OREANDA-NEWS. Fitch Ratings has affirmed Industrial Development Corporation of South Africa's (IDC) National Long-term rating at 'AA+(zaf)' with a Stable Outlook, and National Short-term rating at 'F1+(zaf)'.

The affirmation reflects Fitch's expectations of unchanged links with IDC's sole shareholder, the Republic of South Africa (BBB+/BBB/Negative), amid extensive control and oversight, leading us to believe that extraordinary support would be forthcoming if needed, despite the lack of an explicit debt guarantee of all financial liabilities. IDC is credit linked to South Africa and rated using to a top-down approach according to Fitch's Public Sector Entity rating criteria

KEY RATING DRIVERS
IDC plays a key role in the national development strategy as it promotes industries and industrial undertakings to create jobs and reduce income inequality in areas ranging from mining to clean energy. IDC does not receive operational or capital subsidies, is self-supporting and endowed with a high level of capitalisation making the need for equity support unlikely in the foreseeable future.

IDC has a high capitalisation with debt-to-equity ratio around 25% according to FY14-15 preliminary figures, although Fitch expects it to weaken towards 33% over the medium term as a result of an expanding loan book and declining reserves from lower market value of assets. Nonetheless IDC's financial liabilities will continue to remain modest accounting for only 1% of those of central government, underpinning the latter's ability to provide financial support.

Fitch expects IDC will continue to be profitable in the medium term, with a net income ranging between ZAR1bn to ZAR2bn and a return on equity (ROE) of 1%-2%. Despite a slowdown in the national economy, and persistent high unemployment as well as pressurised commodities markets, IDC posted a net profit close to ZAR2bn in FY14-15.

Impairments on its total financing continue to hover around 17% at cost basis (just below 10% of total financing at market value) a level which Fitch considers consistent with IDC's developmental role. Fitch expects annual provisions for impairments relative to interest income and dividends to hover around 20%, moderated by a rigid selection of the projects for which it grants financing.

RATING SENSITIVITIES
IDC is rated only on the South African national scale rating, implying that a change in rating would stem only from a change in its relative riskiness versus the national government/best risk in South Africa.

A reduction of the South African government's ownership, oversight, and control over IDC or a diminished strategic importance of the entity - and consequently reduced probability of extraordinary support - could lead to negative rating action. Conversely, a more formalised support by national government through a guarantee of all IDC's financial liabilities or other explicit support mechanisms conducive to a stronger legal link with the sponsor could lead to positive rating action.