the Group’s continued resilient performance, which has allowed it to maintain solid credit protection metrics, whilst financial flexibility has been improved through the restructuring of its dual share structure and the easing of financial covenants.

In early April 2022, Dipula received overwhelming support from its shareholders to simplify its dual share capital structure into a single class of ordinary shares.

We are very pleased with the ratings upgrade. The simplification of our capital structure has paved the way to eliminate misalignment of interests between shareholders, which will allow Dipula to act on growth opportunities subject to sensible cost of capital relative to the return profile of the opportunities”, commented Izak Petersen, CEO of Dipula.

In addition to the simplified share structure, Dipula’s improved credit rating was because of its solid operational performance and generation of stable operating profits throughout the Covid-19 pandemic.

The Group’s operating margin has widened to 63.5% at 1H FY22, from around 62% during the pandemic, due to tight control over property and administrative costs. Looking ahead, GCR expects operating profit to gradually increase, despite inflationary pressures, with the operating margin remaining between 62% to 65%.

Key credit protection metrics were maintained at moderate levels, with the LTV ratio remaining between 37% and 40% over the review period (1H FY22: 38%). Debt to EBITDA has improved gradually from 4.8x FY18 to 4.2x at 1H FY22, whilst net interest cover improved to 3.1x at FY21 and 1H FY22. Credit protection metrics are projected to trend at current levels at year-end FY22 and FY23.

“Our hands on approach and the defensiveness of especially our retail portfolio is the reason for our solid performance over the years,”Petersen noted.

According to GCR, further positive ratings could arise if Dipula successfully diversifies its funding sources and lengthens its debt maturity further, whilst securing, larger unutilised facilities to mitigate liquidity pressure.