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CAPE TOWN - 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 billion (R74bn) and $8 billion (R118bn) of its bonds. 

Moody’s this 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 S&P Global Ratings and Fitch Ratings. Like the other two major ratings companies, it’s concerned by deteriorating government finances and the indebtedness of state-owned companies such as Eskom Holdings SOC Ltd.

Still, the impact on wider markets and the currency would largely depend on the global attitude toward emerging markets at the time the decision is made, Naidoo told journalists in Johannesburg on Wednesday.

“It is very hard to model the impact,” he said. 

Eskom reform timeline "optimistic" - S&P

In other economy news, The timeline for South Africa’s plan to overhaul its power sector by breaking up loss-making state utility Eskom over the next three years is “somewhat optimistic”, S&P Global Ratings said on Tuesday.

President Cyril Ramaphosa promised in February that he would split Eskom into units for generation, transmission and distribution, to make the utility more efficient.

A government paper released in October set out a vision for a restructured electricity supply industry, where Eskom could relinquish its near-monopoly and compete with independent power producers to generate electricity at least cost.

The government plans to set up a transmission unit within Eskom by the end of March 2020 and complete the legal separation of all three units in 2022.

S&P said it saw “the reform timeline as somewhat optimistic”, although the firm said it noted that “improved financial flexibility introduced by the support package reduces the risk of unintentionally triggering a default at Eskom, or of its debt guaranteed by the sovereign”.

The rating agency said Eskom’s business separation process would require sweeping changes to systems and processes, ownership of assets and contracts, as well as laws and regulations.

BLOOMBERG ONLINE/REUTERS