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These SA companies enter Moody's Crossover Zone

Jul 20 2017 18:47
Carin Smith

Cape Town - Sasol, Telkom, Transnet, Airports Company SA (ACSA), Barloworld, Bidvest are South African companies which have entered ratings agency Moody's Crossover Zone in the second quarter of 2017.

"The latest rating actions on SA corporates follow the weakening of the SA government's credit profile, as captured by Moody's similar rating action on the sovereign rating on 9 June 2017," Moody's stated in its latest Crossover Zone report.

Moody's describes the quarterly Crossover Zone report as analysing the movement of global non-financial companies through the rating categories closest to the line separating investment grade and speculative grade.

Companies in the zone are rated Baa3 or Ba1. To be considered in the zone, companies rated Baa3 must be on review for downgrade or have a negative outlook, while companies rated Ba1 must be on review for upgrade or have a positive outlook.

The report focuses on potential "fallen angels" and potential "rising stars". Potential fallen angels are defined as global non-financial companies in danger of losing their investment-grade ratings.

The research report was compiled by Michael Corelli, vice president and senior credit officer at Moody’s. The agency emphasised that the report does not, however, constitute a rating action.

In June, Moody's downgraded the sovereign rating of SA and assigned it a negative outlook. This resulted in some companies entering the Crossover Zone as a result of sovereign-rating actions in over a year, according to Moody's.

READ: Moody's downgrades SA's credit ratings

The downgrade of ACSA's rating and assignment of a negative outlook reflects that Moody's would not see ACSA rated higher than the government of SA, according to the report.

As for Sasol, the report states that the rating action on Sasol follows the weakening of the SA government's credit profile, in particular in the country's institutional, economic and fiscal strength, along with slower structural reform progress as captured by Moody's recent decision
to downgrade SA's government bond ratings to Baa3 from Baa2 with a negative outlook.

According to the report, the South African companies Moody's now regards as potential fallen angels are ACSA, Barloworld, Bidvest, Sasol, Telkom and Transnet.

Gold Fields is the only SA company on the potential rising stars lists in the latest report, while MTN has made it onto the Fallen Angels list.

Global picture

Globally there were 69 non-financial companies, including utilities, in Moody's Crossover Zone as of 30 June.

Potential fallen angels decreased to 51 from 55. The number of potential fallen angels remains above historical levels, but has been trending lower over the past seven quarters, according to the report.

Potential fallen angels held $247bn in debt at the end of June. Most debt of potential fallen angels is held by companies domiciled outside the US.

There were 18 potential rising stars, which is in line with the average since the beginning of 2012.

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