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Ratings agency S&P Global has maintained Telkom‘s BBB- credit rating, but has revised its outlook to negative in the wake of South Africa’s political upheaval and subsequent credit rating downgrade.
The decision means that Telkom’s credit rating still sits at one grade above the so-called “junk” level.
S&P said that South Africa’s overall downgrade and potentially worsening economic conditions “implies increased risks” to Telkom.
“We are therefore revising our outlook on Telkom SA to negative from stable and affirming our ‘BBB-‘ long-term ratings on the company,” the agency wrote. However, it’s also explained its reasoning behind the outlook.
“We limit the differential to one notch after conducting a stress test on Telkom to assess the company’s resilience under a hypothetical sovereign default scenario, which includes a stress on earnings (20% haircut) and a 50% devaluation of the South African rand.”
S&P also pointed to Telkom’s good growth prospects in the mobile sector and its position as incumbent telecom provider.
Telkom on ratings agency move
The fixed-line operator has welcomed S&P’s decision to affirm the rating, saying it was a “nod to the aggressive implementation of a turn-around strategy”.
“We embarked on our turnaround strategy almost four years ago and in these trying times it is imperative that we maintain our focus. We will continue to actively manage our costs, our cash and our use of capital, in the most efficient manner possible,” Telkom CEO Sipho Maseko was quoted as saying.
The CEO has also given his thoughts on the negative outlook by S&P.
“While we welcome the maintenance of our current rating we’re also cognisant that we don’t exist as an island. At this time, it is imperative that our national focus is shifted to shaping an effective way forward,” Maseko added.
“The downgrade of the sovereign will potentially affect the economy at large and the country needs to pull together more than ever before. In the immediate term the focus should be to avoid a recession. Collaboration between government, business, labour and civil society will be vital to evolve a new growth framework to take the country forward.”