Moody’s lowers Hyprop’s credit rating

14 February 2019

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 from and has affirmed the
short-term national scale rating of

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 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.

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