Ratings agency Standard & Poor’s (S&P’s) decision to downgrade South Africa’s credit rating to junk status, will adversely affect the cost and availability of capital, economist Iraj Abedian said on Tuesday.
“Before the downgrade, the South African government and all sub-national entities, private and public, were allowed to borrow through their bond-issue from the capital market,” he said at the 2017 Proudly South African Buy Local Summit on Tuesday.
He noted that, prior to the downgrade, many institutions would have happily bought those bonds if, the price was right.“Now it depends on whether or a not a company is allowed to invest in a jurisdiction that has junk status,” he explained.
He further noted that the predominant majority of pension and provident fund investors across the globe are not permitted to invest in junk status jurisdictions.“This is the beginning of the capital market tsunami, and we will see the consequences of the downgrade in the months and weeks ahead, depending on how we respond to it.”
On the sidelines of the event, Nissan South Africa human resources director Nabiel Conybeare said the South African automotive industry should be worried about the downgrade.“One cannot predict what is going to happen but [the downgrade] will influence the market. We need to look at, and study what, the real impact of it will be. There are many assumptions, but we can’t say for sure what the impact will be,” he said.
“As Nissan, I would be naïve to say we are not worried about the potential impact; it could have a very serious impact, but we are not at that point yet and we will hopefully stabilise quickly and get back on track.”
