Johannesburg - South African companies, whether well-capitalised private banks or struggling municipal entities, had to brace themselves for “a bit of a messy situation” as they would have to foot a bigger interest bill on their debt, experts said yesterday.
Following the change of South Africa’s sovereign ratings outlook to negative from stable, Fitch Ratings moved on to do the same with the local banks on Tuesday and then state-owned companies, Eskom and Transnet yesterday.
The credit ratings dealt a double blow last week when Standard & Poor’s downgraded the credit rating by one notch after Fitch changed its outlook to negative from stable.
Yesterday, Fitch revised its credit rating outlooks on Eskom and Transnet to negative from stable, but affirmed its long-term local currency Issuer Default Ratings (IDR).
On Tuesday, it revised the outlook on Absa, FirstRand, Nedbank and Standard Bank, as well as their respective rated holding companies to negative too.
Yesterday, Barclays Africa fell 1.94 percent to close at R157.40, FirstRand sank 3.02 percent to R39.86, Nedbank slipped 0.62 percent to R230.97 and Standard Bank slumped by 1.3 percent to R144.10.
Government ties
On all these actions, Fitch pointed out that the revisions were prompted by the change in outlook for South Africa’s sovereign rating.
Mike Schüssler, the chief economist at economists.co.za, said: “Over time, the interest rate companies pay for debt will all increase whether it is a bank or state-owned company. Pension funds in South Africa aren’t looking [at] us differently after this because they are a part of us. But other pension funds will start to allocate less money to us.”
Fitch noted that for the four banks, its decision to change the outlook to negative reflected their concentration on South Africa, a high proportion of liquid assets invested in government securities and a weakening operating environment.
The agency said the change on Eskom had more to do with its legal, operational and strategic ties to the government.
For Transnet, the review was only done because Fitch does not typically rate state-owned corporates above the sovereign rating.
“Transnet’s ‘BBB’ IDRs reflect our view of its stand-alone profile as ‘BBB-’. The single-notch uplift to ‘BBB’ reflects the strong strategic and operational links between Transnet and its parent, the sovereign,” Fitch said.
Stephen Meintjes, the head of research at Imara SP Reid, said the negative outlooks mattered more for the state-owned companies than it did for the banks, as it made raising debt on the international markets more difficult.
Jean Pierre Verster, an analyst at 36ONE Asset Management, said because the local banking sector credit outlook was closely linked to the sovereign credit rating, the revised outlook should not have been a surprise and should not affect the banks’ respective share prices materially. But, this did not mean it would not.
“You can see today that the banks’ respective share prices are down… so maybe some investors have a slightly less bullish outlook for the local banks because of the revised outlook,” he said. - Business Report