UPDATE ON COVID-19

 

13 May 2020

 

 

ASA International Group plc (the "Group")

UPDATE ON COVID-19, DISCUSSIONS WITH OUR LENDING INSTITUTIONS AND FINANCIAL AND OPERATIONAL PERFORMANCE

Amsterdam, 13 May 2020 - ASA International, ("ASA International", the "Company" or the "Group"), one of the world's largest international microfinance institutions, today provides the following updates, in addition to the announcements on 30 March and 16 April 2020.

 

·    Proactively managing the impact of COVID-19 on our operations, focused on the health and safety of our staff and clients

·    The impact of COVID-19 was limited to the last two weeks of Q1 2020 and primarily affected client growth and outstanding loan portfolio ("OLP"). 42 new branches were opened in Q1 (up 11% Y-o-Y, up 2.2% Q-o-Q) with 1,937 branches serving 2.5 million clients (up 13.4% Y-o-Y, flat Q-o-Q), OLP of USD 393m (up 11.1% Y-o-Y, down 4.5% Q-o-Q) and PAR>30 at 2.1% (up from 1.3% Yo-Y, up from 0.6% Q-o-Q)

·    COVID-19 related restrictions in many of the countries where we operate have led to more challenging trading conditions in Q2 2020, leading to lower collections and limited credit issued

·    Recently, lockdowns in Pakistan, Ghana, Kenya, Nigeria, Myanmar and Sierra Leone have gradually begun to be relaxed, which has allowed our field operations in these countries to re-open their branches. Operating performance has been in line with expectations, with collections gradually returning to customary levels

·    Liquidity position remains strong: as of 1 May 2020, we had USD 87m of unrestricted cash and cash equivalents across the Group

·    Possible limited moratoriums on principal repayments in India and Pakistan may be available, which, dependent on the availability of new funding, the Group may seek to utilise to help mitigate the repayment challenges some of its clients may face and meet expected increased demand for loans

·    Due to the impact of the COVID-19 pandemic on the Group's ability to collect all dues from its clients and the more limited repayment capacity as they emerge from the end of the lockdowns and/or moratoriums, we expect that the PAR>30 in each of the countries in which we operate may temporarily increase and result in technical covenant breaches in the majority of the loans made to our holding and operating companies by the end of June 2020

·    We are in discussions with our lending institutions and, based on prior experience, have a high degree of confidence that we will obtain the requisite waivers and/or amendments to our financing arrangements

·    Based on our experience with past disruptive events, we expect that total write offs due to COVID-19 will be no more than 2-3% of the outstanding loan portfolio.
 

 

1.            Impact of COVID-19

The COVID-19 pandemic is impacting all of the Group's clients and staff across the world. Apart from the health and safety risks, the COVID-19 crisis has been disruptive to our operations due to the imposition of lockdowns, curfews, restrictions on movement and congregation of people, and the general fear and uncertainty caused by COVID-19, which has adversely affected the economies and the business activities of our clients in the countries in which we operate.

On March 15, 2020, a lockdown was announced in the Philippines. Within ten days thereafter, the Governments of all our other operating countries, except for Sierra Leone and Zambia, announced lockdowns, curfews or other measures to mitigate the spread of COVID-19. 

Based on publicly available data, the spread of the disease in our operating countries does not reflect the explosive growth in confirmed cases and casualties as has been seen in Europe and the United States. At present, the numbers remain quite low, with a much flatter infection and fatality curve compared to the major affected countries in Europe and the United States. Lockdowns in Pakistan, Ghana, Kenya, Nigeria, Myanmar and Sierra Leone have gradually begun to be relaxed, which has allowed our field operations in these countries to begin to reopen, and operating performance in these markets has been in line with expectations.

 

2.            Immediate Measures Taken

 

a.         Operational measures

As the implications of the potential spread of COVID-19 became clear, we promptly implemented a wide range of measures to minimize the impact of COVID-19 on our staff, clients and operations, including the following:

Health and safety

·        Sanitary measures in accordance with Government and international guidelines.

·        Social distancing.

·        Recognition of signs of infection (dry cough and/or high temperature), followed by self-isolation.

·        Mandatory use of face masks in and outside of our offices and branches.

Staying up-to-date with all Government and regulatory developments

·        Ensuring proper understanding and full compliance with lockdowns, curfews and other Governmental and regulatory restrictions on the movement and congregation of people.

·        Working closely with local microfinance associations to promote and defend the interests of the sector.

Maintaining an active dialogue with clients

·        Maintaining active contact with clients by phone, social media and other means during lockdowns and curfews.

·        Preparing staff to restart operations.

 

 

 

b.         Financial measures

Maximize liquidity

·        Seeking to maintain adequate liquidity across the Group by ensuring that the holding companies and each of our operating entities have sufficient unrestricted cash and/or access to unconditional funding available during a possible extended period of reduced cash flow.

·        As of 1 May 2020, we had USD 87m of unrestricted cash and cash equivalents across the Group.

·        No material refinancing requirements at the holding companies are anticipated until 2022, subject to final confirmation from one major lender.

·        Available liquidity has ensured that each of our operating subsidiaries, except Sri Lanka, have the capacity to pay their regular expenses during the lockdowns for at least 3-4 months while maintaining enough capacity to satisfy high expected demand for new loans after the end of the lockdowns.
 

Reduce operating costs

·        In April 2020, the Group began to implement a cost reduction program which during a lockdown period of up to three months could yield savings of up to USD 6m through the deferral of personnel expenses and the reduction of personnel-related and other operating expenses (including the elimination or postponement of non-essential projects) without adversely affecting the ability of the Group to conduct its regular operations when markets reopen.

 

Obtain moratoriums on interest and deferral of principal payments

·        The Central Banks in India and Pakistan have established moratoriums on the repayment of principal on existing loans by microfinance institutions for up to three months in the case of India and up to 12 months in the case of Pakistan. The Group's subsidiaries in India and Pakistan are actively engaged in discussions with their lenders with respect to future principal repayments of existing loans and/or the disbursement of new loans provided to the Group's operations in its two biggest markets, and is considering whether to take advantage of these moratoriums if available.

·        The Government of the Philippines instituted a 45-day grace period for the principal repayments by microfinance institutions.

 

3.            Expected Impact of COVID-19 on our Financial Performance, Covenants and Loan Repayments
 

Q1 Trading update

Q1 operational and financial performance has been below expectations, primarily due to the rapid slow-down of operations during the last two weeks of March, due to the impact of COVID-19 and the associated lockdowns.

 

Temporary increase in PAR>30 to 5-10%, but no more than 2-3% expected write-offs

 

While the impact of COVID-19 on the Group's financial performance in the first quarter of 2020 was mitigated by lockdowns and related Government measures only coming into force in the final weeks of the quarter, the full impact of these measures has been felt more acutely in the second quarter of 2020. The Group has significant previous experience navigating material business disruptions caused by economic and regulatory disruptions and natural calamities, although none that have impacted all of its businesses at the same time in the way that COVID-19 has.

 

Since the Group's inception in 2008 until 31 December 2019, the Group only has written-off loans totalling USD 10m (after the recovery of written-off loans), which represents 0.22% of USD 4.5 billion in loans extended. The largest write-off during the last ten years, which amounted to 2% of the Group's loan portfolio, occurred in 2012. At its peak, portfolio at risk over 30 days (i.e. the value of all loans outstanding that have one or more instalments of principal past due more than 30 days, also referred to as "PAR>30") of the Group's total loan portfolio reached 7% and the total write-off amounted to USD 2m.

 

Based on this and other similar experiences and in light of the more widespread impact of the COVID-19 pandemic on the immediate repayment capacity of our clients as they emerge from the end of the lockdowns and/or moratoriums that have been imposed, we expect that the Group's PAR>30 may temporarily increase to levels between 5-10%, although we do not expect that total write-offs over the life of the loans resulting from the COVID-19 pandemic to be in excess of 2-3%.

 

As PAR>30 is a common covenant feature in the majority of the loans made to the Group's holding and operating companies, we expect that the temporary increase of PAR>30 in each of the countries in which we operate will result in a technical breach of the applicable threshold (typically 5%) of the PAR>30 covenants in each of such countries loan documentation, as well as that of our holding companies, by the end of June 2020. Therefore, we are in active discussions with our lending institutions to obtain waivers of, and/or amendments to the terms of, such covenants in our financing arrangements. Although no assurance can be provided, we have a high degree of confidence based on prior experience, as well as Central Banks around the world having encouraged lenders to show forbearance with regard to covenant issues that are principally attributable to the impact of COVID-19, that we will obtain the requisite waivers and/or amendments.

 

In addition, depending on the specific circumstances on (i) how the business environment develops for our clients post-lockdown, (ii) the impact of Government imposed moratoriums, (iii) our collection  efficiency, (iv) the availability of new funding, and (v) our expectation of high demand for new loans from our clients, we may seek to take advantage of moratoriums in India and Pakistan and request that the lenders to our operations in those countries defer some principal loan repayments until those markets have normalized.

 

4.            Preparation for the Restart of our Field Activities

Health and safety of our staff and clients

·        All of the precautionary measures discussed above will remain mandatory for the foreseeable future.

·        Our field staff will be instructed to inform and educate clients of the benefits and protection from health and safety measures instituted by the Group and to encourage clients to comply with the Group's measures while meeting the Group's staff and/or other clients.

Adjustment of field operating procedures

·        If client group meetings cannot be held safely, subject to local rules and/or circumstances, they will be split into smaller groups and/or one-on-one collections.

·        While this may temporarily reduce the efficiency of collections, the Group has faced similar circumstances in the past which were modelled on this approach and did not ultimately adversely affect the effectiveness of collections.

·        Clients will be encouraged to pay loan instalments online, if possible, a practice which already takes place in parts of Kenya and Tanzania.

Treat lockdowns as a 'payment holiday'

·        The lockdown period will be treated as a 'payment holiday' during which only interest will accrue on outstanding loan balances, so that clients will not feel pressure to pay all missed instalments at one time at the end of the lockdown.

·        To further facilitate our clients, accrued interest will not need to be paid until or near the end of each client's loan cycle.

·        Clients may also be given the opportunity to accelerate the payment of loan instalments near the end of the loan term, which could make them eligible to receive a new and possibly bigger loan sooner.

High expected demand for new loans

·        At the end of the lockdown period, it is expected that there will be increased demand for new loans, so that clients can strengthen or recapitalize their businesses.

 

 

5.            Update from the Field

Lockdowns in Pakistan, Ghana, Kenya, Nigeria and Myanmar have gradually begun to be relaxed, which has allowed our field operations in these countries to begin to reopen their branches and restart operations.

Operating performance has been in line with expectations with gradual daily increases in our collection efficiency. Based on the first couple of days/weeks of operations, local management is confident that collection efficiency will gradually return to customary levels near 100% within 2-4 months from the time that we restarted our field operations, subject to country-specific circumstances.

 

Pakistan

·        ASA Pakistan resumed its operations, with both disbursements and collections, on 22 April 2020. During the first three days of operations, collection efficiency was on average 61%, ranging from 42% to 79% across districts, and increased to 74%, ranging from 64% to 86% during the second week.

·        Feedback from clients has been good in terms of their willingness and ability to pay.

·        Management is confident that the collection efficiency will reach approximately (i) 80% by the end of May 2020, (ii) 85-90% by the end of June 2020, and (iii) 95-100% by the end of July 2020.

Ghana

·        The lockdown in Ghana, declared for its four main cities on 30 March 2020, ended on 19 April 2020.

·        During the lockdown, the Group's main branches remained open to give clients the opportunity to deposit or withdraw funds.

·        21 Business Centres were re-opened on 15 April 2020 and started collections with restricted disbursements the week thereafter.

·        Another 81 Business Centres were re-opened on 20 April 2020 and started collections from 27 April 2020, with restricted disbursements from 4 May 2020.

·        Another four Business Centres started collections on 11 May 2020.

·        Collection efficiency after two weeks of field operations reached more than 90% and increased to 98% on 11 May 2020.

Kenya

·        Operations were re-started on 4 May 2020. On the first day of resuming operations, collections amounted to 10%, growing to 24%, 30% and 33%, 37% and 39% on the five days thereafter up to 11 May 2020.

·        80% of clients transfer their instalments directly into our M-Pesa account.

·        Staff still cannot move freely and restrictions remain on group meetings.

·        Our branch teams actively communicate with clients and group leaders by phone.

·        Approximately 30% of businesses/markets have reopened; the expectations is that this will increase to 100% by mid-June 2020.

·        Disbursements are expected to start from 18 May 2020.

·        Based on feedback from clients and the ongoing increase in collections, management expects to achieve 95-100% collection efficiency in 50% of branches by early June 2020, increasing to near 100% for all branches by July 2020.

Nigeria

·        On 4 May 253 out of 263 branches were re-opened.

·        On 11 May, the first day of collections the collection efficiency was 75%.

·        On 11 May 2020, 88 branches out of 93 branches were opened and resumed operations.

Myanmar

·        As of 11 May 2020, 88 out of 93 branches were re-opened and operational.

·        First day collection efficiency was around 64%.

·        Management is confident to achieve 95-100% collection efficiency by 1 July 2020.

Sierra Leone

·        There has been a lockdown for 2 times three days in Sierra Leone.

·        With the exception of these short periods, all 39 branches have remained operational.

·        There have been in force restrictions on travel.

·        Despite ongoing closures of many markets, collection efficiency has reached 85%.

·        Expected to increase to 95-100% by end of June 2020.

With more lockdowns expected to be relaxed soon, we expect to provide a further update on the development of our field operations in connection with the announcement of our full-year 2019 financial results.

 

6.            Update on Publication of our FY2019 Preliminary Financial Statements

As noted on 16 April, the FCA and FRC announced temporary relief measures for corporate reporting during the coronavirus crisis. This temporary relief permits listed companies an extra two months (six months in total) from their financial year-end in which to publish audited financial statements. The FCA furthermore strongly recommends that listed companies review all elements of their timetables for publication of financial information to make appropriate use of the time available within regulatory deadlines to ensure accurate and carefully prepared disclosures.

The Group confirms that it will continue to follow the FCA and FRC's recommendations, as the Group and its auditor are taking the necessary time to prepare appropriate and accurate disclosures regarding the post-balance sheet COVID-19 impact on the Group. The Group will update the market in due course on when it expects to publish its audited 2019 financial statements.

 

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The Group plans to upload a presentation with related information about the status of the Group's operations on the Company's website by approximately 2pm (UK time) on Wednesday, 13 May 2020.

 

 

Enquiries:

 

ASA International Group plc

Investor Relations:                                                                                                                     +31 6 2030 0139

Véronique Schyns                                                                                           [email protected]

 

About ASA International Group plc

ASA International is one of the world's largest international microfinance institutions, with a strong commitment to financial inclusion and socioeconomic progress. The company provides small, socially responsible loans to low-income, financially underserved entrepreneurs, predominantly women, across South Asia, South East Asia, West and East Africa.

 

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Disclaimer

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Cautionary Statement

This announcement includes statements that are forward-looking in nature. All statements other than statements of historical fact are capable of interpretation as forward-looking statements. These statements may generally, but not always, be identified by the use of words such as 'will', 'should', 'could', 'estimate', 'goals', 'outlook', 'probably', 'project', 'risks', 'schedule', 'seek', 'target', 'expects', 'is expected to', 'aims', 'may', 'objective', 'is likely to', 'intends', 'believes', 'anticipates', 'plans', 'we see' or similar expressions. By their nature these forward-looking statements involve numerous assumptions, risks and uncertainties, both general and specific, as they relate to events and depend on circumstances that might occur in the future.

Accordingly, the actual results, operations, performance or achievements of the Group may be materially different from any future results, operations, performance or achievements expressed or implied by such forward-looking statements, due to known and unknown risks, uncertainties and other factors. Neither ASA International Group plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest the Group or any other entity, and must not be relied upon in any way in connection with any investment decision.  All written and oral forward-looking statements attributable to the Group or to persons acting on the Group's behalf are expressly qualified in their entirety by the cautionary statements referred to above.