Sovereign Africa Ratings gives SA a clean bill of health

In an unsolicited rating, SAR affirmed South Africa’s long-term sovereign status at BBB and at B+ in the short term, with a stable outlook. Photographer: Simon Dawson, Bloomberg.

In an unsolicited rating, SAR affirmed South Africa’s long-term sovereign status at BBB and at B+ in the short term, with a stable outlook. Photographer: Simon Dawson, Bloomberg.

Published Sep 26, 2022

Share

Sovereign Africa Ratings has given a clean bill of health to South Africa’s sovereign credit ratings status, but warned of a number of risk factors that could hamper the country’s ability to fulfil its debt obligations.

The new kid on the block on Friday published its inaugural credit rating, starting with South Africa and rating the country’s sovereign bonds at investment grade.

In an unsolicited rating, SAR affirmed South Africa’s long-term sovereign status at BBB and at B+ in the short term, with a stable outlook.

The rating goes against the grain as the three major ratings agencies – S&P Global, Fitch ratings, and Moody’s International – have all placed South Africa’s bonds deep into the sub-investment territory.

However, SAR chief ratings officer David Mosaka said their rating had taken a lot of factors into consideration about South Africa’s ability to repay its debt, including the amount of its foreign reserves and its ability to tap into financial markets.

As a result, Mosaka said South Africa’s investment status was stable, with only a medium risk for a default.

“The probability of default is very remote in this country,” Mosaka said.

“Looking into all the metrics such as liquidity, we don’t see that in the short to medium and long term we will have problems in repaying debt, unless there are big problems.”

Moody's Investors Service in April changed the outlook on South Africa to stable from negative, affirming the country’s Ba2 long-term local and foreign currency issuer and senior unsecured debt ratings.

In May, S&P Global revised South Africa’s credit rating outlook to positive from stable, while affirming the long-term foreign and local currency debt ratings at “BB-” and “BB” respectively.

This was followed by Fitch Ratings agency, which also affirmed South Africa's long-term foreign-currency issuer default rating at “BB-”, with a stable outlook in July.

The ratings by SAR, which positions itself as the premier ratings agency for emerging markets,took into account the direction and assessment of the South African economy in terms of key indicators and a number of variables.

These included natural resource endowments, climate change risks, social and socio-economic fundamentals, economic growth, government debt, gross loan debt and contingent liability profile, budgetary performance and adequacy of fiscal flexibility, external performance, monetary and fiscal policy stance, liquidity position, and institutional and governance framework.

SAR chair Portia Ravhuhali said they had a unique vantage point and a much better appreciation of and deeper insights into the macroeconomic environment in South Africa, and were not just adding to the numbers of existing ratings agencies.

“The crux of the issue is that at Sovereign Africa Rating we are going to look at other things that were normally ignored by your mainstream major agencies like, for instance, mineral endowment that is in this country, of which you never see it featuring anywhere in the big three,” Ravhuhali said

“We should be able to tap into our local understanding to look at other assets that may not be in the immediate radar of other agencies, such as rich mineral deposits, the informal economy, where a lot of activity hardly gets reported on, and as such economic experts often arrive at an indifferent estimate related to unemployment and the real gross domestic product.”

BUSINESS REPORT