Moody's yet to pronounce on SA's credit rating

Moody's did not release the expected statement on South Africa's sovereign credit rating on Friday night and SA's rating therefore remains at Baa3 stable.

Though the ratings action had been widely expected to take place on Friday, there had been some speculation that it might take place after the mini-budget on October 24. 

South Africa will likely be spared a ratings downgrade by Moody's Investors Service following the appointment of ex-Reserve Bank governor Tito Mboweni as Minister of Finance, according to analysts. 

The announcement was expected by midnight on Friday, although Fin24 previously reported that Moody's had indicated that the announcement could be delayed.

If Moody's were to downgrade SA to sub-investment grade, the country would automatically be removed from the Citi World Government Bond Index, forcing asset managers to sell billions of rands' worth of SA bonds.

Moody's was the only major ratings agency not to downgrade SA sovereign debt to junk status in 2017. It is currently rated at Baa3, the lowest investment grade.

In March 2018, Moody's confirmed SA's investment-grade credit rating and revised its credit outlook from negative to stable, meaning a sudden downgrade to junk status would be unexpected.

"A reversal in this outlook would normally precede an actual downgrade to junk status," Overberg Asset Management argued. In a morning note to clients on Thursday, NKC African Economics said it did not expect a ratings downgrade.

SA poised for growth?

Citadel Wealth Management Director and Chief Investment Officer George Herman said in a statement that the appointment of Mboweni as finance minister was likely to be viewed as positive by credit ratings agencies and markets.

"While it is somewhat unfortunate that former Finance Minister Nhlanhla Nene’s resignation took place two weeks before the Medium-Term Budget Policy Statement (MTBPS), his resignation is unlikely to have any material effect on the statement, as the budget process is a machine that runs mostly without the Minister."

Ratings agencies were therefore "unlikely to be overly concerned by this rotation", he said, and were more likely to focus on the credit dynamics published in the medium-term budget policy statement on 24 October.

Nene 'deserves respect'

Nene deserves "enormous" respect for falling on his sword, Herman added.

"Whatever one’s personal opinion of him may be, he should be applauded as the first South African politician to have apologised and fallen on his sword for having played a role in State Capture, without having been found guilty of any transgressions in a court of law," he said.

In his view, this move underlined "solid governance" and "the beginning of political cleansing" under President Cyril Ramaphosa, possibly boosting investor confidence.

Mboweni had a solid track record, Herman added.

"Minister Mboweni has indicated that he was proud that the 'three TMs', or Thabo Mbeki, Trevor Manuel and himself, Tito Mboweni, had been able to manage an economy that grew in excess of 6% per annum.

"And while it remains to be seen whether the present triumvirate of Cyril Ramaphosa, Tito Mboweni and South African Reserve Bank (SARB) Governor Lesetja Kganyago will be able to generate the same results, I wouldn’t bet against them."

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, said despite likely good news from ratings agencies, the local currency was likely to continue facing a strong dollar for a time.

"The strong dollar remains supreme, not allowing emerging markets to claw back any lost ground while the backdrop remains largely unchanged.

"Profit-taking ahead of the Moody’s announcement on Friday is visible in the market," she said.

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