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S&P junk blow and Moody’s move raises risk of R100bn global selloff

Johannesburg - S&P Global Ratings cut South Africa’s rand debt to its highest speculative grade, while Moody’s Investors Service also threatened to lower its score, raising the risk of a selloff from global indexes.

Should both companies cut, rand debt would fall out of gauges including Citigroup’s World Government Bond Index, sparking outflows of as much as R100bn, Citigroup economist Gina Schoeman said.

A selloff of rand bonds - which comprise about 90% of South Africa’s outstanding liabilities - would raise borrowing costs for the nation as it sells more debt to plug a widening budget gap.

Conflict in the ruling party in the run-up to its leadership election next month has hamstrung efforts to bolster Africa’s most-industrialised economy, which had its second recession in less than a decade earlier this year. Business confidence is near the lowest level in more than three decades amid allegations of corruption against state company managers and politicians including President Jacob Zuma.

While the outcome of the ruling African National Congress’s elective conference next month will be of interest to ratings companies, they’ll also be watching the February budget for more information on the nation’s debt trajectory.

S&P cut the country’s local-currency rating one step to BB+ and placed it on a stable outlook, the firm said in a statement on Friday. Its grade on South Africa’s foreign currency debt, which was already considered junk by the credit assessor, was lowered one notch to BB. Moody’s opted to keep the country on Baa3, its lowest investment grade score, but put the rating on review for possible downgrade.

The rand fell as much as 1.9% to R14.1569 per dollar on Friday, and has lost more than 7% of its value since the middle of the year.

Fitch Ratings on Thursday affirmed South Africa’s foreign and local debt scores at its highest non-investment grade with a stable outlook.

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