State-owned defence industry conglomerate Denel has been upgraded to “AAA (zaf)” by Fitch Ratings, the global financial services provider.
It was previously rated “AA- (zaf)” by the New York headquartered company which also affirmed its current short term rating and outlook, according to SANews.
Riaz Salojee, Denel chief executive, welcomed the upgrade and said it was a vote of confidence in the group’s current prudent financial practices.
“It is also a clear indication our turnaround strategy is working and is being recognised in financial circles and investor communities.”
The turnaround strategy last year saw Denel improve revenue by over 10% with profit growing by R30 million to R71 million. The rise in revenue was attributed to a 34% growth in exports from R1.3 billion to R1.8 billion driven mainly by the group’s missile and landward defence units.
Salojee said Denel was a valuable national asset contributing more to South Africa that specified in its primary mandate of supplying the defence community with defence related technology and solutions.
“We are growing into our role as a technology and advanced manufacturing powerhouse, which also contributes to the broader national objectives of skills development and job creation through investments in research and development and technical education,” he said.
Denel Group financial director Fikile Mhlontlo said the long-term ratings upgrade to “AAA (zaf)” from “AA- (zaf)” comes on the back of an all-time high order cover in excess of R20 billion, improving financial performance, a strengthened balance sheet and continued strong support from stakeholders, including government.
“It also recognises the success of the financial turnaround which has seen Denel reporting profits over the past three years,” he said.
The Fitch Rating notes Denel has diversified its revenue base with half of its revenue now generated by exports, with the Middle East and South-East Asia at the top of the list. Fitch expects export business to remain an important aspect of revenue growth for Denel but cautions competitive pressure is likely to come from large global contractors.
Mhlontlo said the higher credit rating for Denel will result in “significantly” better access to credit facilities for both new contracts and lower borrowing costs.
Denel’s national short term rating was confirmed as “F1+ (zaf)” and its outlook described as stable.