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Rating Action:

Moody's assigns Baa2.za/P-2.za ratings to Kagiso Tiso Holdings Proprietary Limited (RF); stable outlook

17 Jan 2012

Johannesburg, January 17, 2012 -- Moody's Investors Service ("Moody's") today withdrew the Baa2.za national scale issuer rating for Kagiso Trust Investments ("KTI") and assigned a definitive national scale long-term issuer rating of Baa2.za and definitive national scale short-term issuer rating of P-2.za to Kagiso Tiso Holdings Proprietary Limited (RF) ("KTH"). The outlook is stable. This concludes the review initiated for KTI on August 4th, 2011.

RATINGS RATIONALE

"KTH's Baa2.za/P-2.za rating considers the increased size and improved business diversity of the underlying portfolio of listed and unlisted equity investments", explained Moody's Assistant Vice-President Analyst, Dion Bate.

"On the other hand, KTH's rating is primarily constrained by its higher market valued leverage following the merger and its limited history as a merged entity - whereby a proven track record of conservative financial policies, ongoing investment transparency, successful investment management and strong corporate governance standards are yet to be demonstrated", added Bate.

KTH was formed by an equity swap merger on 1 July 2011 between Kagiso Trust Investments and Tiso Group (Proprietary) Limited ("Tiso"), a similar sized investment holding company in South Africa. Subsequent to the merger, all assets and liabilities from KTI and Tiso were transferred to KTH. As a result of this reorganization, Moody's has withdrawn the rating on KTI. The merged entity has a combined gross total portfolio value in excess of ZAR12 billion (taking into account divestitures as of the last third party portfolio valuation date on 30 September 2010).

KTH's Baa2.za/P-2.za national scale issuer rating is supported by (i) increased scale of the investment portfolio with a combined value of in excess of ZAR 12 billion (taking into account divestitures as of the last portfolio valuation date on 30 September 2010); (ii) a diverse portfolio ranging across a number of different sectors and comprising approximately 60% by value of listed investments; and (iii) a strong positioning for involvement in future value accretive Broad Based Black Economic Empowerment transactions.

KTH's ratings also factor: (i) the concentration (approximately 60% of total non-ring fenced debt at the holding company level ) of debt maturities in the next two years; (ii) 100% concentration of investment holdings within South Africa; and (iii) relatively weak pro forma interest coverage of 1.2x as of 30 June 2011 for KTI and 31 December 2010 for Tiso (calculated as: normalized dividends received + cash interest received) and the risk that, in a liquidity constrained environment, debt serviceability of non-ring fenced debt could be adversely impacted if investee companies reduce or discontinue dividend payments; and (iv) a moderate level of market value leverage (defined as average two years: net debt/estimated market value of portfolio of assets) of approximately 40%.

KTH's liquidity is supported by its current cash and cash equivalents on hand (ZAR 451 million as at 30 June 2011) along with undrawn committed revolving facilities (ZAR 125 million). Despite the above cushion, KTH faces some refinancing needs with ZAR 487 million debt maturing in the next two years. We note that KTH has ZAR 5.6 billion in long term listed investments, after applying a 25% haircut to the last third party valuation of the portfolio carried out on 30 September 2010, that could potentially be disposed of for liquidity purposes, if needed.

The stable outlook is based on our expectation that KTH will build a track record of sound corporate and financial governance, accompanied by transparent monitoring and reporting. The outlook also assumes that there will be no material change in KTH's market value leverage, asset concentration and business diversity. In addition, the outlook incorporates KTH's plans to refinance existing debt maturing in the next 24 months in a timely manner.

Positive pressure on KTH's rating could build over time as a result of a decrease in market value leverage to closer to 30% and improved interest coverage above 2.5x, both on a sustained basis. Other factors that may place upward pressure on KTH's ratings or outlook are: i) a consistent track record of prudent financial policies; ii) improved corporate governance standards in terms of more frequent and transparent reporting of third-party independent investment valuations and overall investment strategy; as well as, iii) prudent investment strategy over the longer term without significant volatilities or spikes in market-value based leverage. Moody's would also view positively a staggered debt maturity profile accompanied by a diverse funding mix.

Negative pressure on KTH's ratings could arise should market value leverage increase above 45% or if the interest coverage ratio sustainably weakens and/or does not remain supported by solid liquidity for meeting debt maturities and committed cash outlays. Any general deterioration in KTH's current disclosure standards could also prompt negative rating or outlook implications. A change in investment strategy towards capital allocation to more volatile investments with greater underlying business and liquidity risk would also put downward pressure on the rating or outlook.

The principal methodology used in rating Kagiso Tiso Holdings Proprietary Limited (RF) was the Global Investment Holding Companies Industry Methodology published in October 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Johannesburg, South Africa, Kagiso Tiso Holdings was formed by an equity swap merger on 1 July 2011 between Kagiso Trust Investments, previously rated Baa2.za by Moody's and assigned on 4 February 2008, and Tiso Group (Proprietary) Limited, a similar sized investment holding company in South Africa. Subsequent to the merger, all assets and liabilities from KTI and Tiso were transferred to KTH. The merged entity has a combined gross total portfolio value in excess of ZAR12 billion (taking into account divestitures as of the last third part portfolio valuation date on 30 September 2010).

Kagiso Trust Investments, was established in 1993 to generate sustainable and long-term financial support through dividend payments to its main shareholder (Kagiso Trust) for the purposes of community development.

Tiso Group (Proprietary) Limited was established as an investment holding company in 2001 and has been successful in both the Black Economic Empowerment space and mainstream commercial environment, with a vision to build a pan-African business with investments in growth sectors.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Dion Bate
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns Baa2.za/P-2.za ratings to Kagiso Tiso Holdings Proprietary Limited (RF); stable outlook
No Related Data.
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