GCR has reaffirmed Netcare Limited’s (“Netcare SA”) national scale ratings of A(ZA) (single A) and A1(ZA) (single A one) for the long and short term respectively. However, the ratings were placed on “Ratings Watch”, in view of the absence of a refinancing solution to GHG PropCo 1 debt obligations.
Considerable uncertainty surrounds the refinancing of the GHG PropCo 1’s obligations, with no resolution in place at the time of this notice. Although the obligations are ring-fenced, with no recourse to the South African operations, GCR remains aware of the potential reputational damage to the group as a whole, in the event of an adverse outcome. GCR will continue to monitor developments as they progress.
Nonetheless, Netcare SA has exhibited steady revenue growth over the review period underpinned by robust demand for healthcare and its relative price elasticity. Profitability has benefitted from an operational efficiency drive that has seen the operating margin improve from 13.6% in F08 to 17% in F12. In addition, the group has exhibited very strong cash generation. This has in turn resulted in a progressive decline in gearing and ensured improving overall credit protection factors.
The implementation of the National Health Insurance (“NHI”) remains uncertain, both in terms of timing and impact. However, Netcare SA is well positioned to participate in the scheme given the strong internal competencies it has developed through its participation in the National Health Service in the United Kingdom. Furthermore, Netcare SA’s Primary Care business provides a national infrastructural base necessary to deliver healthcare services to the broader population, as envisaged by the NHI.
An upward movement in the rating could be result from Netcare’s ability to sustain earnings growth in the medium term, coupled with the maintenance of sound credit protection metrics. However, a weakening domestic macroeconomic environment and increased regulatory pressure could constrain profitability, placing downward pressure on the rating.
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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