GCR reduces the South African sector risk score for Property to ‘6.5’
Summary
16 March 2020 – GCR Ratings (“GCR”) has reduced the South African Corporate Sector Risk Score for Property to ‘6.5’, from ‘7.0’, due to heightened funding pressures and elevated asset risk.
The corporate sector risk score is an aggregation of a) cyclicality b) ease of doing business and c) sector specific dynamics scores, and is intended to provide users with an overview of the major factors that impact GCR’s assessment of the relative risk of each sector.
Corporate Sector Risk Scores are assessed on a scale of between 0-13, and are a key factor in determining the operating environment component score for each Issuer. The core of the GCR Ratings Framework is based on GCR’s opinion that an entity’s operating environment largely frames its creditworthiness. As a result, the operating environment analysis anchors the underlying risk score for the GCR ratings criteria. GCR combines elements of the country risk and sectoral risk analysis, blended across countries for Issuers operating across multiple jurisdictions, to anchor a corporate to its current operating conditions. For more details, please read the related criteria and research listed below.
GCR will periodically publish updated “South African Sector Risk Scores”, which will supersede previous publications. The publication titled “South African Sector Risk Scores, 16 March 2020”, supersedes the publication “South African Sector Risk Scores, 05 December 2019”.
South African Corporates Sector Risk Scores
Property, Sector Risk Score 6.5
GCR considers the property sector to evidence moderate risk characteristics, supported by below average cyclicality, assets that continue to generate sound annuity income despite a weak operating climate, and sustained demand for well-positioned properties. Notwithstanding some of these inherent advantages, the South African property sector faces increased asset risk, with the potential for further property portfolio write-downs. Access to capital is also viewed to be weakening, as funds currently have limited ability to raise equity due to the very depressed stock market.
Against this backdrop, the slowing pace of asset disposals increases the risk that liquidity will not be available to stabilise leverage as valuations decline. GCR does not expect these heightened risks to impact the sector uniformly, but greater funding pressure is expected to be experienced by small to mid-tier funds exposed to more vulnerable income streams and higher debt levels. Greater resilience is nonetheless expected amongst conservatively leveraged funds with inherently better managed liquidity profiles and defensive annuity income.
Analytical Contacts
Patricia Zvarayi
Deputy Sector Head: Corporates
Patricia@GCRratings.com
+27 11 784 1771
Eyal Shevel
Sector Head: Corporates
Shevel@GCRratings.com
+27 11 784 1771
Related criteria and research
Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Real Estate Investment Trusts and Other Commercial Property Companies, May 2019
GCR’s Country Risk Score Report, Jan 2020
GCR’s South Africa Corporate Sector Risk Score Report, Dec 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
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