Artwell Dlamini
22 December 2008
Johannesburg — RENEWED liquidity worries are circling around Super Group, whose latest restatement of financial results has prompted a ratings downgrade and a run on shares.
These liquidity concerns have stoked fears about whether the transport and logistics group might default on its debt.
Fitch Ratings says Super Group's leverage -- measured by adjusted net debt to operating ebitdar (earnings before interest, taxes, depreciation, amortisation and rent) -- rose to 4,95x this year from 2,71x last year due to reduced profits after the company restated its financial results for the year to June 30 on December 12.
The agency warns about the potential effect on liquidity and the heightened probability of default.
The BBB+(zaf) rating, which is far better than Super Group's newer B(zaf) rating, served as a trigger for some banks to "legally demand repayment of any outstanding debt", said the agency, and it was concerned that Super Group's liquidity position could be adversely affected should banks pull this trigger.
Fitch said last week it had cut Super Group's national long-term rating by several notches from A- (zaf) to BB(zaf), suggesting uncertainty over the group's ability to pay its debt.
The ratings agency also downgraded Super Group's national short-term rating from F2(zaf) to B(zaf) and kept ratings on rating watch negative.
Super Group said in a statement after the restatement this month that it had identified an exposure to its operations in Angola. "This exposure arises from the failure of our partner in Angola to meet contractual obligations," the company said.
The exposure has seen headline earnings per share for the year in question revised downward to 11,9c from 55,2c.
"Despite significant and continuing efforts to recover these amounts the board has taken a prudent view and decided to modify the reviewed 2008 financial results and provided in full for both the Angolan receivable (R97,1m) and inventory (R100,3m), resulting in a total provision of R197,4m in the amended 2008 financial results," the company said.
Fitch said this restatement meant the group's earnings before interest and tax had deteriorated to R532,2m this year from R848,8m last year.
With the Fitch downgrade resonating, any attempt to raise capital may be costly for Super Group.
Super Group raised R510m through a rights offer in October as it tried to cut borrowing costs and strengthen its balance sheet -- allaying concerns over liquidity and solvency.
One analyst, who requested anonymity, said last week there was a possibility the firm might need capital.
Another analyst, who also did not want to be named, said the downgrade sent negative signals to bond and equity investors alike. "One has to be cautious," the analyst said, referring to the high risk that is implied in the downgrade.
The analyst said there was no catalyst that would elicit investor interest in Super Group, whose share price has shed about 30% since the restatement was announced this month.
The restatement was the second financial adjustment in months. In July, the group announced accounting irregularities and fraud that required a restatement of financial results for last year.
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