Announcements Corporate Rating Alerts

GCR affirms the national scale ratings on several South African corporates on modest leverage and good liquidity management easing pressure from the deteriorating operating environment

Rating Action

Johannesburg, 17 August 2020 – GCR Ratings (“GCR”) has affirmed the ratings on seven South African corporates despite a deterioration in South Africa’s operating environment.

The below corporates were included in this review with the following rating actions taken:

  • African Oxygen Limited: The national scale long term and short-term issuer ratings affirmed at A+(ZA) and A1(ZA) respectively, with a Stable Outlook.
  • AECI Limited: The national scale long term and short-term issuer ratings affirmed at A+(ZA) and A1(ZA) respectively, with a Stable Outlook.
  • Northam Platinum Limited: The national scale long term and short-term issuer ratings affirmed at A-(ZA) and A2(ZA) respectively, with the Positive Outlook maintained.
  • Netcare Limited: The national scale long term and short-term issuer ratings affirmed at AA-(ZA) and A1+(ZA) respectively, with a Stable Outlook.
  • Lewis Group Limited: The national scale long term and short-term issuer ratings affirmed at A(ZA) and A1(ZA) respectively, with a Stable Outlook.
  • KAP Industrial Holdings Limited: The national scale long term and short-term issuer ratings affirmed at A+(ZA) and A1(ZA) respectively, with a Stable Outlook.
  • Murray & Roberts Limited: The national scale long term and short-term issuer ratings affirmed at A-(ZA) and A2(ZA) respectively, with a Stable Outlook.
Rated Entity Rating class Rating scale Rating Outlook / Watch
African Oxygen Limited (“Afrox”) Long Term Issuer National A+(ZA) Stable Outlook
Short Term Issuer National A1(ZA)
AECI Limited (“AECI”) Long Term Issuer National A+(ZA) Stable Outlook
Short Term Issuer National A1(ZA)
Northam Platinum Limited (“Northam”) Long Term Issuer National A-(ZA) Positive Outlook
Short Term Issuer National A2(ZA)
Netcare Limited (“Netcare”) Long Term Issuer National AA-(ZA) Stable Outlook
Short Term Issuer National A1+(ZA)
Lewis Group Limited Long Term Issuer National A(ZA) Stable Outlook
Short Term Issuer National A1(ZA)
KAP Industrial Holdings Limited (“KAP”) Long Term Issuer National A+(ZA) Stable Outlook
Short Term Issuer National A1(ZA)
Murray & Roberts Limited (“M&R”) Long Term Issuer National A-(ZA) Stable Outlook
Short Term Issuer National A2(ZA)

The rating action follows a reduction in the operating environment assessment applicable to South African corporate entities. Specifically, GCR lowered the Country Risk Score for South Africa by -0.50 to 7.00, in a Country Risk Score market alert released on the 27th of May 2020. Corporate Sector Risk Scores have also progressively been reduced since the onset of COVID crisis restrictions, with the latest update released in July 2020. GCR’s Country and Sector Risk Score reports can be accessed via the following link: https://gcrratings.com/risk-scores/ for further details.

Rating Rationale

GCR reduced a range of Country and Corporate Sector Risk Scores to reflect expectations of the adverse impact of COVID-19 related disruptions on economic productivity, and to signal our view of the effectiveness of interventions to stabilise the economy. The changes have not had an adverse impact on the aforementioned issuers’ national scale ratings, although GCR could further revise the operating environment assessments if its view of the impact of restrictions, or national/global interventions to normalise productivity deteriorates or begins to stabilise.

Outlook Statement

The Stable Outlook reflects our expectations that, notwithstanding the heightened uncertainty in the wake of the COVID-19 crisis and a protracted recessionary climate, the respective corporates issuers have adopted adequate cash preservation and treasury management risk mitigants to stabilise their respective funding and liquidity profiles in the short-term.

Northam remains the exception in this regard, with the positive outlook reflecting GCR’s view that an upgrade could result from further expansion of the production profile and free cash flows in line with expectations. As with the other issuers, Northam is expected to maintain the adequate cash preservation and treasury management risk mitigants employed to sustain funding and liquidity profile stability in the short-term.

Rating Triggers

The ratings could be lowered if material cash flow contraction results from/persists beyond COVID-19 related disruptions to demand, productivity, ongoing projects, and supply chains domestically and internationally. Sustained or unremedied proximity to covenants could also result in negative rating action. Looking further ahead, upward rating action could be taken if the issuers continue to demonstrate 1) strong liquidity and cash preservation 2) conservative (de)leveraging and/or debt maturity profiling, and 3) earnings resilience/growth beyond the COVID-crisis, on the back of positive movements in resources/commodities markets, as well as normalisation in efficiency, productivity, demand, and business or operational procurement.

Analytical Contacts

Analyst

Johannesburg, ZA

Eyal Shevel Sector Head: Corporate Ratings
shevel@GCRratings.com +27 11 784 1771
Analyst Patricia Zvarayi Deputy Sector Head: Corporate Ratings
Johannesburg, ZA patricia@GCRratings.com +27 11 784 1771
Committee chair Corne Els Senior Structured Finance & Securitisation Analyst
Johannesburg, ZA cornee@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR’s Country Risk Score report, published May 2020
GCR’s SA Sector Risk Score report, published July 2020
GCR Rating Scales Symbols and Definitions, May 2019

Ratings History

Rated entity Rating class Review Rating scale Rating Outlook/Watch Date
African Oxygen Limited Long Term Issuer Initial National A+(ZA) Stable Outlook Sep 2001
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A+(ZA) Stable Outlook Apr 2020
Short Term Issuer National A1(ZA)
AECI Limited Long Term Issuer Initial National A(ZA) Stable Outlook Jul 2015
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A+(ZA) Stable Outlook Apr 2020
Short Term Issuer National A1(ZA)
Northam Platinum Limited Long Term Issuer Initial National BBB+(ZA) Stable Outlook Jun 2012
Short Term Issuer National A2(ZA)
Long Term Issuer Last National A-(ZA) Positive Outlook Oct 2019
Short Term Issuer National A2(ZA)
Netcare Limited Long Term Issuer Initial National A-(ZA) Stable Outlook Jan 2001
Short Term Issuer National A1-(ZA)
Long Term Issuer Last National AA-(ZA) Stable Outlook Mar 2020
Short Term Issuer National A1+(ZA)
Lewis Group Limited Long Term Issuer Initial National A(ZA) Stable Outlook Sep 2013
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A(ZA) Stable Outlook Sep 2019
Short Term Issuer National A1(ZA)
KAP Industrial Holdings Limited Long Term Issuer Initial National A-(ZA) Stable Outlook Apr 2014
Short Term Issuer National A2(ZA)
Long Term Issuer Last National A+(ZA) Stable Outlook Mar 2020
Short Term Issuer National A1(ZA)
Murray & Roberts Limited Long Term Issuer Initial National A(ZA) Stable Outlook Sep 2001
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A-(ZA) Stable Outlook Nov 2019
Short Term Issuer National A2(ZA)

Risk Score Summary

Factors & sub-factors Netcare AECI Afrox Lewis KAP Northam M&R
Operating environment 13.50 10.25 10.00 11.50 11.00 11.50 14.50
Country risk 7.00 6.75 6.50 7.00 7.00 8.00 11.00
Sector risk 6.50 3.50 3.50 4.50 4.00 3.50 3.50
Business profile 0.50 2.00 0.50 (1.00) 1.50 (2.50) (3.00)
Competitive position 0.50 2.00 0.50 (1.00) 1.50 (2.50) (3.00)
Management & governance
Financial profile 1.50 2.00 3.50 2.50 1.50 3.50 1.00
Earnings profile (1.00) (0.50) 0.50 (2.00)
Leverage and cash flow 1.50 1.00 2.00 1.50 1.00 2.00 2.00
Liquidity 1.00 1.50 2.00 1.00 1.00 1.00
Comparative profile
Government support
Peer analysis
Group support
Total score 15.50 14.25 14.00 13.00 14.00 12.50 12.50

Glossary

Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to the rated entities. The ratings above were solicited by, or on behalf of, the rated entities, and therefore, GCR has been compensated for the provision of the ratings.

The rated entities participated in the rating process via management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered to be adequate, and has been independently verified where possible. The information received from the rated entities and other reliable third parties to accord the credit ratings included:

  • The latest financial results (plus four years of comparative, audited financials)
  • SENS announcements
  • The latest market updates in respect of trading, leverage, and liquidity management.
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