Telkom downgraded to junk

Telkom’s credit rating has been cut to junk status, with a negative outlook.

The company confirmed in a statement to investors that Moody’s Investors Service had downgraded Telkom’s rating to Ba1 from Baa3, in line with the credit rating of South Africa.

“The rating action follows Moody’s recent decision to downgrade the South African sovereign rating,” Telkom said.

“Telkom’s rating is linked to sovereign rating due to government’s 40.5% stake in Telkom and its operational concentration in South Africa.”

“Moody’s has also affirmed the long-term national scale issuer rating at Aa1.za,” the company said.

Telkom noted that Moody’s did acknowledge Telkom’s credit metrics and liquidity in its decision.

“As part of its rating decision Moody’s indicated that the rating reflects Telkom’s overall strong credit metrics which provide adequate headroom to the company’s operating and competitive challenges,” Telkom said.

“The company also has adequate levels of liquidity over the next 12 to 18 months with flexibility and sufficient levers to manage its cash flows.”

Job cuts

Telkom is currently in the process of cutting jobs to improve its financial situation.

The company announced last month that the first phase of its current retrenchment process will cost it R1.5 billion.

“Telkom has issued Section 189 Notices in terms of the Labour Relations Act to employees and started the process of consultation to restructure the business for future competitiveness,” said Telkom.

This retrenchment process comprises two phases, the company noted, stating that the next phase of job cuts will take place from May to August 2020.

The first phase affects employees in the Openserve, Group IT, and Consumer divisions, while the second phase will cut employees across Telkom’s Corporate Centre and Telkom SOC Support divisions.

The cash outflow related to the company’s restructuring is expected in the first half of the new financial year, Telkom said.

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Telkom downgraded to junk