Fitch Ratings says the South African market is not insulated from continuing turmoil in global markets and corporates face challenging conditions in the second half of 2012.
In a new report, the ratings group highlights that the rating outlook for South African corporates in H2, 2012 remains stable, despite slightly tougher than expected market conditions. A continued drive to conserve cash in H1, 2012 and the outlook on the South African sovereign rating being revised to negative from stable on 13 January 2012.
“The South African market is not insulated from continuing turmoil in global markets, and a key risk to corporate market conditions in 2012 are weak growth expectations for developed markets, notably the eurozone,” Fitch said.
It adds that the EU remains one of South Africa’s key trading partners, and continued turbulent market conditions across the EU in H1 2012 is expected to take its toll on trade levels and the availability and cost of international funding.
According to Fitch, issuers with significant exposure to weaker market conditions in the EU include Steinhoff International Holdings Limited (‘A-(zaf)’/Stable) and Bidvest Ltd (‘AA-(zaf)’/Stable).
“These issuers are exposed to the relatively vulnerable furniture retail and the less cyclical food services sectors respectively, but benefit from strong diversification and increased scale, supporting the current ratings,” the group said.
However, Fitch believes that on aggregate, South African corporate issuers remain reasonably well positioned to weather tougher market conditions over the next 12 months following effective measures employed to conserve cash in 2011 and H1, 2012.
“Discretionary capex spending and M&A activity is expected to remain muted over the short term, while rising costs will lead to some erosion in operating margins and place renewed pressure on free cash generation in H2, 2012,” Fitch said.