SA firms face downgrade threat

Johannesburg - The number of global issuers poised for downgrades continues to decline, reaching 694 in April from its record high of 1 028 a year ago, Standard & Poor's Rating Agency said on Tuesday.

Potential downgrades are entities that have either a negative rating outlook or ratings on CreditWatch with negative implications across rating categories "AAA" to "B-".

Of these global issuers, six are South African companies including Eskom (BBB+/negative), Sasol (BBB+/negative), Transnet, (BBB+/negative), Firstrand Bank Holdings (BBB/negative), Consol Holdings (B+/watch neg) and Edcon Holdings (B/negative). South Africa's sovereign rating (BBB+/negative) is also at risk.

This time last year, South Africa had the same number of companies with negative outlook or ratings on CreditWatch. However, the makeup was slightly different.

Last year's table included Foodcorp (since downgraded March 2010) and New Reclamation Group (since downgraded November 2009). Both have been replaced with Edcon Holdings and Consol Holdings.

This decrease is largely the result of outlook revisions to stable as credit quality improves, according to the article, titled Downgrade Potential Across Credit Grades And Sectors (Premium).

The 694 potential downgrades are 200 fewer than the average of the trailing 12 months, and 334 fewer than the total a year ago. Downgrade potential peaked in April 2009 at 1 028 issuers globally, when the credit markets began to bottom out and move slowly towards stabilisation.

"The consumer products, automotive, and banking sectors had the largest changes in negative bias this month," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "Each sector's negative bias narrowed by more than 6%."

Negative bias is the proportion of issuers with a negative outlook or ratings on CreditWatch negative to the total number of rated issuers.

- Sapa