Moody’s: little new year cheer for SA firms
THE OUTLOOK for South African companies next year is negative as the continued political and policy uncertainty, depressed business and consumer demand heighten the downside risk for the firms, according to Moody’s Investors Service.
The report, titled “Non-financial corporates – Middle East, Turkey and South Africa 2018 Outlook”, released this week, said higher oil prices and continued public spending supported the stable outlook next year for non-financial companies in the Gulf Co-operation Council (Middle East), but the outlook for companies in Turkey and South Africa was negative.
This resulted from downward pressure on sovereign ratings. Of the 24 South African corporates included in the report, 13 were placed on review for a downgrade following the country’s sovereign downgrade in November.
The report said South Africa’s rated firms would remain resilient but not immune, largely thanks to diversification, market dominance and healthy credit profiles.
“Firms’ credit metrics will remain largely within current rating bands as companies employ strategies to protect their financial positions.
“Deterioration in the credit quality of the sovereign could weigh on the credit profiles of corporates exposed to the domestic economy,” it said.
It also said capital allocation outside of South Africa would continue.
Mining Mining companies Anglo American, AngloGold Ashanti, Gold Fields and Petra Diamond, Sibanye-Stillwater and Sasol were expected to continue on stable to positive trajectories, benefiting from strong momentum in global growth and low US dollar costs due to rand weakness, the report said.
“Bulk commodity prices have stabilised as supply has been cut. Diamond and gold prices remain resilient against the backdrop of the global macroeconomic environment. Platinum Group Metals prices also remain stable but weak,” the report said.
It also noted that the political environment and the reviewed mining charter, which was gazetted in June, were delaying investment in South Africa.
The Chamber of Mines said in a report last week that the charter, the lack of finalisation of the Mineral and Petroleum Resources Development Act Amendment Bill, the inappropriate use of section 54 stoppages, serious allegations of corruption and state capture had all contributed to the malaise that had resulted in the industry placing a freeze on investment in new projects.
In terms of telecoms companies Cell C, MTN and Liquid Telecom, strong data and revenue growth would mitigate the decline in voice revenues, the report said.
Negative free cash flow due to the high capital spending rollout of 4G/LTE and delays in new spectrum or radio waves allocation was negative and problematic for larger telecoms operators, the report said.
Real estate investment trust firms Growthpoint, Redefine, Hyprop and Fortress Income Fund remained robust owing to their high-quality diversified property portfolios.
The report said that low to moderate vacancy rates remain, driven by tenant retention strategies, but at the cost of higher tenant retention costs and below inflationary rental renewal growth.
“Moderate leverage metrics provide some headroom against a weakening operating environment and create flexibility to grow via debtfunded acquisitions,” it said.