South Africa's Junk Review From S&P Isn't So Anticipated Now

Last year everybody was an expert on it. Now some of the pros don’t even mention that S&P Global Ratings will be announcing its latest assessment of South Africa’s debt this week.

The country’s prospects are very different from when S&P cut its local-currency assessment to junk and lowered the foreign-currency debt to two levels below investment grade on Nov. 24. The ratings company is scheduled to publish its six-monthly review on Friday.

Cyril Ramaphosa’s rise to power since December initially boosted sentiment and the rand following former President Jacob Zuma’s scandal-ridden tenure of almost nine years, during which South Africa lost the investment-grade status it had held with S&P and Fitch Ratings Ltd. since 2000.

But the nation paid a premium when it sold its first Eurobond under Ramaphosa last week on a day when emerging-market currencies fell the most since June 2016 and yields surged as rising U.S. rates attracted money to dollar assets. Confidence indexes have dropped to levels they were at before Ramaphosa’s tenure started as businesses seek real reforms in the economy.

Despite this, investors have toned down their view of the nation’s riskiness. The cost of insuring against non-payment of debt for five years using credit-default swaps has dropped 41 basis points from the high it reached in November. It’s still higher than Russia’s, but has moved below that of Turkey and Brazil.

Read more about South Africa’s Eurobond sale

Outlook Stable

While South Africa's debt is assessed as junk by two of the three major ratings companies, the outlook on the assessments is stable

Sources: S&P Global Ratings, Fitch Ratings Ltd. and Moody's Investors Service

* Note: Levels relative to junk

Moody’s Investors Service kept its assessment of South Africa’s debt at investment grade in March and changed its outlook to stable from negative. It’s the first time in more than six years that the nation doesn’t have a negative outlook with any of the three major ratings companies, suggesting that the credit assessments could stay unchanged for a while.

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