Economy
Moody’s Drops South Africa’s Rating to Baa3
By Dipo Olowookere
South Africa’s long-term issuer and senior unsecured ratings have been downgraded to Baa3 from Baa2 by Moody’s.
The rating firm also assigned a negative outlook to the country as well as dropping its senior unsecured Shelf and MTN program ratings to (P) Baa3 from (P) Baa2.
“The government’s senior unsecured short-term program rating was also downgraded to (P)P-3 from (P)P-2. The rating actions conclude the review for downgrade that commenced on 3 April 2017,” Moody’s said in a statement issued on Friday.
According to the rating agency, the factors which brought about the downgrades were weakening of South Africa’s institutional framework, reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and the continued erosion of fiscal strength due to rising public debt and contingent liabilities
Moody’s said the Baa3 rating recognizes a number of important strengths that continue to support South Africa’s creditworthiness.
However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook.
Over the medium-term, economic and fiscal strength will remain sensitive to investor confidence and hence uncertainty surrounding political developments, including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures, it said.
In a related decision, Moody’s also downgraded to Baa3 from Baa2 the backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.
South Africa’s long-term local-currency bond and deposit ceilings were lowered to A2 from A1, and the long-term and short-term foreign-currency bond ceilings lowered to A3/P-2 from A2/P-1, respectively. The long-term foreign-currency bank deposits ceilings was lowered to Baa3 from Baa2, while the short-term foreign-currency bank deposits ceiling was lowered to P-3 from P-2.
The downgrade, Moody’s said, reflects its view that recent political developments suggest a weakening of the country’s institutional strength which casts doubt over the strength and sustainability of the recovery in growth and the stabilisation of the debt-to-GDP ratio over the near-term.
The first driver for the downgrade is Moody’s view that South Africa’s institutional strength, the second factor in our rating methodology, has eroded.
The independence and strength of key institutions such as the judiciary, the Reserve Bank and the National Treasury are a key support in Moody’s assessment of South Africa’s credit profile, through ensuring the continuity of a predictable, credit-supportive policy environment, the agency explained.
Moody’s said it has taken comfort from the manifest commitment of the country’s policy institutions to achieving a broad program of structural reforms through cooperation between government, labour, and business, while at the same time maintaining rigorous adherence to fiscal spending ceilings and embarking on reforms of state-owned enterprises.
However, recent events, particularly but not exclusively the abrupt March Cabinet reshuffle, illustrate a gradual erosion of institutional strength. The institutional framework has become less transparent, effective and predictable, and policymakers’ commitment to previously-articulated reform objectives is less certain.
As a consequence, Moody’s views the underlying political dynamics which led to the March cabinet reshuffle as posing a threat to near- and medium-term real GDP growth.
Uncertainty over near- and medium-term policy priorities has damaged investor confidence, reducing investment in South Africa’s economy which fell by 3.9% in 2016 and is projected to remain subdued in 2017. Investment levels are likely to remain weak until a more stable policy environment emerges.
Medium-term growth will additionally be constrained by mixed progress with structural reforms, including delays in the implementation of reforms in the mining sector, in the governance of state-owned enterprises, and in the elimination of barriers to competition in key network sectors. With the economy already recording two consecutive quarters of contraction prior to the cabinet reshuffle, Moody’s forecasts growth below 1% in 2017 and 1.5% in 2018, with stagnating investment reducing medium-term (and potential) growth as well.
Lower levels of growth and heightened uncertainty about policy direction and policymakers’ commitment to structural reforms have increased the risk of a weakening of the government balance sheet.
In Moody’s view, lower than expected growth will further delay the stabilization of South Africa’s debt-to-GDP ratio. Instead of stabilizing in 2018/19 Moody’s now expects the debt burden will reach about 55% of GDP that year and continue to rise gradually afterwards. While the National Treasury has reiterated its commitment to expenditure ceilings, pressures to raise public wages will again rise in the next fiscal year as the end of the current three-year agreement will open room for new negotiations. Underperformance on revenue collection is another risk, the statement said.
Furthermore, contingent liabilities linked to state-owned enterprises continue to pose a tail risk to the country’s fiscal strength.
Operational inefficiencies, weak corporate governance, and poor procurement practices persist in SOEs, with government guarantees extended to SOEs rising. This has also increased the likelihood of contingent liabilities crystalizing on the government’s balance sheet. Pressures to further extend guarantees and utilize procurement practices to advance political objectives are sources of additional potential risk.
By Adedapo Adesanya
The duo of MRS Oil and FrieslandCampina Wamco Nigeria Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.68 per cent on Friday, June 5.
MRS Plc lost N19.00 during the session to sell at N171.00 per share compared with Thursday’s value of N190.00 per share, and FrieslandCampina Wamco Nigeria Plc depreciated by N8.70 to finish at N181.68 per unit compared with the preceding session’s N190.38 per unit.
As a result, the market capitalisation further lost N22.59 billion to close at N2.607 trillion versus the N2.630 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropped 37.76 points to settle at 4,358.32 points, in contrast to the previous day’s 4,396.08 points.
The alternative stock market closed the last trading day of this week with a price gainer, Central Securities Clearing System (CSCS) Plc, which gained 6 Kobo to quote at N78.40 per share compared with the preceding session’s N78.34 per share. However, it could not prevent the market from going down at the close of business.
Yesterday, the volume of securities bought and sold by investors went down by 50.0 per cent to 140,345 units from the preceding day’s 280,714 units, the value of stocks decreased by 16.5 per cent to N17.9 million from the previous session’s N21.5 million, and the number of deals carried out by market participants fell by 35.7 per cent to 27 deals from the 42 deals recorded on Thursday.
When trading activities closed for the day, Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 64.7 million units traded for N4.4 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
By Dipo Olowookere
Renewed interest in financial stocks and others lifted the Nigerian Exchange (NGX) Limited by 0.15 per cent on Friday.
Customs Street closed higher yesterday despite the 1.37 per cent loss recorded by the consumer goods sector as a result of profit-taking.
This was offset by gains in the other key sectors of the local bourse, as the insurance counter chalked up 1,14 per cent. The banking space appreciated by 0.90 per cent, the industrial goods segment grew by 0.46 per cent, and the energy sector expanded by 0.01 per cent.
Consequently, the All-Share Index (ASI) went up by 366.00 points to 242,593.31 points from 242,227.31 points, and the market capitalisation gained N235 billion to close at N155.594 trillion compared with the previous day’s N155.359 trillion.
The trio of International Energy Insurance, Abbey Mortgage Bank, and DAAR Communications improved by 10.00 per cent each yesterday to N7.26, N9.35, and N1.98, respectively, while Zichis advanced by 9.39 per cent to N32.38, with Sovereign Trust Insurance up by 8.70 per cent to N2.50.
On the flip side, Academy Press lost 9.84 per cent to quote at N8.25, University Press depreciated by 9.73 per cent to N5.10, Africa Prudential dipped by 2.63 per cent to N12.95, Chams crumbled by 2.44 per cent to N4.00, and International Breweries slipped by 1.59 per cent to N12.35.
Business Post reports that the market breadth index was positive during the session after recording 37 appreciating equities and 14 depreciating equities, implying strong investor sentiment.
Abbey Mortgage Bank led the activity chart with a turnover of 164.1 million units worth N1.5 billion, Ellah Lakes sold 76.7 million units for N767.2 million, Access Holdings transacted 44.8 million units valued at N1.1 billion, Linkage Assurance exchanged 23.0 million units worth N41.2 million, and The Initiates traded 20.2 million units for N562.1 million.
At the close of trades, market participants transacted 608.5 million units worth N32.0 billion in 53,826 deals versus the 588.5 million units valued at N27.9 billion executed in 57,352 deals in the previous session. This showed that the number of deals eased by 6.15 per cent, the volume of transactions rose by 3.40 per cent, and the value of transactions soared by 14.70 per cent.
By Adedapo Adesanya
The Naira further depreciated against the United States Dollar by N3.46 or 0.25 per cent to N1,362.21/$1 from N1,358.75/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 5.
However, it appreciated against the Pound Sterling in the same market window during the session by N4.47 to trade at N1,823.59/£1 compared with the previous day’s N1,828.06/£1, and gained N7.00 against the Euro to sell at N1,574.58/€1, in contrast to Thursday’s closing price of N1,581.58/€1.
For another trading session, the Nigerian Naira maintained stability against the Dollar in the parallel market and the GTBank forex counter on Friday at N1,375/$1 and N1,372/$1, respectively.
The Naira is expected to remain strong in the near term, backed by a rise in external reserves, which are nearing $50 billion, enhancing analysts’ confidence about its outlook in the second half of 2026.
Heightened global uncertainty has reduced the incentive for importers and corporates to demand FX, as cautious trade weighs on import needs. Analysts estimate a $40 billion net FX position for the year, a projection anchored in oil windfall gains.
As for the cryptocurrency market, prices remained depressed following a strong US jobs report that spurred markets to price in higher-for-longer interest rates, sending Treasury yields and the dollar up while hammering stocks, especially AI-related names. Crypto markets saw heavy leverage washouts with about $1.6 billion in positions liquidated over 24 hours.
Ethereum (ETH) gave up 4.9 per cent to trade at $1,584.68, Solana (SOL) fell by 3.3 per cent to $63.22, Bitcoin (BTC) crashed by 1.9 per cent to $61,333.23, Dogecoin (DOGE) slipped by 1.8 per cent to $0.0821, and Ripple (XRP) moderated by 1.8 per cent to $1.09.
Further, TRON (TRX) dropped 1.6 per cent to sell at $0.3197, Binance Coin (BNB) slumped by 1.0 per cent to $581.18, and Cardano (ADA) declined by 0.4 per cent to $0.1589, while the US Dollar Tether (USDT) gained 0.07 to sell at $0.9997, and US Dollar Coin (USDC) closed flat at $0.9998.
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