Cred­it­wor­thi­ness un­der scrutiny by S&P

CityPress - - Business - JUSTIN BROWN and DEWALD VAN RENS­BURG busi­ness@city­

South Africa’s cred­it­wor­thi­ness was closely scru­ti­nised again this week, this time dur­ing a visit by an­a­lysts from Stan­dard & Poor’s (S&P).

Like ri­val Fitch Rat­ings, S&P’s ex­ist­ing rat­ing is just one point above sub-in­vest­ment grade, or “junk sta­tus”.

This is in con­trast to the way Moody’s In­vestors Ser­vice sees South Africa – ear­lier this month, it af­firmed it was two notches above junk sta­tus.

How­ever, S&P has its credit rat­ing of South Africa on a “neg­a­tive” out­look, while Fitch has its lo­cal rat­ing on a “sta­ble” out­look.

Should S&P down­grade South Africa to junk, the cost of lo­cal debt would be hiked, for­eign money in­vested in state and cor­po­rate bonds could exit the coun­try, and the rand might move to a his­toric low.

Gard­ner Rusike, an S&P an­a­lyst, con­firmed that the agency’s an­a­lysts would be hold­ing meet­ings this week ahead of the re­lease of the S&P re­port re­view­ing South Africa’s credit rat­ing, but de­clined to give de­tails.

Nazmeera Moola, an In­vestec econ­o­mist, said: “The prob­a­bil­ity of a down­grade is prob­a­bly un­changed since the bud­get speech.”

Since the bud­get speech, Na­tional Trea­sury had re­ported tax in­come that met bud­gets but, on the other hand, the eco­nomic growth fore­casts for the coun­try kept fall­ing.

Moody’s tends to fo­cus on in­sti­tu­tions and “event risk”, such as sud­den de­val­u­a­tions of the cur­rency.

“With them, it helps a lit­tle that we have very lit­tle hard cur­rency debt and there is lit­tle rollover risk,” said Moola.

S&P tended to put GDP growth front and cen­tre when it did its rat­ings re­views, she said.

“You can’t read any­thing from Moody’s de­ci­sion into S&P’s one,” she said. S&P’s de­ci­sion on June 3 would be a “close call”, Moola said. S&P rates the cred­it­wor­thi­ness of 132 na­tional gov­ern­ments world­wide, of which 68 are rated in­vest­ment grade and 64 are rated as non­in­vest­ment grade. Af­ter an­nounc­ing that in­ter­est rates would re­main un­changed this week, Le­setja Kganyago, the gov­er­nor of the SA Re­serve Bank, said he would be meet­ing with rep­re­sen­ta­tives from S&P. “What will I tell them? I will give them a copy of this mon­e­tary pol­icy com­mit­tee state­ment – it cap­tures the Re­serve Bank’s as­sess­ment of the econ­omy,” he said. Kganyago said that to pro­tect a coun­try’s credit rat­ing, you needed to “pro­tect your credit met­rics”. A rat­ings process in­cluded de­tailed looks at a coun­try’s pol­i­tics, in­sti­tu­tions and their strength, the pol­icy frame­works of the coun­try, eco­nomic struc­ture and eco­nomic per­for­mance, he said. “I be­lieve that we have taken sig­nif­i­cant steps to deal with the con­cerns that have been raised by rat­ings agen­cies,” he said. Cas Coova­dia, man­ag­ing di­rec­tor of the Banking As­so­ci­a­tion of SA, told City Press that he met with S&P’s team, but that they were “closed-door dis­cus­sions”. Last month, S&P’s Rusike said that one of the key pres­sures on the lo­cal rat­ing was low growth and that an im­prove­ment in growth would sta­bilise the rat­ing. South Africa is ex­pected to grow by less than 1% this year. How­ever, the lat­est re­tail sales fig­ures this week showed that quar­terly lo­cal re­tail sales growth had dropped to 0.6%. Annabel Bishop, an In­vestec econ­o­mist, said that the re­tail sales fig­ures in­di­cated a po­ten­tial con­trac­tion in GDP in the first quar­ter of 2016.

I be­lieve that we have taken sig­nif­i­cant steps to deal with the con­cerns that have been raised by rat­ings agen­cies

PRU­DENT Re­serv e Bank gov­er­nor Le­setja Kganyago

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.