SA’s sovereign credit rating downgraded to junk status
S& P Global Ratings cut South Africa’s sovereign credit rating to junk status on Monday following an emergency meeting over the weekend.
The ratings agency decided the economic crises President Jacob Zuma plunged the country into with his midnight cabinet reshuffle on March 31 was too severe to wait until June 2 for its next scheduled review of SA’s sovereign rating.
Zuma’s firing of respected finance minister Pravin Gordhan and his deputy Mcebisi Jonas saw the yields on the government’s benchmark 10-year R186 bonds surge from 8.355% to 8.84% on Monday. The yield on the R186 bond spiked at 10.4% on December 11 2015 when Zuma caused chaos by appointing Des van Rooyen as finance minister before brining Gordhan back into the job to calm markets.
S& P reduced SA’s credit rating one notch to BB+ on Monday‚ placing the country’s bonds in “speculative grade” commonly called junk.
Moody’s is scheduled to release its sovereign rating review of SA on Friday. Moody’s is the most generous of the three major credit ratings agency‚ placing SA at Baa2 which is equivalent to BBB — two notches above junk — in S& P’s and Fitch’s nomenclature.
Fitch‚ which rates SA on the edge of junk at BBB-‚ does not forewarn when it will release its reviews.
“We think it is very likely that all the agencies will downgrade the sovereign credit rating by one notch each‚” RMB currency strategist John Cairns said in a note on Friday.
“This means that the foreign currency credit rating from S& P and Fitch will fall to BB+‚ while it will sit at the edge of investment grade at Moody’s‚ Baa3. We think all three rating agencies will retain their negative outlooks.
“Moody’s action will occur as per schedule on 7 April. Fitch is not bound by a timeline so it can also act quickly. It is not certain but S& P might bring forward its review to the coming weeks‚ ahead of the scheduled June 2 deadline‚” Cairns said.