By Hilary Mare
ECONOMIST and co-founder of Cirrus Capital, Rowland Brown, says that Namibia’s recent credit upgrade by Fitch Ratings, should not be confused with an improvement in the country’s sovereign rating, but is certainly a positive development for local issuers.
Fitch Ratings recently upgraded Namibia’s national rating on the South African scale to ‘AAA (zaf)’ from ‘AA+ (zaf)’. The outlook is negative. Fitch has also upgraded Namibia’s senior unsecured bonds rated on the national scale to ‘AAA (zaf)’ from ‘AA+ (zaf)’. Fitch affirmed Namibia’s long-term foreign and local-currency Issuer Default Ratings (IDRs) at ‘BBB-’. It had revised the outlooks to negative on 2 September 2016.
Brown said the news was certainly positive for local issuers, including commercial banks, other listed companies and State-owned enterprises.
However, from a cost-of-funding perspective, the impact would be fairly negligible for all involved.
From a sentiment perspective it was good to see that the rating agency recognises that Namibia is doing relatively well, in comparison to South Africa, from a local issuer perspective.
“The benefits of this move will be varied. Should this continue long-term, the sentiment may move further in favour of Namibia, which would result in improved costs of funding, relative to South Africa, for local Namibian issuers. However, in the short-term, we do not expect a great deal to change,” Brown said.
“The reason for this is that Namibia was already well-rated from a local issuer perspective (AA+), so this upgrade will not change much. With these ratings, the threshold levels (i.e. the difference between investment and non-investment grade) are far more influential than upgrades or downgrades away from this threshold. Nevertheless, this local issuer upgrade is a positive sign for Namibia,” he said.
Brown further clarified that the move to upgrade Namibia’s local issuer rating had very little to do with the country itself, and had a lot to do with South Africa, as it is basically a relative upgrade, when compared to the neighbouring country, due to the currency peg.
“The main reason for the upgrade, in our view, is that the South African situation has deteriorated far faster than the Namibian situation, and the South African response to the economic forces has been terrible, while the Namibian response has been good. South Africa has seen fiscal slippage and huge political uncertainty, major increases in corruption, and many more issues, while Namibia has embarked upon a process of slow improvement in fiscal restraint, major efforts to remove wasteful expenditure, efforts to reduce corruption, and efforts to maintain political and social stability,” Brown said further.
Asked if this can this be a push factor, towards delinking the Namibian dollar from the South African rand, Brown said, “No, certainly not. According to Brown, this is a local issuer rating, so Namibia is only rated as AAA within the ZAR issuer rating.
“Were we to de-peg from the rand, our currency would be rated as standalone, and would undoubtedly be sub-investment grade. Moreover, Namibians would not benefit from a decoupled exchange rate at this point in time, as it would result in a lot of volatility, an increase in the cost of imports, and a decrease in the standard of living in the country”.
Asked if the Fitch rating would suggests that Namibia will avert a sovereign ratings downgrade later this year, Brown said the local issuer and sovereign ratings, are completely separate things, with only the local issuer rating being subject to the sovereign rating, and not vice versa.
“That said, there is still an outside chance that Namibia will avoid a sovereign rating downgrade. However, it has little to do with the local issuer rating.
“Because Namibia and the government have embraced the fiscal challenges and are committed to working on them, there is a chance that the rating agencies may be lenient on us and allow us time to bring our fiscal matters, particularly the budget deficit, under control.
“However, this will be challenging, and given the growth in our debt stock, our low GDP growth, our reserve position, some policy proposals and a number of other facts, a rating downgrade is, unfortunately not yet off the table,” Brown added.
Old Mutual Investment Group Namibia Chief Investment Officer, Tyrone van Wyk, told Confidente last week that that Namibia is in a good financial position, to face short-term headwinds.
“The reason for the (Fitch) upgrade is simply because the quality of Namibia’s debt in rands has improved, compared to South Africa, and hence the ratings agency, Fitch, has effectively taken note of it. Namibia improved its ability to pay debt in rands and this gives more access to finance,” he said.
Confidente. Lifting the Lid. Copyright © 2015