The outlook of Airports Company South Africa (ACSA) was changed to negative from stable by Moody's Investors Service on Monday.
At the same time, Moody's affirmed the Baa3 global scale long-term issuer ratings and the Aa1.za national scale long-term issuer rating of ACSA.
Moody's explained that the rating action on ACSA follows the change in outlook to negative from stable on the Baa3 ratings of the government of South Africa on Friday. Moody's says its National Scale Credit 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.
On Friday Moody downgraded the outlook for its credit rating of the SA government from “stable” to “negative”. This is the final step before it strips SA of its "investment grade" Baa3 long-term foreign-currency and local-currency issuer rating, which will leave it at “junk”.
The change in outlook to negative from stable reflects Moody's view that ACSA would not be rated higher than the government of South Africa.
ACSA owns and operates nine airports in South Africa. It is majority owned (74.6%) by the government of South Africa and in the financial year ended March 2019, it reported revenues of R7.1bn.
"This recognises the 74.6% state ownership and the influence of the government on ACSA's policies; the company's exposure to domestic regulatory oversight and local economic conditions due to its high percentage of domestic traffic; and the company's exposure to domestic financial markets where it raises most of its debt," Moody's explains.
Moody's points to ACSA's "moderately levered financial profile and a reasonably conservative financial policy", but says its ratings are, however, constrained by "a system of economic regulation that has proved challenging in the past. Furthermore, constraining factors are seen as ACSA's exposure to the South African Airways group, which relies on financial support from the SA government; and exposure to the weak economic conditions of SA.
In the view of Moody's an upgrade of ACSA's rating is unlikely in the short term, given the negative outlook. The outlook could, however, be changed to stable if the outlook on the government of South Africa's rating was changed to stable.
"Any downgrade of the government of South Africa's rating will likely result in a downgrade in ACSA's rating. Downward pressure on the rating could also develop if ACSA's credit metrics were to weaken on a sustained basis," said Moody's.
This could happen due to factors like a more shareholder friendly dividend policy than currently envisaged; significantly higher than anticipated capital expenditure; or challenging regulatory settlements, according to Moody's.