Num­ber of fallen an­gels drops to 51

The Star Early Edition - - COMPANIES - Sizwe Dlamini

THE NUM­BER of global non-fi­nan­cial com­pa­nies in dan­ger of los­ing their in­vest­ment-grade rat­ings, or po­ten­tial fallen an­gels, dropped to 51 from 55 as of June 30, Moody’s In­vestors Ser­vice said in its quar­terly Crossover Zone re­port.

This num­ber, how­ever, re­mained above his­tor­i­cal lev­els of 30 to 40 com­pa­nies, al­though it had been trending lower for the past seven quar­ters, ac­cord­ing to the re­port.

The re­port stated that the sec­ond quar­ter saw debt cross from in­vest­ment grade to spec­u­la­tive grade at a low rate ver­sus his­tor­i­cal lev­els, but faster than re­cent quar­ters. Ac­tual fallen an­gels held $17 bil­lion (R220bn) of debt in the quar­ter, ver­sus $11bn dur­ing the past three quar­ters com­bined.

The re­port stated that in the first quar­ter 14 com­pa­nies moved into the crossover zone – six be­cause of fun­da­men­tal credit de­vel­op­ments, six based on sov­er­eign-rat­ing ac­tions, and two due to merger and ac­qui­si­tion-re­lated rat­ing ac­tions.

Sov­er­eign rat­ing ac­tions ac­counted for six of the new en­trants, while two were the re­sult of merg­ers and ac­qui­si­tions and one was due to fun­da­men­tal credit is­sues.

Last month Moody’s down­graded South Africa’s sov­er­eign rat­ing and as­signed it a neg­a­tive out­look. This re­sulted in the high­est num­ber of com­pa­nies en­ter­ing the zone as a re­sult of sov­er­eign-rat­ing ac­tions in more than a year.

All crossover is­suers were in­ter­na­tional, with two of the six down­graded as a re­sult of sov­er­eign-rat­ings ac­tions. This in­cluded MTN Group (Ba1 sta­ble), which held about $6bn of debt, ac­cord­ing to the re­port.

Among other com­pa­nies that en­tered the crossover zone were Air­ports Com­pany SA (Baa3 NEG Baa2 – fallen an­gel), Bar­loworld (Baa3 NEG Baa3 – fallen an­gel), Bid­vest Group (Baa3 NEG Baa2 – fallen an­gel), Sa­sol (Baa3 NEG Baa2 – fallen an­gel), Telkom (Baa3 NEG Baa3 – fallen an­gel) and Transnet (Baa3 NEG Baa2 – fallen an­gel).

Rat­ing ac­tions on sev­eral South African cor­po­rates fol­lowed the weak­en­ing of the govern­ment’s credit pro­file, as cap­tured by Moody’s sim­i­lar rat­ing ac­tion on the sov­er­eign rat­ing in June.

Rat­ing level

“Com­pa­nies that have fallen into the low­est in­vest­ment-grade rat­ing level, and there­fore could lose in­vest­ment-grade sta­tus, held $247bn in debt at the end of June, down from $291bn in the first quar­ter and $293bn at this time last year,” said Michael Corelli, vice pres­i­dent – se­nior credit of­fi­cer at Moody’s.

“About 80 per­cent of this debt is held by com­pa­nies domi­ciled out­side the US, and both do­mes­tic and in­ter­na­tional debt de­clined at about the same pace.”

The down­ward tra­jec­tory of debt bal­ances seen in the sec­ond half of last year re­sumed in the sec­ond quar­ter af­ter a spike in this year’s first quar­ter, ac­cord­ing to the re­port. The de­cline was mainly a func­tion of fewer po­ten­tial fallen an­gels in the crossover zone.

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