(The following statement was released by the rating agency)
Feb 17 – Fitch Ratings has affirmed Barloworld Ltd’s (Barloworld) National
Long-term rating at ‘A+(zaf)’ and domestic medium term note (DMTN) senior unsecured issue rating
at ‘A+(zaf)’.The National Short-term rating has also been affirmed at ‘F1(zaf)’.The Outlook on
the National Long-term rating is Stable.
The affirmations are supported by Barloworld’s credit metrics, which are
underpinned by the positive recovery in the operating performance from core
businesses in southern Africa. The order book for mining equipment in southern
Africa has rebounded sharply to over ZAR6bn in Q112 and is at levels markedly
above the low point reached in 2009 (ZAR1.5bn equipment order book for southern
Africa at the height of the previous economic downturn). The Stable Outlook
reflects Fitch’s expectation that secured order book levels in southern Africa
should benefit the equipment operations in the next 18-24 months.
However Fitch remains cautious about demand for international and domestic
demand for construction equipment, which is likely to remain sluggish. The
agency also considers that the group’s operational performance remains
susceptible to cyclical end-market industries such as mining and construction,
which constrains Barloworld’s current ratings.
Fitch anticipates a peak in Barloworld’s funds from operations (FFO) adjusted
net leverage metric to increase close to 2.5-2.7x in FY12 following increased
working capital requirements to fund inventory levels and the potential
acquisition costs associated with the Bucyrus equipment distribution rights. In
this scenario, Fitch assumes potential divestures in 2012/13 could strengthen
the group’s cash position and provide some de-leveraging ability.
Despite increased debt levels in 2012, Fitch expects net leverage to start
improving by FY13 and to be sustained close to 2x. In FY11, Barloworld reduced
its net debt levels to ZAR4.4bn from ZAR5bn in FY10 and Fitch believes the
current (FY11) leverage position offers financial flexibility to incur moderate
investment growth.
Liquidity is under control supported by cash balances of ZAR2.7bn at FY11,
available unutilised bank facilities of ZAR4bn in the South African operations
and a longer debt repayment profile. Negative rating pressure could materialise
if the FFO adjusted leverage metric is sustained above 2.5x with a material
change in financial policy, unsuccessful asset divestures and significant
operating profit erosion.
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