Moody’s relegates Land Bank to junk

Picture: REUTERS
Picture: REUTERS

Credit ratings agency Moody’s Investors Service said yesterday it had downgraded debt issued by the Land Bank by one notch to Ba1, putting it in junk territory.

The Land Bank has been on review for a rating decision since November. The outlook is negative.

Moody’s said that the downgrade reflected its assessment that the government would, in the future, have less scope to support distressed state-owned enterprises (SOEs).

“Moody’s government support assumptions are aligned to those used for the other rated SA development banks, and balance increased fiscal challenges, which suggest that the government will be more selective in dispersing financial support to SOEs, against the government’s willingness to support these institutions in view of its full ownership and the development banks’ policy mandates.”

The government is under enormous fiscal pressure, due in large part to rising debt incurred by SOEs.

To avoid a sovereign downgrade — or downgrade of the country as a whole — the government needs to arrest rising and debt and bring spending under control.

Moody’s in the only credit rating agency that still rates SA sovereign debt as investment grade.

However, it is due to take a rating decision in March, which could see SA downgraded by a notch into junk territory.