Johannesburg, 03 Dec 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to Murray and Roberts Holdings 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 Murray and Roberts Holdings Limited based on the following key criteria:
Revenue increased by 9% to R34.5bn in F13 after being restated to exclude the impact of the construction products businesses. With the sale of the construction products businesses, virtually all income now derives directly from construction contracts, as opposed to a sizeable portion previously coming from the sale of goods. With the close out of large loss making contracts, M&R reported a strong recovery in EBITDA to R1.3bn in F13 (F12: R58m), albeit well below review period highs. Performance has largely been driven by the robust performance of the Australian subsidiary Clough, with a number of businesses, particularly in South Arica, continuing to struggle. In this regard, the proposed purchase of minority interests in Clough is positively considered given Clough’s robust project pipeline. Moreover, M&R will be able to deploy Clough’s substantial oil and gas expertise to win contracts in the burgeoning African offshore oil and gas industry.
Significant cash inflows from disposals saw cash holdings rise to R6.2bn, well in excess of the growth of debt. However, 26% of cash is restricted and over 67% resides with Clough and is denominated in Australian Dollars. In contrast, gross debt declined to R2.1bn at FYE13 (FYE12: R2.4bn), with M&R maintaining its net ungeared position. GCR has taken cognisance of the liquidity mismatch whereby 80% of debt is Rand denominated, in contrast to just 7% of cash. However, proceeds from the recent sale of the construction materials businesses will be used to settle all outstanding overdraft and banking facilities, while the buyout of Clough minorities will allow M&R greater access to the cash generated by Clough.
Whilst the R46bn order book suggests that revenue growth will be relatively slow, consolidating the whole of Clough will have a positive impact. Moreover, the higher margins obtained from contracts in the international platforms should ensure that operating profit continues to improve. Liquidity is expected to remain strong as the group settles the bulk of its local banking facilities. However, as the acquisition of Clough will partly be funded by debt, overall debt will likely remain around the R2bn level once the acquisition has been finalised.
Any upward rating movement would be dependent on sustained long term revenue and operating profit growth. Owing to M&R’s dependence on large contracts, further clarity regarding the government’s planned infrastructure programme would be welcomed, as it would indicate the potential for an increase in workflow. Conversely, weaker economic growth could dash hopes of a recovery in the domestic construction sector. Failure to adequately implement risk management measure could result in further large loss making contracts, with negative implications for the credit ratings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2001)|
|Long term: A(ZA); Short term: A1(ZA)|
|Last rating (Sep/2012)|
|Long term: A-(ZA); Short term: A1-(ZA)|
|+27 11 784 1771|
|Structured Finance Sector Head|
|+27 11 784 1771|
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SALIENT FEATURES OF ACCORDED RATINGS
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 being rated; 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.
Murray and Roberts Holdings Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Murray and Roberts Holdings Limited with no contestation of the rating.
The information received from Murray and Roberts Holdings Limited and other reliable third parties to accord the credit rating included the latest available 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 breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.