R&I rates SA BBB with stable outlook

JAPAN-BASED credit rating company Rating and Investment Information (R&I) yesterday affirmed South Africa’s long-term foreign currency debt rating at BBB and changed its outlook to stable from negative.

R&I said the new administration was expected to help dispel policy uncertainty and regain confidence among businesses.

The agency said political uncertainty had diminished substantially since President Cyril Ramaphosa’s elevation to the office in February and Finance Minister Nhlanhla Nene’s return to his position.

“To continue to unify the ANC, however, he would be forced to make various political compromises on some occasions, as has been the case,” R&I said.

The credit rating is a highly concentrated industry, with the “Big Three” credit rating agencies controlling 95 percent of the market.

Moody’s Investors Service and Standard & Poor’s (S&P) together control 80 percent of the global market while Fitch Ratings controls a further 15 percent.

R&I said that the general political situation in South Africa still entailed policy risks that warranted attention.

It said the country’s ratings would likely come under downward pressure again if the economy materially slows down due, for example, to a setback in economic recovery or a re-emergence of political risk.

The National Treasury said the government fully recognised R&I’s assessment of the challenges and opportunities the country faced in the immediate to long-term. “To improve South Africa’s investment and economic prospects, the government continues to work diligently on practical steps to provide the necessary policy certainty such as the finalisation of mining legislation,” the Treasury said.

Axing

Almost a year ago, South Africa was downgraded to junk status by S&P and Fitch following the midnight axing of then-Finance Minister Pravin Gordhan.

But last month Moody’s affirmed South Africa’s investment-grade credit rating and revised its credit outlook to stable from negative, attributing the decision to the gradual improvement in governance in state-owned enterprises. Moody’s rates Pretoria’s debt at Baa3, the lowest rung of investment grade.

Old Mutual chief investment strategist Dave Mohr said the process of undoing the political and policy damage of the past few years has just begun.

“Among emerging markets, South Africa is increasingly standing out, and this time for the right reasons. Governance is improving,” said Mohr.