Business confidence uptick; SAA sends red flare; Junk could see $8bn bond sell-off; Zuma tax returns

By Linda van Tilburg

  • South African business confidence improved in the fourth quarter for the first time in almost two years owing to a recovery in residential activity and expectations of a good Christmas shopping season. The Rand Merchant Bank Business Confidence Index rose to 26 for the fourth quarter from a decade low of 21 in the previous quarter. It is based on the responses of 1,800 business executives surveyed during the first three weeks of November. Despite the increase, confidence remains deeply negative with the majority of respondents still expressing a sense of pessimism, RMB said. It is far below the 44 it reached when Cyril Ramaphosa became president. RMB said for them to conclude that the long and persistent downturn has bottomed out, will take not one, but several quarters in sentiment drive by a consistent recovery in underlying activity.
  • South African Airways says the strike at the airline led to a sudden deterioration in its financial position. In a statement issued  by the Department of Public Enterprises yesterday afternoon, SAA says the strike has rocked the finances to the point where the company can no longer continue to operate “as is.” The statement follows criticism by opposition parties in Parliament that SAA gave a salary increase to employees in its present financial difficulties. The statement said Minister Pravin Gordhan was focusing on efforts to stabilise the airline and ensuring that it returned to a stronger financial footing.
  • South African Reserve Bank Deputy Governor Kuben Naidoo said if Moody’s Investors Service cuts the country’s credit rating to junk there could be a selloff of between $5 and $8 billion of its bonds. Moody’s last month cut its outlook on South Africa’s rating to negative, meaning the next move could be a reduction to junk because its current assessment is the lowest investment grade. That would bring it into line with the ratings of S&P and Fitch. Like the other two major ratings companies, it’s concerned by deteriorating government finances and the indebtedness of state-owned companies. Naidoo told journalists that it was very hard to model the impact;  it would largely depend on the global attitude towards emerging markets at the time the decision is made.
  • Two media houses, the Financial Mail and amaBunghane have launched an application in the Gauteng High Court for access to former President Jacob Zuma’s tax records. It follows after SARS denied a request and subsequent appeal for access. The media houses said they believed the existing legislation to be unconstitutional as it prevented them from obtaining information of the tax status of senior members of the executive accused of serious crimes including being tax delinquents. They say that the tax status of the president and other holders of high office is of manifest public interest. A partner at Webber Wentzel, Dario Milo who is representing the media houses said the applicants were not seeking blanket access to tax records of the general public.
  • Brait SE, the owner of struggling UK apparel chain New Look, has launched a sweeping overhaul as leading shareholder Christo Wiese seeks to salvage his investment after seeing his other retail assets plunge in value. The investment company outlined a refinancing worth almost twice as much as its R7.1bn-market value and said the plan could result in a sale of assets, which also include Virgin Active gyms, within three to five years. Brait has been struggling to turn around New Look, which has been hit by the UK’s retail crisis. The investment firm bought the chain for £780m ($1bn) and it is now valued at zero. As part of Brait’s restructuring plan, Wiese will invest as much as R1bn in an equity raising while EPE Capital Partners and Ethos Private Equity will take a stake in the firm and manage its portfolio. Brait will also buy back some of its convertible bonds and refinance a revolving credit facility. Its Johannesburg-listed shares fell more than 12%, the most in four months yesterday. The stock has slumped 52% this year.