Companies / 14 February 2019, 11:00am / Roy Cokayne
PRETORIA – Hyprop has taken issue with credit rating agency Moody’s over a reduction in the ratings for the debt securities issued in terms of the listed specialist retail property fund’s domestic medium-term note programme.
Moody’s based the reduction in these ratings on its estimates of the increase in Hyprop’s debt-to-asset ratio.
Hyprop reported yesterday that Moody’s had lowered the issuer’s rating from Baa3 to Ba1 with immediate effect and lowered the long-term national scale issuer rating to Aa3.za from Aa1.za while affirming the short-term national scale rating of Prime-1.za.
The fund said the main reason cited by Moody’s for the decrease in the rating was its estimates that the debt-to-asset ratio, adjusted for the full consolidation of Hystead, had increased to 41 percent at end-June last year from 33.4 percent in the previous year, because of debt-funded acquisitions in Eastern Europe.
UK-based Hystead is the company that houses Hyprop’s European investments. Hyprop said it had calculated its debt-to-asset ratio at 32.6 percent at end-June last year.
It said this calculation took into account its attributable share of the net assets of Hystead, the full Hystead debt guaranteed by Hyprop and the back-to-back security Hyprop held from PDI Investment Holdings in relation to the guarantees.
Moody’s calculated this ratio at 38.6 percent when adjusted only for the Hystead gross debt guaranteed by Hyprop.
The credit rating agency further stated that Hyprop would rely on external financing to cover R5 billion of debt coming due in the next 18 months, including the debt that was guaranteed in favour of Hystead.
But Hyprop said Moody’s estimate of the debt-to-asset ratio of 41 percent assumed that Hystead was fully consolidated into Hyprop.
Hyprop stressed that in terms of the Hystead shareholder arrangements, this was not permitted under International Financial Reporting Standards.
In addition, Hyprop said that in making this estimate Moody’s disregarded the “in country debt” in Hystead for which there was no recourse to Hyprop and the portion of the Hystead debt guaranteed by PDI.
“Hyprop and Hystead have successfully refinanced their maturing debt with external bank finance in the past, and are confident of their ability to continue to do so.
“Hyprop management has engaged with banks on refinancing R3bn of the debt due in the next 18 months,” it said. Hyprop said the manner in which it had funded Hystead remained appropriate in the context of managing exchange rate risks, reducing borrowing costs and utilising Hyprop’s strong South African balance sheet to secure offshore funding.
Hyprop added its strategy in funding the expansion into Eastern Europe had been to raise the required funding via debt using the fund’s South African balance sheet.
This was done, among other reasons, to match currencies between debt, assets and operating cash flow, thereby mitigating the group’s exposure to fluctuations in exchange rates and to reduce borrowing costs.
Hyprop owns a 60 percent stake in Hystead, which owns a portfolio valued at €740 million (R11.51bn), with Hyprop’s share valued at €444.4m at end-June last year. Hyprop in September reported that it had terminated plans to separately list Hystead.
Shares in Hyprop closed 5.30 percent lower on the JSE at R83.70 on Wednesday.