S&P alters rating scale for bond issuers

Credit ratings agency S&P Global Ratings has adjusted its rating scale for bond issuers in SA.

South African insurers, financial institutions, the public sector, state-owned entities and corporates will have their credit ratings adjusted slightly this week in a process called global-to-national scale mapping.

Rand Merchant Bank credit analyst Elena Ilkova said: “The downgrade of SA’s sovereign rating in April 2017 triggered the predictable downgrade of South African issuers on the global scale. However, at the time, S&P did not adjust the global-to-national scale mapping table, which led to a large number of negative ratings actions on the national scale.”

When Fitch Ratings and Moody’s Investors Service downgraded the sovereign, their mapping tables were immediately adjusted, which limited the effect on the national scale ratings changes, Ilkova said.

Changes were expected to 90% of the bond issuers. Ilkova said 65% of all ratings would be raised by three notches, 15% by more than three and 10% by up to two notches. S&P was also expected to raise all short-term ratings by one notch.

S&P said this week these rating actions did not reflect any change in the ratings agency’s view of the fundamental credit quality of the issuers or issues.

“Our global scale issuer and issue credit ratings on the insurers are not affected by [the] rating actions,” it said.

Instead, the adjustment showed the creditworthiness of an issuer compared with other issuers in SA in order “to provide a rank-ordering of credit risk within the country”.

In June, S&P reaffirmed the country’s sovereign credit rating at BB+, junk status, and kept its outlook negative.

S&P sovereign analyst Gardner Rusike warned last week that SA’s current negative outlook posed a risk to its sovereign rating, which could be lowered in the next 12 months.