South Africa’s debt market was not expected to be harshly affected by potential further downgrades of the country’s ratings, as investors “understood the South African story” and would widely expect negative ratings announcements, Standard Bank South African debt primary markets executive Zoya Sisulu said on Thursday.

Speaking at a media briefing hosted by the bank, she pointed out that the reaction to recent ratings announcements by ratings agencies Fitch and Standard & Poor’s (S&P) had been widely expected, which had allowed investors to gradually price in the changes in the weeks leading up to the announcements, resulting in a muted reaction on local and international bond curves.

Fitch in June revised its outlook on South Africa to “negative” from “stable” and affirmed its long-term foreign and local currency issuer default ratings at 'BBB' and 'BBB+', respectively, while the issue ratings on the senior unsecured foreign and local currency bonds had been affirmed at 'BBB' and 'BBB+', respectively.

S&P’s, in turn, also in June, lowered its long-term foreign currency sovereign credit rating on South Africa to  'BBB-' from 'BBB' and the long-term local currency rating to 'BBB+' from 'A-'.

Meanwhile, ratings agency Moody's was also expected to downgrade South Africa from its current Baa1 rating and negative outlook later this year as a result of the country’s poor growth, Standard Bank South Africa fixed income research head strategist Asher Lipson said.

However, it was not yet clear what the other two agencies would decide at their next reviews, which were set for December 12.

Also speaking at the media briefing, Standard Bank South Africa debt primary markets executive Alexi Contogiannis, however, stated that it was important to note that the rating issued by Moody’s on South Africa was currently better than that of S&P and Fitch so, in fact, a downgrade from them would be more of an equalisation.

Sisulu, however, reiterated that whatever the outcome, it should not have a significant negative impact on South African debt markets.

“People know and understand the South African story very well. They are not getting spooked by these ratings actions or emerging markets news, and it is well factored into the pricing instruments leading up to the announcements,” she added.

Standard Bank debt primary markets global head Megan McDonald added that this tied in with South Africa being seen as a “safe haven” among emerging markets.

Contogiannis explained that this was because, despite South Africa facing challenges, as did other emerging markets, the country’s issues had been around for some time, and were well known by investors, which lowered risk.

He said this differed substantially from how the challenges faced by countries such as Turkey and Russia were viewed.

“There is a distinction between [cash] flows into general emerging markets and flows into South Africa. If you look at emerging market flows generally, South Africa has paced ahead of the others,” he stated.

McDonald noted that this was also evident through South Africa’s recent successful $1-billion 30-year international bond issuance.

She added that this could be perceived as a vote of confidence in the South African government and the way it was governing the economy.

2014 FIGURES
Standard Bank pointed out that debt capital market issuance for 2014 had, to date, remained robust, with public sector issuance having increased to more than R71-billion compared with the same period last year, while government issuance had increased by more than R20-billion from the 2012/13 fiscal year.

Financial and corporate issuance had surged during the second quarter, in particular, taking the South African corporate bond market to a new quarterly record of R44.5-billion.

Standard Bank forecast a record issuance of R126.5-billion for 2014, which would mean a 17.1% year-on-year increase on 2013’s issuance of R108.1-billion.