Johannesburg, 25 April 2013 — Global Credit Ratings has today affirmed the long term national scale and upgraded the short term national scale issuer ratings assigned to African Oxygen Limited of A-(ZA) and A1-(ZA) respectively; with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on African Oxygen Limited based on the following key criteria:
The short term rating upgrade was premised on the successful working capital management initiatives that have helped boost operational cash flows. This has buoyed liquidity metrics, with both cash flow coverage of total debt and interest coverage rising to review period highs. Net debt has declined by almost a R1bn since FYE08, which has translated to review period low gearing metrics at FYE12. It was noted that while the majority of debt was short term at FYE12, management indicated that a new R1.4bn funding package was in the final stages of negotiation, which would lengthen debt maturities to between 3 and 7 years.
From an operational perspective, the resolution of internal production issues has resulted in increased product availability, translating into a rise in revenue to R5.6bn in F12. This has been aided by an aggressive efficiency drive that has seen margins stabilise over the last two years helping bolster overall earnings, compared to the poorer performances in F09 and F10.
Although Afrox is facing stiffer competition in some key business segments, the group continues to benefit from its market leadership in the local gases industry, as well as long standing relationships with key clients. Nevertheless, besides for ensuring sufficient capacity to expand, the announced R1.5bn capex plan is partly aimed at ensuring its market leadership is strengthened and the high barriers to entry maintained.
Overall, Afrox’s growth is highly dependent on the state of the general economy and remains somewhat constrained by the weaker growth in the mining and manufacturing sectors. However, some opportunity remains to secure new contracts, particularly in light of the delivery problems faced in previous years that strained some client relationships.
The risks of large capex projects are also noted, although the successful completion of the project, alongside organic growth, could result in a positive ratings migration. Downside risks to the rating emanate from upstream refinery infrastructure capacity constraints that would warrant sustained importation of final product, as well as delays in the delivery of the capex programme.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Sep/2001)
Long term: A+(ZA); Short term: A1(ZA)
Last rating (May/2012)
Long term: A-(ZA); Short term: A2(ZA)
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GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument be ingrated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
African Oxygen Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to African Oxygen Limited with no contestation of the rating.
The information received from African Oxygen Limited and other reliable third parties to accord the credit rating included the latest audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, most recent year to date management accounts (where necessary), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a break down of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.
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