How does the somewhat inconsistent approach to Government support impact South African State-Owned Enterprise creditworthiness?
18 February 2021 – GCR Ratings (“GCR”) has published Credit Research on the financial challenges witnessed at three key State Owned Entities (“SOEs”) during 2019 and 2020, and the Government of South Africa’s response in support of these entities.
GCR believes that the Government of South Africa continues to show a strong willingness to support SOEs in most instances. However, because of constrained resources, actual support is becoming less consistent and less reliable.
As a result, GCR’s assessment of implicit Government support will continue to be tempered by weighing up the social importance of the entity, against the actual quantum of debt outstanding and the quality of immediate financial support structures placed around the SOE.
We do not expect many issuer credit rating changes in the short-term for GCR rated SOEs because the ratings only benefit from implicit support up to a restrained rating level, even if a majority of the debt is guaranteed. For more details on how the government support is applied see the criteria for the GCR Ratings Framework.
GCR will periodically provide insights on key sectors/industries across different territories in which various rated entities are domiciled, encompassing changes in the operating environment, performance trends and its view of the impact of an evolution in market dynamics on the credit risk profiles of rated entities in selected industries.
Sector Head: Corporate & Public Sector
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Related Criteria and Research
Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR’s South Africa Corporate Sector Risk Score Report, July 2020
GCR Ratings Scales, Symbols & Definitions, May 2019
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