Fitch Ratings has affirmed both of 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).
Acting group chief executive of the Denel Group, Zwelakhe Ntshepe, has welcomed the decision by Fitch to affirm both the long-term and short-term ratings of the state-owned defence and technology company.
“We noted the 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 levels,” says Ntshepe.
“Denel plays a vital role in ensuring South Africa’s self-sufficiency in advanced defence systems, and we are confident that government will play a very critical role in ensuring the company remains a viable business.”
Fitch notes the decision to affirm the ratings reflects the continuing strong links between Denel and the state – mainly driven by the government’s irrevocable and unconditional guarantee for R1.85 billion of the company’s R3 billion domestic medium-term notes.
This guarantee expires on 30 September and Fitch has further noted a decision not to extend this guarantee 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, benefiting from organic growth. Its key land systems projects are ramping up from the design to the production stage and this portfolio of the group was further strengthened with the acquisition of Denel Vehicle Systems.
It expects a short-term decline in revenue 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.