Picture: AFP/EMMANUEL DUNAND
Picture: AFP/EMMANUEL DUNAND

Moody’s is expected to release its mid-year review of SA’s sovereign credit rating by about 10pm on Friday night.

Moody’s has been kinder to SA than S&P Global Ratings and Fitch Ratings, holding the country’s sovereign credit rating at Baa2 since November 2014. S&P and Fitch cut SA to junk status of BB+ a few days after President Jacob Zuma’s March 30 Cabinet reshuffle.

In the nomenclature used by S&P and Fitch, Baa2 equates to BBB, which is two notches above junk.

Moody’s was originally scheduled to issue its ratings decision on April 7, but then on April 3 said it would delay its announcement to get more clarity on the effects of Zuma’s Cabinet reshuffle. Moody’s said at the time that it was placing SA on review for a downgrade, making a cut to Baa3 from Baa2 likely on Friday night.

This would keep SA one notch above junk.

Japanese investment bank Nomura’s emerging market analyst, Peter Attard Montalto, said in a note e-mailed on Friday: "A market survey we conducted showed expectations of a one-notch cut in the rating to Baa3 with a negative outlook but with risks skewed slightly to the bullish side. Both these outcomes are in accordance with our own expectations."

Nomura’s poll found a 45% chance of a one-notch cut with a negative outlook, 34% chance of one-notch cut with a neutral outlook, 11% chance of a two-notch cut with a neutral outlook and a 4% and 6% chance of no change and a two-notch cut with a negative outlook respectively.

"We expect Moody’s to offer a pretty balanced statement, still grasping on to some potential positives and turnaround opportunities as well as overplaying the reform agenda — reflecting its relatively more bullish stance than the other agencies," Attard Montalto said.

S&P differs from Moody’s and Fitch in that it rates SA’s rand-denominated debt — the bulk of government bonds — a notch higher than foreign-currency denominated debt.

S&P’s BBB- credit rating for rand-denominated debt, along with Moody’s Baa3 sovereign credit rating, means the bulk of SA’s government bonds still escape the "two out of three" rule many large fund managers use to classify bonds as junk.

"We still see S&P cutting both foreign and local ratings by one notch at the end of this year on growth and fiscal deterioration," Attard Montalto said.

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