has reaffirmed Omnia Limited’s (“Omnia”) corporate unsecured ZAR currency rating of BBB+ (triple B plus) and A2 (single A two) in the long term and short term respectively. The rating was placed on Positive Outlook, reflecting the robust earnings performance reported for F10 combined with strong growth opportunities.
From a credit rating perspective Omnia’s rating is supported by a strong balance sheet with the group’s recourse to a rights issue, as opposed to debt, to fund the bulk of the new nitric acid facility, reflecting its cautious approach to gearing. Gearing levels declined to review period lows at FYE10, albeit this was largely due to excess cash from the rights issue being used to offset short term funding. As this cash will be drawn to fund the remainder of the capex progamme, net gearing is expected to rise at FYE11.
GCR expects actual gearing ratios to remain moderate, as current projections indicate that internal cash will be sufficient to fund the excess capex costs. Omnia thus plans to redeem its DMTN programme at maturity in November 2011, thus reducing gross debt.
Adding to group risk, Omnia is inherently exposed to fluctuations in its key raw material inputs. This was apparent over the past few years, where profitability fell from record levels in F08 to a review period low in F09, primarily as a result of the extreme commodity price movements over the period. Although there is little the group can do to manage commodity price fluctuations, it is crucial that sufficient liquidity is available. To this end, the group retains around R2bn in committed banking facilities to fund its working capital requirements, with a further R1bn in other facilities.
Omnia’s earnings are forecast to increase in F12, supported by favourable conditions in the mining and agricultural sectors. Margins should be enhanced substantially, as the new plant is commissioned in early 2012. Accompanied by strong cash generation, this would result in lower net gearing, which could impact positively on the rating.
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