Denel gets a big thumbs up from Fitch Ratings
Fitch Ratings affirmed Denel’s national long-term and short-term ratings at "B(zaf)" with a stable outlook. Fitch also removed the ratings from rating watch negative.
Fitch said the rating actions reflected the support provided to the group by the South African government, in particular a R1.8billion equity injection to recapitalise the business.
“The group has finalised appointments to the board and its key executives, who have been instrumental in introducing a restructuring plan and agreeing a strategic corporate plan with the state and Denel’s line ministry, the Department of Public Enterprises,” Fitch said.
However, Fitch also noted that the operating structure remained underutilised and would take time to resume normal levels of operations.
“This is in part due to continuing liquidity constraints, which although improved following the initial recapitalisation, will require resumption of normalised operating levels in the absence of major disposals or additional equity contributions to recover,” it said.
Despite upgrading Denel’s rating, Fitch noted that Denel’s standalone credit profile remained weak and was commensurate with "ccc", reflecting both the operational and capital structure problems that persisted.
“The group’s business profile remains constrained by the weak operating performance of the underlying individual business units, with revenues dropping to R3.8bn for the financial year to end March 2019, compared to R5.8bn in 2018 and continuing significant operating losses,” Fitch said.
Denel welcomed Fitch’s stable outlook rating for the group.
Chief executive Danie du Toit said the decision by Fitch to affirm its long-term rating and to assign a stable outlook to the business was encouraging and would give further momentum to efforts to restore the company's credibility after a period of state capture.
“We note the many concerns about aspects of the business that are still raised by Fitch and continue to implement measures to mitigate these factors.
"But we are also heartened by the positive aspects of our turnaround plan that are highlighted in the rating report,” Du Toit said.
Du Toit added that Fitch’s decision provided Denel with the breathing space to continue with its efforts to restructure the business, exit from non-core entities and find new markets for its advanced defence and high-technology products and services.
Denel appointed a new board in April 2018 and the board has made progress in addressing the corporate governance problems within the group. This included the appointment of chief executive and chief financial officer.
Denel last week reported that the closure of its aerostructure manufacturing division was at an advanced stage.