LIVE FOREX CHART >>

 


Author Topic: S. African Companies Will Avoid Turkey-Type Crisis: Moody's  (Read 5 times)

FXshooting

  • Administrator
  • Hero Member
  • *****
  • Posts: 1785
    • View Profile
S. African Companies Will Avoid Turkey-Type Crisis: Moody's
« on: September 13, 2018, 03:04:12 am »
S. African Companies Will Avoid Turkey-Type Crisis: Moody's



(Bloomberg) -- Deep and liquid local debt capital markets have reduced the need for South African companies to borrow abroad, making them less vulnerable to a financial crisis than peers in Turkey and other emerging markets, according to Moody’s Investors Service.

Large external financing needs and a plunging currency are proving a toxic mix for Turkey’s corporate sector. But in South Africa, companies have enough access to local funding, and those that have turned to foreign debt used hedging strategies to cushion the effects of short-term currency fluctuations or buy time to adjust to long-term rand weakness, Moody’s said in a report dated 12 September.

In addition, most foreign borrowing by South African companies has been driven by offshore expansion and the debt is serviced with cash flows generated in the same currency, creating a natural hedge to currency weakness, the report said.

“Currency volatility in emerging markets has been one of the key focus areas for investors this year, particularly in terms of how it affects credit risk for companies,” Moody’s analysts lead by Dion Bate said in the report. “Despite continued rand volatility, we expect the credit quality of most South African companies we rate to remain broadly stable during the next 12 to 18 months.”

Foreign Exposure

About 38 percent of South African non-financial corporate debt is denominated in foreign currencies, according to Moody’s. That compares with 56 percent for Turkey, or an amount of $336 billion, almost triple the borrowers’ assets, according to data compiled by Bloomberg. The lira’s 40 percent slump this year will make servicing those loans more burdensome, lowering capital spending and GDP growth.

Moody’s expects the rand to remain volatile over the next year, driven by how successful the government is in implementing economic reforms, as well as global factors including the U.S. policy path, trade tensions and emerging-market turmoil. That will complicate the operating environment and investment decisions for South African companies, Moody’s said.

Moody’s flags MTN Group Ltd. and Hyprop Investments Ltd., which have around 47 percent and 74 percent of their debt in dollar or euros respectively, as companies most exposed to volatile debt-servicing obligations. Hyprop funded its offshore property acquisitions with a high proportion of debt, while MTN - currently rated Ba1 under review for a downgrade - is not able to fully hedge its offshore operational exposure

Companies with moderate foreign-exchange exposure tend to have well-managed hedging strategies that reduce the impact of rand volatility. Among those are real-estate companies Fortress REIT Ltd. and Growthpoint Properties Ltd., which hedge their foreign income between 12 and 36 months forward
State-owned rail and ports operator Transnet SOC Ltd., on the other hand, has little currency risk as it converted all its foreign obligations -- amounting to 22 percent of total debt -- to rand

Companies which generate most of their revenue in South Africa and which have rand-denominated debt, including Bidvest Group Ltd. telecoms operator Telkom SA SOC Ltd., will be the least affected by rand volatility

“However, a weaker rand will increase costs of imported raw materials and equipment which erodes credit quality through lower operating margins and lower free cash flow generation, if these costs cannot be passed on to the consumer”
Rand volatility will have a muted credit impact on South African miners

“The operating margins of gold, platinum-group metals and diamond miners will remain insulated from rand dollar exchange rate volatility. We expect commodity prices in rand terms to remain broadly flat during the next 18 months because of the favorable interplay between the US dollar and the South African rand”

NOTE: The rand’s one-month historical volatility has dropped every day since September 7 and is now at its lowest in a month. The South African currency is down 17 percent against the dollar year-to-date
(Updates with market moves in last bullet.)



https://www.fxshooting.com



Share on Facebook Share on Twitter Share on Google+


 







Pay For Premium Forex Signals FXSHOOTING

Payment Premium Signals

 



NEWS & ANALYSIS VIDEO



 










InstaForex



   


Risk Disclosure: Fusion Media will not accept any liability for loss or damage as a result of reliance on the information contained within this website including data, quotes, charts and buy/sell signals. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible. Currency trading on margin involves high risk, and is not suitable for all investors. Trading or investing in cryptocurrencies carries with it potential risks. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Cryptocurrencies are not suitable for all investors. Before deciding to trade foreign exchange or any other financial instrument or cryptocurrencies you should carefully consider your investment objectives, level of experience, and risk appetite. Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures), Forex and cryptocurrencies prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn’t bear any responsibility for any trading losses you might incur as a result of using this data. Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.