Denel has welcomed the decision by Fitch Ratings to upgrade the company’s long-term rating and affirm its current short-term rating and outlook.
“It is a vote of confidence in our prudent financial practices and a clear indication that our turnaround strategy is working and being recognised in financial circles and investor communities,” said Riaz Saloojee, Group Chief Executive of Denel.
Saloojee said Denel is a valuable national asset, which contributes more to South Africa than what is contained in its primary mandate to supply the defence community with defence-related technology and solutions.
“We are growing into our role as a technology and advanced-manufacturing powerhouse, which also contributes to the broader national objectives of skills development and job creation through its investments in research and development and technical education,” he said.
Group Financial Director Fikile Mhlontlo said the long-term ratings upgrade to “AAA (zaf)” from “AA- (zaf)” is at the back of all-time high order cover in excess of R20 billion, improving financial performance, a strengthened balance sheet and continued strong support from stakeholders, including government.
It also recognises the success of the financial turnaround, which led to Denel reporting profits over the past three years.
It also notes that Denel has managed to diversify its revenue base away from the South African defence sector, with 50% of revenue now generated from exports, most notably to the Middle East and Southeast Asia.
Fitch Ratings expects the export business to remain an important aspect of Denel’s revenue growth but cautions that competitive pressure is likely to come from large global contractors.
Mhlontlo said a higher credit rating for Denel will in no doubt result in significantly better access to credit facilities required to execute new significant contracts and lower borrowing costs.
Denel’s national short-term rating was confirmed at ‘F1+ (zaf)’ and its outlook is described as stable.