London, 01 October 2012 -- Moody's Investors Service has today announced a one-notch
downgrade to Baa3 from Baa2 of Telkom SA Limited's ("Telkom")
global scale issuer rating and a change in outlook on Gold Fields Limited's
("GFI") Baa3 global scale issuer ratings and Gold Fields Orogen
Holding (BVI) Limited Baa3 senior unsecured rating to stable from positive.
Please see ratings tab on the issuer/entity page on moodys.com
for information on Global Scale Rating.
RATINGS RATIONALE
Today's actions were prompted by the weakening of the South African
government's credit profile, as captured by Moody's recent
downgrade of South Africa's government bond rating to Baa1 from
A3, in the case of Telkom; and, weakening trends in the
South African mining sector that reduces positive pressure, in the
case of Gold Fields. For full details, please refer to the
Sovereign press release http://www.moodys.com/research/Moodys-downgrades-South-Africas-government-bond-rating-to-Baa1-outlook--PR_256159.
The ratings of Sasol Limited ("Sasol") and Transnet SOC Ltd.
("Transnet") despite being at or close to that of the government
are unaffected by the change in the South African government's creditworthiness.
An overview of both affected and unaffected issuers is now provided in
this press release:
OVERVIEW OF AFFECTED ISSUERS:
--TELKOM:
The one-notch downgrade of Telkom's global scale issuer rating
to Baa3 from Baa2 reflects primarily the weakening of the South African
government's credit profile, as captured by Moody's recent
downgrade of South Africa's government bond rating to Baa1.
Moody's has subsequently changed its assessment of the likelihood
of support for Telkom being forthcoming from the South African government
in the case of need to "moderate" from "strong",
while still maintaining the "high dependence" assessment.
This reassessment has led the rating agency to remove the previous one-notch
ratings uplift from Telkom's standalone, or baseline credit
assessment (BCA), rating of baa3, resulting in the one-notch
downgrade of the company's global scale issuer rating to Baa3.
Telkom's national scale long-term issuer rating remains unchanged
at A2.za. The outlook for all of the company's ratings
is stable.
Telkom is 39.8% owned by the South African government and
10.5% by PIC, while 2% of the company is in
treasury shares and the remaining 47.7% is in free float.
Telkom's BCA of baa3 continues to reflect the company's position
as a leading telecommunications operator, with a leading market
position in South Africa's fixed-line business and a growing
presence in broadband and mobile offerings. However, the
rating also reflects that Telkom is facing execution challenges to grow
its 8ta offering and stabilise its operating margins through (1) its strategies
to increase adoption of information communication technology (ICT) among
its business customers; (2) customer service improvements; and
(3) network upgrades for its improved bundled offerings. The current
BCA is also based on Telkom's low leverage and overall strong credit
metrics for the rating category. This offsets to some degree Telkom's
operating and competitive challenges, as well as the larger capital
investments it needs to make to deliver on its key strategies for the
upcoming years. The rating further assumes that Telkom will not
experience any difficulties in terms of liquidity, refinancing or
funding and so will be able to meet its financial and operating commitments.
To the extent these would arise, further downward pressure would
be exerted on the rating or outlook.
--GOLD FIELDS LIMITED:
The change of outlook on GFI's Baa3 rating and Gold Fields Orogen
Holding (BVI) Limited Baa3 senior unsecured rating to stable from positive
reflects a combination of the weakening of the South African government's
credit profile and also the continued growing labour unrest in the company's
South African mines, which is likely to lead to higher-than-expected
wage demands from miners. As wages constitute the highest proportion
of SA mining companies' costs, this will likely exert negative
pressure on GFI's overall operating margins. GFI generated
48% of its production and revenues, and 39% of its
EBITDA, in South Africa for the six months ended 30 June 2012,
and is therefore significantly exposed to the country and some of its
continued challenges. As a result, and based on the ratings
of its main gold-mining peers, Moody's now believes
that upward pressure on GFI's rating is more limited, hence
the change of outlook back to stable.
However, GFI's Baa3 rating continues to be supported by its
position as the world's fourth-largest gold producer and
its very sizeable reserve base and industry-leading reserve life.
Additional factors that support its rating are its low financial gearing,
underpinned by a conservative financial policy framework, which
includes a strict policy of not engaging in gold hedging strategies and
a track record of using disposal proceeds to repay debt.
OVERVIEW OF UNAFFECTED ISSUERS
--SASOL LIMITED:
Sasol's Baa1/P-2 issuer ratings and Aa3.za/P-1.za
national scale issuer ratings remain unchanged with a stable outlook despite
the weakening of the South African government's credit profile.
Sasol's Baa1 rating benefits from a strong standalone credit profile
with strong credit metrics. For the last 12 months ended 31 December
2011, Sasol's ratios as adjusted by Moody's were debt/equity levels
of 16.1% and retained cash flow (RCF)/net debt of 189.3%,
which helped to offset debt/equity levels of above 40% and RCF/net
debt of below 30%, respectively. Sasol's rating
also incorporates its conservative financial policies, with a board
mandated target gearing (debt/equity) range of 20%-40%.
This is accompanied by a robust liquidity profile, with available
cash of ZAR12.8 billion ($1.6 billion) and full availability
under its committed credit facilities amounting to ZAR11.3 billion
($1.4 billion) at the end of 30 June 2012. Furthermore,
Sasol has good geographic diversification, with the company generating
approximately 45.1% of its revenues and 21.2%
of its operating income overseas.
--TRANSNET:
Transnet's A3/Aa3.za/Prime-2 ratings remain unchanged
with a negative outlook despite the weakening of the South African government's
credit profile. Moody's decision not to downgrade Transnet's
rating reflects the company's track record of successfully implementing
more than 90% of its budgeted capital investment programme to date.
However, Transnet's credit profile will be tested over the
coming months with respect to the company's ability to maintain
its financial policies and operating performance in the face of government
policies to support or stimulate economic growth.
Incorporated as a limited liability company in South Africa, Transnet
is a 100% state-owned company operating the country's freight
railway, ports and pipelines infrastructure. The group reported
revenues of R45.9 billion for the year ending 31 March 2012.
The principal methodology used in rating Telkom SA Ltd was the Global
Telecommunications Industry Methodology published in December 2010.
Other methodologies used include the Government-Related Issuers
methodology published in July 2010. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
The principal methodology used in rating Gold Fields Limited and Gold
Fields Orogen Holding was the Global Mining Industry Methodology published
in May 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Transnet Limited's ratings were assigned by evaluating factors that
Moody's considers relevant to the credit profile of the issuer,
such as the company's (i) business risk and competitive position compared
with others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
's core industry and believes Transnet Limited's ratings are
comparable to those of other issuers with similar credit risk.
Other methodologies used include the Government-Related Issuers
methodology published in July 2010. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Sasol Limited's ratings were assigned by evaluating factors that
Moody's considers relevant to the credit profile of the issuer,
such as the company's (i) business risk and competitive position compared
with others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
Sasol Limited's core industry and believes Sasol Limited's
ratings are comparable to those of other issuers with similar credit risk.
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 ".za" for South Africa.
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".
The Local Market analyst for these ratings is Dion Bate, 27-11-217-5472.
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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
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.
Soummo Mukherjee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Services Limited, Dubai Branch
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
Telephone: 00971 4237 9536
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
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Moody's takes action on Telkom and Gold Fields following sovereign action
