Written by Emmanuel Were
April 7, 2008: Car and General is adequately protected against default on long term debt instruments, an assessment by the Global Credit Rating (GCR) shows. Global GCR gave the distributor of motor vehicles and engine products a BBB rating in the long term and an A3 in the short term.
The short term rating indicates that the company can satisfactory meet day to day cash obligations, but “the risk factors are larger and subject to more variations.
“It means we are an investment quality company good to receive credit for some of the institutions like banks,” said Mr Ted Grayson, the Group Financial Director at Car and General.
Credit rating agencies give potential lenders a third party opinion on the credit worthiness of a borrower. By the end of October last year, about 50 local firms had been rated by GCR.
The need for ratings has increased as companies - gunning for opportunities brought by recent economic boom seek funds for expansion through commercial loans and bond issues.
For Car and General, the rating provides a second avenue of raising cash for long term expansions plans.
In an earlier interview with the Business Daily, Car and General managing director Vijay Gidoomal said the company would not seek to raise additional cash from its shareholders and would instead use internally generated cash for expansion.
Three and two wheeler motor vehicles constitute the core business of Car and General and has faced increasing challenge from cheap imports from the far east and Asia.
“Some of the industry factors can weigh down a company hence reducing its rating,” says Alex Owino, an analyst at Metropol the East African representative of Global Credit Rating Company which is based in South Africa. The BBB rating also states that there is “considerable variability in risk during economic cycles.”
Car and General which deals in several engines, motor vehicles and generators returned a profit before taxation of Sh257 million in the financial year ended September 2007; a 45 per cent increase over the previous year.
Improved sales of its branded Cummins engine and generator business were the main driver for a profit increase, the company had said.
Robust growth in the construction industry created a need installation of generators to act as a source for a power back up.