Barloworld vulnerable in depressed market — Fitch

INDUSTRIAL brand management company Barloworld is vulnerable to the effects of a delayed global economic recovery, given its limited existing rating headroom, Fitch Ratings said on Friday.

Barloworld’s national long-term debt is rated A+(zaf) with a negative outlook and its national short-term debt F1(zaf).

“Liquidity and leverage profile improvement and sustainable positive free cash flow generation will be key considerations in Fitch’s rating analysis over the next 24 months,” Fitch said.

“Failure to improve leverage metrics and cash flow on a sustainable basis may lead to a negative rating action, as leverage is considered high relative to rated peers,” it said.

Fitch believes that credit metrics for Barloworld’s largest division, equipment, will continue to come under pressure over the 12-18 months as weak domestic and international demand was expected to persist over this period.

The group’s second-largest division, automotive, was also expected to be affected over this period by declining automotive sales in SA, which were not expected to significantly improve in the next financial year, in line with Fitch’s expectations of a sustainable domestic recovery only in the 2011 financial year.

“Barloworld’s operating profile is supported by planned domestic public sector infrastructure development programmes exceeding R780bn between next year and 2015.

“This is expected to limit the impact of weak demand and market conditions in the mining and construction sectors," Fitch concluded. I-Net Bridge