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Moody's places Bidvest, Growthpoint on downgrade review

Apr 05 2017 18:56
Lameez Omarjee


Company Data

GROWTHPOINT PROPERTIES LIMITED [JSE:GRT]

Last traded 24
Change 0
% Change -1
Cumulative volume 17635114
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg – Businesses Bidvest Group and Growthpoint Properties have been placed on review for a downgrade, following Moody’s decision to review the sovereign credit rating.

According to a statement issued by Moody’s on Tuesday, the ratings agency explained that the potential weakening of the South African government's credit profile and it’s institutional, economic and fiscal strength as risks. The sovereign rating is currently at Baa2, two notches above junk status with a negative outlook.

READ: Moody's places SA on downgrade review as S&P takes action

Beside’s the two businesses, Moody’s has also placed 13 sub-sovereigns on downgrade review. These include the City of Cape Town, the City of Johannesburg and the South African national Roads Agency (Sanral).

Bidvest rating

The rating review is attributed to Bidvest’s operational concentration in South Africa, which makes it highly exposed to the risks of the economic environment, Moody’s explained.  Bidvest is currently rated at Baa2, this is two notches above sub-investment grade.

“As a result Moody's views Bidvest's ratings as being highly correlated with South Africa's long term bond rating.” This means that the conclusion of the review depends highly on the sovereign rating review, explained the ratings agency. This is because of its “predominant exposure” to South Africa.

Among Bidvest’s strengths is its “strong operational and financial profile”, its diversified sources of revenue, its low financial debt leverage due to “healthy” interest cover and cash flow, and its “experienced management team” and good track record of organic growth, said Moody’s.

However, the rating is at risk to the low growth environment and “weak” business and consumer sentiment, its limited geographic diversification of businesses and event risk from debt-financed acquisitions which might breach current leverage levels.

READ: Bidvest profit up as SA operations record revenue rise

The company’s financial results for the year ended December 31, 2016 reflected earnings before interest, taxation, depreciation and amortisation (Ebitda) of R7.4bn, as well as revenue of R69.7bn.

Its interim results for the six months ending December 31, 2016 reflect revenue growth of 4.1% to R36bn, operating profit of R2.8bn and Ebitda of R3.63bn.

Bidvest shares were trading at R152.50 at 12.37pm.

Growthpoint rating

Moody’s placed Growthpoint’s Baa2 rating on review for downgrade, because of its exposure to the South African market. Growthpoint has 75% property exposure and 84% of its distributable income is generated from its operations in South Africa, explained the ratings agency. This means that the company is impacted by the risks associated with the economic environment in South Africa.

The review will depend on the conclusion of Moody’s downgrade review of the sovereign.

Among Growthpoint’s strengths is the fact that it is the largest primary listed Real Estate Investment Trust (REIT) company in the country. Other strengths include its property portfolio size with “solid” and “recurring” rental income. This is due to its medium- to long-term leases, low vacancy, diversified tenant base and property sector as well as its contractual annual rent escalation clauses above inflation, explained Moody’s.

Among the risks to the rating is the proportion of debt secured, is equal to 26% of gross assets.

The company’s financial results for the six-months ended December 31, 2016 show an increase in profit of R1.1bn to R4.7bn. 

Growthpoint shares were trading at R25.50 at 12.32pm.

Read Fin24's top stories trending on Twitter:

bidvest  |  growthpoint  |  economy  |  moody's  |  credit ratings
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