South Africa’s State-owned defence industrial group Denel on Tuesday welcomed the decision by Fitch Ratings to affirm its long- and short-term ratings for the group, and to upgrade its outlook. Fitch affirmed Denel’s national short-term rating at “B(zaf)” and its national long-term rating also at “B(zaf)”. The defence group’s outlook was raised from “negative” to “stable”.

Fitch observed that it assumed that Denel’s revenues would continue to fall but that there would be a “return to solid growth” after the 2022 financial year. It expected Denel to reduce its operating losses and to restore profitability from the 2023 financial year.

The ratings agency further noted that the programme by Denel’s management and board to recreate good corporate governance at the group was bearing fruit. It described the South African government’s R1.8-billion recapitalisation of Denel as a “significant capital injection” which would probably allow the re-initiation of operations but would probably not allow any significant short-term deleveraging by the group.

Denel Group CE Danie du Toit described these ratings as encouraging and affirmed that they would increase the momentum of the policies to re-establish the group’s credibility. Denel was embroiled in the massive “State Capture” corruption scandal, which encompassed many of the country’s leading State-owned companies.

“We note the many concerns about aspects of the business that are still raised by Fitch and continue to implement measures to mitigate these factors,” he said. “But we are also heartened by the positive aspects of our turnaround plan that are highlighted in the rating report.”

He added that the decision by the ratings agency had given Denel “breathing space” in which to continue its restructuring. This programme included withdrawing from non-core businesses and finding new markets for its products and services, which are advanced and high-technology offerings.

“We are confident that we will receive further support from our shareholder [government] and that we will meet all the expectations of government, our clients and the South African public to turn Denel into a viable business again,” he assured. Regarding Fitch’s concerns about Denel’s lack of liquidity and the poor operating performance of its business units, Du Toit stated that “[w]e are addressing all these issues in a structured manner and with the support of our stakeholders in government. It is, however, clear that the turnaround is gathering momentum and I am confident that this will be increasingly reflected in the views of analysts and the broader business community.”