Relief as S&P holds off lowering credit rating

S& P Global Ratings on Friday followed Fitch’s example on Thursday in refraining from lowering SA’s sovereign credit rating deeper into junk territory.

S& P’s decision came as a relief as it has a negative outlook on SA’s sovereign credit rating‚ a warning that a credit downgrade is likely. Fitch‚ on the other hand‚ has given SA a stable outlook. Ratings agencies usually forewarn about downgrades by first lowering their outlook.

S& P differs from Fitch and Moody’s in that it rates SA’s rand-denominated debt a notch higher than its foreign-denominated debt‚ and Friday’s statement allayed fears that S& P would cut rand-denominated debt to the same BB+ “junk” status of foreign-denominated debt.

Moody’s‚ which originally had its ratings report on SA scheduled for April 7‚ delayed its verdict after S& P decided June 2 was too long to wait after President Jacob Zuma’s March 31 Cabinet reshuffle in which Pravin Gordhan was replaced by Malusi Gigaba as finance minister.

S&P cut its rating of SA’s foreign-denominated debt to BB+ and its rand-denominated debt to BBB- on April 3.

National Treasury responded by saying: “While S& P has lowered its rating of foreign currency-denominated debt to a sub-investment grade‚ rand denominated debt — which constitutes 90% of the debt portfolio — retains its investment-grade rating.”

Moody’s has historically been more bullish about SA than its two largest rivals‚ rating SA at Baa2 which is equivalent to BBB in S& P’s and Fitch’s nomenclature.

If Moody’s cuts SA’s sovereign rating a notch to Baa3 as is widely expected‚ this country would remain in investment-grade.

While Fitch did not lower its outlook or downgrade its rating on SA in Thursday’s statement‚ it did list many concerns about this country.

“SA’s general government debt‚ at 52.6% of GDP in March 2017‚ is above the ‘BB’ and ‘BBB’ category medians of 51% and 41%‚ respectively. We expect debt to continue rising over the next two years