Credit ratings by SAR not to differ significantly from ratings by Moody’s, Fitch and S&P – Economist
Economist and Market Analyst with GCB Capital, Courage Boti, has said credit ratings by the Continent’s new credit rating agency – Sovereign Africa Ratings (SAR) – will not significantly differ from that of the three traditional rating agencies – Fitch, Moody’s and S&P.
This is because, models and standards to be used by SAR in rating African economies, Mr Boti averred, are similar to that used by the three traditional rating agencies.
“I think the models that will be used by SAR are of international standards and the same as those being used by the three traditional rating agencies.
“So if the assumption of mischief in ratings by the three traditional rating agencies is not true, then, I don’t expect to see anything different from what the traditional rating agencies have even doing,” he told norvanreports.
“In my view, the analysis on African economies by SAR will not be so different from what Moody’s and the other rating agencies do, but we will have to wait to see what happens with the first credit rating by SAR on South Africa’s economy this Friday and then come to a conclusion as to whether there is a difference between theirs and the traditional rating agencies,” he added.
Speaking on how responsive investors will be to credit ratings by SAR and the likelihood of using rating reports produced by SAR for investment decisions, Mr Boti quipped, “It’s about credibility and building good track record overtime, and so the first report won’t necessarily get investors gushing over SAR. It will have to take some level of consistency and track record for people (investors) to trust in SAR.
“It will take time, and that is why I think anybody will not be particularly happy about an African rating agency giving a rating on an African economy at this point in time, I think they will have to earn the trust of the market and that will be done overtime.”
A popular view held by most African governments, is that, foreign rating agencies – Moody’s, Fitch and S&P – usually give unfavourable credit ratings that affects the creditworthiness of African economies and result in investors pulling out invested funds in African economies.
In view of that, there have been calls for the establishment of an African credit rating agency.
This has led to South Africa-based credit rating agency, Sovereign Africa Ratings, being issued a license to operate as a credit rating agency to African countries.
The approval of Sovereign Africa Ratings as a credit rating agency was made pursuant to Section 5 of the Credit Rating Services Act, 2012 (CRS Act) by the Financial Sector Conduct Authority (FSCA).
“The FSCA has approved the license application of Sovereign Africa Ratings to operate as a credit rating agency from March 8, 2022.
“Sovereign Africa Ratings is authorised to issue sovereign ratings only,” said the FSCA in a statement.
According to FSCA, sovereign credit ratings mean a credit rating where:
(a) The entity rated is a state or a provincial or local authority of the state; or
(b) the issuer of the debt or financial obligation, debt security; or other financial instrument is a state, or a provincial or a local authority of the state; or
(c) a special purpose vehicle of a state or a provincial or a local authority of a state
Meanwhile, the Director of Business Operations at Dalex Finance, Joe Jackson, has cautioned Sovereign Africa Ratings (SAR) against being sympathetic with ratings on African economies and by extension, their sovereign debts.
Speaking in an exclusive interview with norvanreports on Tuesday, Mr Jackson averred the Continent’s newly licensed credit rating agency, will not be of any significance to investors if it is biased in its ratings on African economies.
“SAR is required to give investors an independent view of the sovereign debts and possible likelihood of defaults of African countries, because a lot of investment decisions are based on that.
“Now, if this rating agency is going to be seen as being sympathetic to African sovereign debts, a rating agency that is not truly and fully unbiased and independent, then it will not be a useful rating agency to investors.
“Because just to setup a credit rating agency to provide favourable credit ratings to African economies just doesn’t make sense to me,” he remarked.
Adding that, the success of the new rating agency, will be based on how independent and unbiased it will be in its operations.
