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Moody's downgrades IDC, DBSA ratings

Reuters | Mon, 07 Sep 2009 15:40
[miningmx.com] -- Moody's on Monday downgraded the foreign currency ratings of the Development Bank of Southern Africa (DBSA) and South Africa's Industrial Development Corporation (IDC) to A3 from A2.

It said in a statement a recession and the government's "structural economic weaknesses" prompted the agency to align the ratings of the two state-owned institutions with the country's local currency rating.

The outlook for both institution's ratings was "stable". Moody's had put them on review for a downgrade in July.

"The rating agency continues to believe that the South African government will provide support to the two rated government-related financial institutions given their development mandates and their strategic importance in terms of policy implementation," Moody's said.

"However, the macroeconomic slowdown and the government's structural economic weaknesses have prompted Moody's to align the ratings of these institutions with South Africa's A3 government rating."

South Africa is in its first recession in 17 years and the government wants its development institutions to help support struggling sectors and companies.

The state's fiscal position has weakened sharply, and Finance Minister Pravin Gordhan has warned that the Treasury will not meet its forecasted 3.8 percent of GDP deficit for the current financial year.

Analysts put the shortfall at about 7 percent, although it stood at 10 percent in the first three months of the 2009/10 financial year.

Moody's upgraded South Africa's foreign currency rating to A3 in July, while lowering the local currency rating to align the two.

The DBSA and IDC offer support for industry and other projects in southern Africa, and are to become increasingly important in efforts to help South Africa pull through a global downturn that has hit manufacturing, and in particular, the auto and textile sectors, hard.

Moody's said the DBSA had total assets of R40.4bn at the end of March, with the IDC holding assets of R73.4bn.