Fitch Ratings has affirmed both Denel’s National Long-Term Rating and National Short-Term Rating as positive. The outlook for both ratings remains stable, with the National Long-Term Rating at ‘AAA (zaf)’ while the National Short-Term Rating is at ‘F1+ (zaf).
Denel Group Acting Group Chief Executive, Zwelakhe Ntshepe, welcomed the Fitch decision to affirm both ratings of the state-owned defence and technology company.
“We noted concerns expressed by Fitch about government’s guarantees to Denel as well as government’s reassurance to the ratings agency that these issues are receiving urgent attention at the highest level,” Ntshepe said.
“Denel plays a vital role in ensuring South Africa’s self-sufficiency in advanced defence systems and we are confident government will play a critical role in ensuring the company remains a viable business.”
Fitch notes the decision to affirm the ratings reflects continuing strong links between Denel and the state – mainly driven by government’s irrevocable and unconditional guarantee for R1.85-billion of the company’s R3-billion domestic medium-term notes.
The guarantee expires on September 30 and Fitch further notes a decision not to extend it would result in a multi-notch downgrade for Denel’s ratings.
The Fitch Ratings report notes Denel continues to deliver a strong top-line performance, benefitting from organic growth. Its key land systems projects are ramping up from design to production stage and this group portfolio has been further strengthened with the acquisition of Denel Vehicle Systems.
It expects a short term decline in revenues and profitability during the past financial year which can mostly be attributed to foreign exchange factors and delays on major contracts.
In the medium term Denel’s performance will be affected by the group’s restructuring plans and revenues will be suppressed by the future repositioning of divisions and products. However, Fitch expects margins will improve resulting from the overhaul of the support cost structure.
Ntshepe said the leadership of the company further welcomed Fitch’s positive comments about the current interim leadership of Denel.