While credit ratings firm Moody’s has kept JSE-listed Bidvest’s investment rating at Baa2 for the local currency global scale long-term outlook, it has changed the outlook to negative.

However, it also kept the company’s Prime-2 short-term issuer ratings as well as affirmed its Aa1.za national scale long-term and Prime-1.za short-term issuer ratings.

Moody's VP and senior analyst Dion Bate noted on Monday that while this affirmation reflected Bidvest’s stable operational, financial profile and diversified mix of businesses within South Africa, the company’s concentration in the country –
following the unbundling of its international food services business – reflected strong credit linkages that exist between it and government, which stands at Baa2 negative.

Bate explained that Bidvest’s operations were correlated to the political, social and economic environment in South Africa.

He highlighted that as a result of the high degree of rating linkage to government’s bond rating, any future rating pressure on Bidvest’s ratings and outlook would have to be considered in the context of the South African long-term bond rating position and outlook at the time.

Bate stated that subject to the bond rating, Moody’s would consider an upgrade if Bidvest was able to grow in size and geographic diversification and if Bidvest maintained positive sustainable free cash flow.

Conversely, he warned that the ratings agency would consider a downgrading Bidvest if the erosion in operating performance or higher debt levels is such that Moody's-adjusted earnings before interest, taxes, and amortisation (Ebita) to interest expense remains sustainably below 4.0x or Moody's-adjusted gross debt to Ebitda trends sustainably above 2.5x.

The failure to maintain a good liquidity profile with sizable cash balances; free cash flows were negative, or a downgrade of the South African sovereign bond rating will also have a negative impact on the company.