Moody’s warns on credit quality of SA companies — but it’s not all bad news
The credit quality of South African companies will be constrained in 2018, according to a report by credit rating agency Moody’s on Tuesday.
The report, "Corporate Credit Quality SA: Low growth and policy uncertainty frustrate corporate strategies", comes ahead of the Moody’s sub-Saharan Africa regional conference in Johannesburg on Wednesday.
It cites low economic growth, poor business confidence and weak consumer consumption, due to ongoing policy uncertainty from the South African government, as constraining factors.
Moody’s vice-president and senior analyst Dion Bate said: "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."
He added, however, that the majority of South African businesses would be able to maintain their creditworthiness through their leading market positions, headroom at their current rating level, offshore diversification and sound liquidity.
Bate said South African companies with overseas operations and strong credit and liquidity profiles, such as AngloGold Ashanti, Naspers and Steinhoff International, would be able to alleviate their local difficulties.
"Most South African corporates have sufficient capacity to absorb these pressures and are taking action to safeguard their financial positions," he said, adding that the banking system and debt capital markets would continue to be a source of support.
Importantly, the report does not constitute a ratings action.
In June, Moody’s cut the local- and foreign-currency assessments to one level above junk, citing risks to growth and fiscal strength due to the political outlook.