Moody’s moves South Africa one step closer to ‘junk’ status

Hundreds of people originally from various countries are seen outside the Methodist Church where they have taken refuge after being chased away from a corridor close to the offices of the United Nations High Commission for Refugees(UNHCR) in Cape Town, on October 31, 2019. They are asking the UNHCR to intervene on their behalf. They say they don't feel safe in South Africa anymore due to high levels of crime as well as xenophobia. (AFP / RODGER BOSCH)
Updated 02 November 2019

Moody’s moves South Africa one step closer to ‘junk’ status

JOHANNESBURG: Ratings agency Moody’s moved South Africa one step closer to “junk” status on Friday by revising the outlook on the country’s last investment-grade credit rating to “negative” because of a slowdown in economic growth and rising debt burden.
Analysts had expected the outlook revision on the ‘Baa3’ rating, the lowest rung of investment grade, after a bleak mid-term budget statement this week that slashed this year’s growth forecast to 0.5% and showed government debt racing to more than 70% of gross domestic product by 2023.
S&P Global and Fitch already have South Africa’s debt in sub-investment grade.
“The negative outlook signals in part Moody’s rising concern that the government will not find the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth,” Moody’s said in a statement after South African financial markets had closed.
“The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level,” the agency added.
The negative outlook means there is a window of 12-18 months in which a downgrade could be delivered.
A move to “junk status” typically increases a government’s cost of borrowing by raising the premium that investors demand to hold its debt.
A downgrade to sub-investment grade could also see South Africa evicted from the benchmark World Government Bond Index of local currency debt, which could trigger billions of dollars of passive outflows.
Phoenix Kalen, director of emerging markets strategy at Societe Generale, said South Africa was now in the “last-chance saloon” and that it had to stabilize its debt trajectory.
“This will be a Herculean task,” Kalen said, citing financial pressures at state-owned companies among causes for concern.
The South African government has been forced into repeated bailouts of state companies such as struggling power firm Eskom, which is due to receive more than 100 billion rand ($6.65 billion) of state money over the next two fiscal years.


S&P downgrades trio of Dubai developers as pandemic hits property and retail

Updated 44 min 18 sec ago

S&P downgrades trio of Dubai developers as pandemic hits property and retail

  • Gulf states are being hit hard by the coronavirus pandemic that has come at a time of weak oil prices

RIYADH: The credit ratings of three Dubai property companies were downgraded by S&P as the coronavirus pandemic hits confidence in the retail and real estate sectors.
S&P Global Ratings reduced the credit ratings for the real estate developer Emaar Properties as well as Emaar Malls to +BB from -BBB with a negative forward outlook, adding that it sees a “weakening across all its business segments” in 2020. S&P also cut its rating for DIFC Investments to +BB from -BBB, while keeping a stable outlook.
Gulf states are being hit hard by the coronavirus pandemic that has come at a time of weak oil prices, heaping pressure on governments, companies and employees.
The ratings agency expects the emirate’s economy to shrink by 11 percent this year
“The supply-demand imbalance in the realty sector appears to have been exacerbated by the pandemic. We now expect to see international demand for Dubai’s property to be subdued, and the fall in residential prices to be steeper than we had expected, lingering well into 2021” S&P reported.
Despite easing restrictions and the opening of the economy, S&P said that overall macroeconomic conditions remained challenging.
Global travel restrictions and social distancing constraints “significantly weigh on Dubai’s tourism and hospitality sectors” the rating agency reported.
Still, Dubai’s tourism chief was upbeat on the emirate’s prospects when international tourism resumes.
“Once we do get to the other side, as we start to talk about next year and later on, we see very much a quick uptick. Because once things normalize, people will go back to travel again,” Helal Al-Marri, director general of Dubai’s Department of Tourism and Commerce Marketing told AFP in an interview.