Moody’s Investors Services (Moody’s) has lowered Hyprop’s rating from Baa3 to Ba1 with immediate effect, Hyprop revealed in a statement on Wednesday.
Concurrently, Moody’s has lowered the long-term national scale issuer rating to Aa3.za from Aa1.za and has affirmed the short-term national scale rating of Prime-1.za.
The main reason cited for the decrease in the rating is that Moody’s estimates that the debt-to-asset ratio, adjusted for the full consolidation of Hystead, had increased to 41% as at June 31, 2018, from 33.4% the year before, owing to debt funded acquisitions in Eastern Europe.
Moody’s calculates this ratio at 38.6% when adjusted only for the Hystead gross debt guaranteed by Hyprop.
Moody’s further stated that Hyprop would rely on external financing to cover R5-billion of debt coming due in the next 18 months, including the debt that it guarantees in favour of Hystead.
According to Hyprop, its strategy in funding the expansion into Eastern Europe has been to raise the required funding via debt, using Hyprop’s South African balance sheet.
This was done to match currencies between debt, assets and operating cashflow and thereby mitigate the group’s exposure to fluctuations in exchange rates and to reduce borrowing costs, the company pointed out.
Hyprop’s debt-to-asset ratio, as calculated by Hyprop taking into account its attributable share of the net assets of Hystead, the full Hystead debt guaranteed by Hyprop and the back-to-back security Hyprop holds from PDI Investment Holdings in relation to guarantees, was at 32.6% as at June 30, 2018.
Hyprop stated that the Moody’s estimate of the debt-to-asset ratio of 41% assumes that Hystead is fully consolidated in Hyprop, which, having regard to the terms of the adjusted shareholder arrangement, is not permitted under International Financial Reporting Standards.
“Further, in making this estimate, Moody’s disregards the ‘in country debt’ in Hystead for which there is no recourse to Hyprop, and the portion of the Hystead debt guaranteed by PDI.”
Hyprop said that it and Hystead have successfully refinanced its maturing debt with external bank finance in the past, and indicated its confidence in its ability to continue to do so.
Hyprop management has engaged with banks on refinancing R3-billion of the debt due in the next 18 months, it noted.
Hyprop asserted that the manner in which it has funded Hystead remains appropriate in the context of managing exchange rate risks, reducing borrowing costs and using Hyprop's strong South African balance sheet to secure offshore funding. It did, however, note that it had taken cognisance of Moody’s comments.