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Reviews : Doubt lingers over SA's credit rating

Ratings agency maintains negative outlook despite likely improvements in the national budget deficit.
South Africa's BBB-plus investment grade sovereign rating from Standard & Poor's (S&P) remains at risk, although a number of other borrowers, previously "poised for a downgrade", have shed their negative outlook.

Ratings determine the cost of money on global markets so they are critical to borrowers.

The ratings agency yesterday said the number of issuers still in line for a downgrade fell to 694 this month from a record high of 1 028 a year ago.

The decrease in the number of potential downgrades globally was "the result of outlook revisions to stable, as credit quality improves", S&P said.

The agency gave no reason for retaining South Africa's negative outlook. S&P changed the country's sovereign outlook from stable to negative in November 2008 as the global financial crisis sped up. In December last year it confirmed the rating - which reflects the government's credit risk - at BBB-plus with a negative outlook.

The BBB-plus implies "adequate" protection for creditors, according to S&P, while the outlook signals the potential direction of a rating change.

S&P in December said the outlook remained negative partly because of concern over South Africa's fiscal position - a key factor in evaluations of a country's creditworthiness.

At that point, S&P expected the government's 2009/10 budget deficit would be more than 8 percent of gross domestic product (GDP) and it expressed concern about political will to reduce the deficit.

Recently there have been improvements in the domestic fiscal position so these concerns should have abated. Two weeks ago, the SA Revenue Service reported that revenue collection in the 2009/10 fiscal year had come in R8.1 billion higher than expected, reducing the budget deficit to 6.8 percent of GDP from the 7.3 percent projected in February. In February Finance Minister Pravin Gordhan committed to reducing the deficit to 4.7 percent by 2012/13.

Asked if these developments could alter the outlook, Chloe Webb, a Johannesburg-based S&P account manager, said it was not possible to give a "fresh view until such time as an updated report on the rating is released". She said there were no dates scheduled for reviewing the rating and outlook.

Also still at risk of ratings downgrades are six major South African companies: Eskom (BBB-plus), Sasol (BBB-plus), Transnet (BBB-plus), FirstRand (BBB-plus), Consol (B-plus) and Edcon (B).

Webb said the figure was the same as this time last year but the makeup was slightly different. The list at the time included Foodcorp (downgraded in March) and New Reclamation Group (downgraded last November). These two companies have since been replaced by Edcon and Consol.

There has been a great deal of concern about Eskom's ability to raise funds for its much-needed expansion programme and a possible deterioration in its credit rating, which would increase the cost of funding. Some of the pressure was relieved when the World Bank last week granted Eskom a $3.75bn (R27bn) loan to build the Medupi power plant.


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Tags: Eskom   GDP  

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