(The following statement was released by the rating agency)
Feb 29 – Fitch Ratings says that the ZAR700m allocated by the South African National
Treasury to recapitalise Denel indicates that the government continues to support Denel (SOC)
Ltd’s (Denel; ‘AA(zaf)’/Negative/’F1+(zaf)’) turnaround strategy. Fitch believes the equity
injection is a step in the right direction for Denel’s strategic long-term plan to be
financially self sustainable.
“Fitch has always factored state support into Denel’s ratings but the form and
timing of the recapitalisation remain somewhat unclear,” says Karabo Matentji,
Associate Director in Fitch’s Corporate team. “The existing short-term debt
guarantees of ZAR1.85bn are likely to remain in place and continued visible
support from the government could result in a potential stabilisation of the
rating Outlook.” Fitch recognises that Denel is currently in discussion with the
shareholder regarding the timing and detail of the ZAR700m recapitalisation.
In February, South Africa’s Finance Minister announced in the 2012 budget speech
that ZAR700m had been allocated to fund Denel’s subsidiary, Denel Saab
Aerostructures. The Denel Saab Aerostructures business reported an operating
loss of ZAR223m in FY11 compared with the operating loss of ZAR283m in FY10.
Denel remains a strategic asset for the Republic of South Africa, given its
status as a wholly state-owned company and as a strategic defence supplier to
key South African security forces. As such, the ratings incorporate Fitch’s
top-down assessment of the company in relation to South Africa’s sovereign
ratings (foreign currency Long-Term IDR ‘BBB+’/Negative, local currency
Long-Term IDR ‘A’/Negative).
Denel operates in the aerospace and defence industry. Its business activities
include engineering, manufacturing, research and development.
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