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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2016-12-16
What do Andora, Bahamas, Columbia, India, Italy, Kazakhstan, Morocco, Oman, Philippines and Romania have in common These are our international credit worthiness peers and all have sovereign credit ratings similar to South Africa. There are three main international credit rating agencies - Standard & Poor, Moody's and Fitch. They provide detailed assessments of risk to the investment community who decide where to allocate the billions of Dollars of funds under their management. Standard & Poor's credit rating for South Africa stands at BBB- with a negative outlook. Moody's credit rating is Baa2, also with a negative outlook. Fitch's credit rating for South Africa is BBB- with a negative outlook.

Why this is important to us in the property industry is that the sovereign ratings impact directly and significantly on our borrowing costs. On the scale of ratings from AAA (Prime) to DDD (in default) the tipping point between investment grade and non-investment grade is BBB- the last rating before non-investment grade and BB+, the first tier on non-investment grade ratings. In terms of Standard & Poor and Fitch's ratings we are just ahead of non-investment grade or what the media like to refer to as Junk Status.

Moody's rates our sovereign debt as Baa2, which is a little more lenient as it represents the second tier above Junk Status. Moody's ratings go to Baa3 and then to Ba1 as the non-investment grade threshold. However with a negative outlook attached to the rating their expectation is that it could deteriorate. The positive news is that we are not junk status as yet, but we are on the brink. So who are the prime investment grade countries Australia, Canada, Denmark, Germany, Hong Kong, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland all boast the highest AAA rating. The US is one tier below the top at AA+ and the UK is just below this with AA.

Standard & Poor rate Russia as BB+ and Moody's rating is Ba1 - both the first tier of Junk Status. Fitch rate Russia as a BBB- with a stable outlook, which is still the tier before non-investment grade. So who are the world's basket cases as ranked in terms of their sovereign debt I could not find Zimbabwe on the list - possibly these agencies have stopped rating them altogether. Puerto Rico is a D with negative outlook.

So why does the rating really matter for a country Very simply, the lower the cost of capital - or the cost of borrowing money by the country and in turn by those people within the country looking to finance houses, commercial buildings, businesses and any other endeavor within the country, the better it is, and leads to economic growth and job creation.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.