Low economic growth, poor business confidence and weak consumer consumption on the back of ongoing policy uncertainty from the South African government will constrain the credit quality of South African corporates into 2018, says Moody’s Investors Service in a report published today.
“Policy uncertainties and low GDP growth are making South African corporates more cautious in terms of domestic investment and expansion, limiting their ability to improve their credit quality over the next 12 to 18 months,” says Dion Bate, Vice President – Senior Analyst at Moody’s.
“That said, the majority of South African firms we rate will be able to maintain their fundamental creditworthiness by virtue of their leading market positions, headroom at their current rating level, offshore diversification and solid liquidity.”
South African companies with substantial overseas operations and with strong credit and liquidity profiles, such as AngloGold Ashanti Limited (Baa3 positive), Naspers Limited (Baa3 stable) and Steinhoff International Holdings N.V. (Baa3 stable), will be able to mitigate the local difficulties, the report says.
“Most South African corporates have sufficient capacity to absorb these pressures and are taking action to safeguard their financial positions, such as Imperial Group Ltd’s (Baa3 negative) disposal of non-core assets and Transnet SOC Ltd.’s (Baa3 negative) deferment of capital investment.
“Companies will continue to expand into countries with higher growth prospects to diversify cash flows and reduce reliance on South Africa. However, moves into new markets and countries with weaker credit profiles may increase business and operating risks, as is the case for Hyprop Investments Limited’s (Baa3 negative) property acquisitions in Africa and central and eastern Europe.”
The report adds that South African companies’ healthy balance sheets with strong cash balances, undrawn committed facilities, evenly spread debt maturities and good covenant headroom translate into solid liquidity profiles.
“The domestic banking system and debt capital markets will continue to support highly rated companies.”