Fitch Affirms Denel at 'AA(zaf)'; Outlook Stable
Fitch Ratings-London/Johannesburg-06 November 2009: Fitch Ratings has today affirmed Denel (Pty) Ltd's (Denel) National Long-term ratings at 'AA(zaf)' and National Short-term ratings at 'F1+(zaf)'. The Outlook on the Long-term rating is Stable.
The affirmation reflects that Denel's ratings are supported by the strong strategic ties and financial support of its ultimate shareholder, the South African government. Fitch believes that the government, via the Department of Enterprises (DPE), will at a minimum remain committed to Denel's turnaround strategy and financial performance recovery over the medium-term.
Based on its strong linkages with government, the ratings continue to incorporate Fitch's top down assessment of Denel in relation to South Africa's sovereign ratings (A / LC IDR / Negative Outlook). This approach is consistent with Fitch's criteria for parent subsidiary rating linkages and Fitch notes that any significant changes in strategic ties with government would be key rating drivers and lead to potential rating action.
Denel has refined its business strategy to focus on growing its revenue base and to be self-sustainable in the long-term. Under this scenario, Fitch believes that government support may potentially decrease, but that this is unlikely in the medium-term.
The replenishing of an equity injection shortfall of ZAR1.7bn by the government remains critical for Denel to successfully complete its turnaround strategy. Whilst, government has provided loan guarantees of ZAR1.85bn to Denel in FY09/FY10 - the agency notes that these guarantees are of short-term nature and have to be extended by Denel through an application process with the DPE. Denel's liquidity profile is adequate and has been supported by refinancing short-term debt maturities in FY09.
Denel is a wholly owned by the South African government and operates in the aerospace and defence industry. Its business activities include engineering, manufacturing, research and development.
Fitch's 'Parent And Subsidiary Rating Linkage (Fitch's Approach to Rating Entities within a Corporate Group Structure)' dated 19 June 2007, is available on the agency's subscriber website.
Contact: Karabo Matentji, Johannesburg, Tel: +27 11 380-0910; Roelof Steenekamp: +27 11 380-0903.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
101 Finsbury Pavement, London, EC2A 1RS