Moody’s (2 notches from junk) to visit SA – decide on credit downgrade or not

JOHANNESBURG, March 9 (Reuters) – Ratings firm Moody’s will visit South Africa next week to decide whether to downgrade the credit status of Africa’s most industrialised economy to just one notch above sub-investment grade, the Treasury said on Wednesday.

South Africa’s Finance Minister Pravin Gordhan told local station Radio 702 that Moody’s informed him of their decision during his stop in London on an overseas roadshow to meet with investors and convince them the economy could be turned around.

Moody's_Building“They will be in South Africa and meet with various stakeholders and get relevant information that will influence them either not to downgrade us or not to downgrade us,” Gordhan said.

The Treasury said in a statement that the “review visit will primarily serve to either affirm the current ratings or downgrade them.”

Gordhan is battling to boost South Africa’s growth and to persuade ratings agencies not to cut the country’s credit rating to junk following his appointment last December.

Late on Tuesday, Moody’s said it was placing South Africa’s Baa2 ratings on review for downgrade, citing the economy’s weak growth prospects and worsening fiscal position.

“The review will allow Moody’s to assess to what extent government policy can stabilize the economy and restore fiscal strength,” the agency said in a statement.

Moody’s put South Africa’s Baa2 credit rating on a negative outlook in December, and is the only agency that does not have South Africa a step away from junk status.

South African rand, bonds retreat after Moody’s puts credit status on review

JOHANNESBURG, March 9 (Reuters) – South Africa’s rand and bonds retreated early on Wednesday as sentiment was rocked by Moody’s decision late last night to place the country’s credit rating on review for a downgrade over its worsening growth prospects.

Stocks opened slightly firmer, with the JSE Top-40 blue-chip index inching up 0.12 percent.

At 0700 GMT the rand had weakened 0.2 percent to 15.4650 per dollar, gaining back some ground after slipping to 15.4700 overnight.

Government bonds weakened as well, with the benchmark issue due in 2026 adding 3 basis points to 9.315 percent.

“Comments from Moody’s overnight have spiked the risk-off trade with bonds and currencies taking a beating overnight,” analysts at Nedbank Capital said in a note.

The rand, already on the back foot after Tuesday data showed the current account deficit widened sharply, saw a modest selloff after Moody’s said it was concerned about the ability of government policies to restore fiscal strength and boost growth.

Moody’s cited weak economic performance in Africa’s most industrialised economy as a risk factor when assigning a negative outlook to the rating in December 2015, and said it now expected the economy to grow at only 0.5 percent in 2016, slower than Treasury’s forecast of 0.9 percent.

Moody’s visits South Africa next week to assess the economy and decide whether to alter its Baa2 rating.

Finance Minister Pravin Gordhan told local Radio 702 on Wednesday that South Africa had a good to story to tell Moody’s.

“Clearly we need to prove to ourselves and to them that we are capable of working together to grow our economy, create jobs and make our fiscal framework a viable one,” Gordhan said.

National Treasury media statement

Moody’s Investors Service (Moody’s) has placed South Africa’s long and short term ratings of “Baa2” and “P-2” respectively, on review for possible downgrade.

Moody’s will be visiting South Africa for its annual review during the period of 16 to 18 March 2016. This review visit will primarily serve to either affirm the current ratings or downgrade them. Moody’s currently rates South Africa two notches above sub-investment grade for foreign currency debt.

During the visit, the agency will assess the views of various stakeholders in government, civil society, labour and in the private sector on a number of areas, including, amongst others whether:

  1. The decline in South Africa’s economic strength will be reversed in the medium term
  2. Sufficient progress can be made to stabilize and restore fiscal strength
  3. Policy is likely to lead to a reversal in the continuing erosion of the government’s balance sheet

In our meetings with the agency we will highlight:

  1. Our collaborative actions aimed at accelerating inclusive growth
  2. Measures adopted in the 2016 Budget to accelerate fiscal consolidation and to give effect to the National Development Plan
  3. The steps taken to reinforce stable industrial relations
  4. The accelerated implementation of our R870 billion infrastructure investment programme
  5. The progress made in resolving the energy constraint including through renewables IPPs and the extension of the same approach to coal and gas
  6. The initiatives we are taking to implement the recommendations of the Presidential

Review Commission on SOCs aimed at strengthening their governance, financial oversight and enhancing their contribution towards the attainment of our developmental goals.

As a resilient nation we are working together: civil society, labour, business and government to demonstrate our commitment to translate our plans into concrete actions.

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