Tuesday 25 July 2017 by FIIG Research Company updates

Company updates – APRA, Axsesstoday Group, Capitol Health and NEXTDC

This week, APRA provided updated capital requirements for Australia’s major banks, Axsesstoday gave FY18 guidance, Capitol Health intends to sell its NSW assets and NEXTDC acquired an interest in Asia Pacific Data Centre Group

APRA announces ‘unquestionably strong’ capital benchmarks

APRA has announced its definition of unquestionably strong capital requirements for Australia’s four major banks. It stated that the big four banks need to have Common Equity Tier 1 (CET1) capital ratios of at least 10.5% to meet the unquestionably strong benchmark. Notably, APRA focused on CET1 capital requirements, stating it is the “highest quality capital” and most likely to create confidence in a bank’s financial strength.

For the major banks, the 10.5% capital ratio requirement will amount to an increase of around 1%, based on their capital levels as at December 2016.

For other Australian authorised deposit taking institutions (ADIs), the new standard will require an increase in minimum capital requirements of around 0.50%. APRA expects Australian banks will be able to meet the new requirements from their existing capital base, without having to raise additional capital from external markets.

All ADIs are expected to meet the new benchmarks by 1 January 2020.

APRA’s full statement is available here.External link - opens in a new window

Axsesstoday Group

Key points:

  • Axsess confirmed its previously guided FY17 NPAT of $3.6m (compared to our conservative base forecast of $2.6m)
  • FY18 NPAT guidance was given of $6m (compared to our current forecast of $7m – NPAT is not a particularly relevant credit indicator but we may revisit our forecasts once full results are released)
  • The loan book continued to grow from $129m, since we reviewed the company in March as part of the last raising, to $167m
  • Arrears greater than 30 days have reduced from 1.5% as at April to 1.1% at June 2017(a spike in March/April is consistent with historic seasonality)
  • Total credit losses in FY17 remained stable at 1.13% of net receivables (~1% FY16). General provisioning for impairments increased from $1m (Dec 16) to $2m (June 17) as part of the groups 2.5% general provision for losses
  • Axsess has also made some comments regarding the possibility of overseas expansion, going on to specifically mention Canada. While Canada is similar to Australia in many legal and commercial aspects, there are the usual risks associated with international expansion into an unfamiliar market. In terms of funding, the Series II 7.5% notes restrict eligible receivables to debtors and contracts derived in Australia. The BBSW+6.50% floating rate note do not have this restriction in terms of eligible assets. I believe it is unclear whether Axsess may legally be able to use Notes I funding to expand offshore however even if so practicalities may exclude this (such as assets will no longer be account as eligible under Notes II or the senior debtor’s facilities, plus such utilisation may damage the relationship with Axsess’ financiers)

The media release is available here.External link - opens in a new window

Capitol Health

Capitol Health has previously commented on its intention to sell its NSW assets for $81.5m utilizing funds for, amongst other things, the planned redemption of its unsecured Notes in May 2018.

Capitol advise that the sale has now been approved by the Foreign Investment Review Board.

This therefore clears one hurdle for the planned notes redemption in May 2018 (@ $103) - subject to its ability to obtain any necessary alternative funding.

“As announced to the market on 14 June 2017, Capitol Health Limited (Capitol or the Company) (ASX: CAJ) has agreed to sell its NSW radiology assets to I-MED Radiology Network (I-MED) for a total consideration of $81.5m (less $1.2m cash adjustment for employee entitlements).

The transaction was subject to Foreign Investment Review Board (FIRB) approval, which Capitol is pleased to confirm has now been received. Final completion of the transaction remains subject to customary third party consents.

The transaction is progressing as anticipated and the parties continue to expect the transaction is likely to complete on or around 31 August 2017.”

The ASX announcement is available here.External link - opens in a new window

NEXTDC

NEXTDC advised that it has acquired a 14.1% interest in Asia Pacific Data Centre Group (ADJ) for total consideration of $29m.

AJD’s sole assets are three data centre properties occupied by NEXTDC under long-term lease arrangements: Sydney (S1), Melbourne (M1) and Perth (P1). Next did not retain ownership of these assets as a means of freeing up capital for growth. It intends to retain ownership of the centres it is currently developing

AJD is currently subject to a proposal whereby its largest securityholder, 360 Capital Group has requisitioned a meeting of Asia Pacific Data Centre Group securityholders to consider resolutions to remove the responsible entity of AJD and replace it with a nominee of 360 Capital.

Next believes that retaining the internalised management structure alongside an independent Board is in the best interests of AJD security holders and intends to vote its APDC Stake against all resolutions contained in the 360 Capital Proposal. The Company's immediate focus is on supporting the existing independent AJD Board's position of rejecting the 360 Capital Proposal at the extraordinary general meeting.

The purchase has been funded out of the Company's existing cash balance, which was increased through the $300m issue of Notes III senior unsecured debt offering.

The ASX announcement is available here.External link - opens in a new window

 

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