Fitch: South African Corporate Sector Stabilising but Outlook Remains Negative in 2010
Fitch Ratings-Johannesburg/London-01 December 2009: Fitch Ratings says in a report published today that despite some green shoots and early indications of an economic recovery in the South African economy, corporate issuers are expected to remain under pressure in 2010, as a sustained market recovery is only expected from mid-2010 onwards.
"Corporate issuers will be adversely impacted in early 2010 by ongoing weak demand conditions, cost increases higher than inflation, and reduced financial flexibility," says Roelof Steenekamp, Associate Director in Fitch's South African Corporate team.
"Further negative rating actions in the automotive, diversified industrial, manufacturing and mining sectors are probable in the short- to medium-term, but the number of negative actions should be less than in 2009," adds Steenekamp.
Fitch has 25% of its rated South African corporate issuers on Negative Outlook, and in these cases the rating headroom is considered to be low relative to similarly-rated South African and international peers. Fitch believes financial flexibility will continue to be tested in 2010, and expects that corporates (excluding state-owned enterprises (SOEs)) will continue to focus on conserving cash where possible by deferring non-essential capital expenditure; limiting shareholder-friendly practices (by decreasing dividends and limiting share buybacks); and actively managing working capital over the next 12 to 18 months.
Fitch is, however, mindful of corporate actions and investment required to support future growth. Fitch expects companies with increased balance sheet flexibility - evident from lower leverage profiles and supported by the availability of committed standby lines - to be able to better weather the weak market and economic conditions.
SOEs are expected to continue to benefit from shareholder support in 2010, supporting ratings and a stable outlook for the sector over the medium-term, despite an expected weakening in the stand-alone credit profiles of most SOEs on the back of an expected increase in debt-funded capex.
The report, entitled "South African Corporate Outlook 2010", is available on the agency's website, www.fitchratings.com.
Contacts: Roelof Steenekamp, Johannesburg, Tel: +27 11 380 0903; Karabo Matentji. Tel: +27 11 380 0910.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Additional information is available on www.fitchratings.com.
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