Moody’s affirms Pepkor’s credit rating |
MOODY’S yesterday affirmed Pepkor’s credit rating after downgrading several companies to junk following its decision to slash South Africa’s sovereign credit to junk status.
Moody affirmed Pepkor’s Ba3 corporate family rating, Ba3-PD probability of default rating, and A3.za corporate family National Scale Rating.
It, however, changed the company’s outlook to negative from stable on expectations that the spread of the coronavirus would negatively impact cash-flow generation at least in the first-half of the calendar year 2020, and uncertainties of the demand and supply chain. It said the nationwide lockdown imposed by the South African government would negatively impact revenues.
“Moody’s believes that Pepkor is particularly vulnerable because of its large store base, which is now closed across the country,” Moody’s said. “However, Pepkor’s liquidity position is sufficient to meet its financial obligations in the next 12 months. On March 9, 2020, Pepkor issued its first bonds: R800 million maturing in 2023, and R206m maturing in 2025.”
Moody’s last week downgraded partially state-owned Telkom, Bidvest, Barloworld, and Redefine to junk, due to their exposure.
Moody’s said that Telkom as the dominant South African fixed-line operator and the fourth incumbent mobile operator, had 100 percent operational concentration in South Africa.
“The rating downgrade to Ba1 from Baa3 reflects the fact the company is exposed to the risks associated with the political, social and economic environment in South Africa,” said Moody’s.
It downgraded Barloworld to Ba1 from Baa3, saying the company was intrinsically linked to South Africa’s macro-environment, with close to 75 percent of its revenue and operating profit derived in the country.
It downgraded Redefine to Ba1 from Baa3, reflecting its operational concentration to South Africa with 76 percent of property value derived from South Africa, as of August 31.
But Moody’s said Pepkor’s rating reflected the South Africa-based retailer’s very strong position in the market through its Pep and Ackermans clothing and general merchandise stores, which included Pepkor’s Clothing and General Merchandise segment, which made up 88 percent of the group’s operating profits.
It said that the ratings were unlikely to be upgraded in the short term, and a positive rating action was unlikely to arise until the coronavirus outbreak has been brought under control; store closure restrictions are lifted; and it was evident that consumer sentiment has not materially affected demand for Pepkor’s products.
“Pepkor’s rating is also currently constrained due to the uncertainty that is created by Steinhoff’s majority shareholding,” said Moody’s.