‘SA credit rating at risk as strikes mount’

Johannesburg. – RATINGS agency Moody’s, which has SA on a negative outlook, cautioned yesterday of a potential “credit negative” for the country after the latest round of labour action.
It said in the same release it would be closely monitoring the performance of Anglo American’s platinum division after a recent wage agreement in that sector, as higher wages and slow economic conditions could affect profits.

It is concerned that renewed strike activity leaves SA unable to take advantage of the recent pickup in growth among its major trading partners.

Senior vice-president at Moody’s Kristin Lindow said the new National Union of Metalworkers of SA labour action — the scale of participation means that it will be the largest single strike in the country’s history — risked paralysing nearly one third of the manufacturing sector and wreaking further damage on both SA’s economy and its “already deteriorating reputation among investors”.

“Continued weak investment, exports and overall growth will pose serious challenges to the government’s efforts to rein in its budget deficit and stabilise its debt metrics, a credit negative for the economically troubled country,” she said.

On June 13 Standard & Poor’s downgraded SA’s sovereign credit rating by a notch to BBB-, while earlier on the same day Fitch Ratings said it would not change its BBB rating, but would change the outlook to negative from stable, raising the risk of a downgrade from Fitch. Prior to these moves Moody’s had rated SA one notch higher on BAA1, with a negative outlook.

While the wage agreement reached by Anglo American with the Association of Mineworkers and Construction Union after five months of strike was seen as a credit positive development for the company’s platinum division, Moody’s said the terms of the agreement confirmed the challenges faced by management to more permanently improve profitability. It said a possible decline in its profitability over time may also lead to underperformance at group level.

While the company remains on an AA’, Baa2 negative rating, senior analyst at the agency Gianmarco Migliavacca said the wage increases would apply across the entire platinum workforce and would permanently increase the cost base of the company’s platinum business well above the South African 5,3 percent average inflation rate. – Bdlive.