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Johannesburg – Policy uncertainty and low gross domestic product growth will limit the ability of South Africa’s corporates to improve their credit quality, rating agency Moody’s said on Tuesday.
According to a report issued by Moody’s, poor business confidence and weak consumer consumption are also among the challenges constraining corporate firms' ability to boost their credit quality into 2018.
"Policy uncertainties and low GDP growth are making South African corporates more cautious in terms of domestic investment and expansion, limiting their ability to improve their credit quality over the next 12 to 18 months," said Dion Bate, vice-president and senior analyst at Moody's.
"The majority of South African firms we rate will be able to maintain their fundamental creditworthiness by virtue of their leading market positions, headroom at their current rating level, offshore diversification and solid liquidity," he explained.
The report indicates that companies with “substantial” overseas operations and strong credit and liquidity profiles may be able to mitigate local difficulties. These companies include AngloGold Ashanti [JSE:ANG], Naspers [JSE:NPN] and Steinhoff [JSE:SHF].
“Most South African corporates have sufficient capacity to absorb these pressures and are taking action to safeguard their financial positions,” the report read. Examples include Imperial Group, which is disposing of non-core assets, and Transnet, which is postponing capital investment.
Moody’s research showed that companies would continue expanding into countries with higher growth prospects as a means to diversify cash flow and reduce reliance on South Africa.
The rating agency warned that moving into new markets and countries with weaker credit profiles may increase business and operating risks. This was seen when Hyprop Investments [JSE:HYP] acquired property in Africa and central and eastern Europe.
Moody’s noted that companies with “healthy” balance sheets, strong cash balances, undrawn credit facilities and “evenly spread” debt maturities contribute to solid liquidity profiles.
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