Ratings upgrade to boost investor confidence in Namibia

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WINDHOEK, 26 January 2017 - Minister of Finance Calle Schlettwein. (Photo by: Joseph Nekaya) NAMPA

Staff Reporter
Windhoek

The international credit ratings agency, Fitch Ratings, has upgraded Namibia’s national rating to the AAA grade – a prime grade it allocates to countries whose economy and fiscal standing are most reliable and stable.

Fitch’s upgrade on Friday boosts Namibia’s standing in relation to South Africa, whose credit rating was recently downgraded to junk status, which means it is regarded as being not investable and its bonds no longer credit worthy.
Fitch also upgraded Namibia’s senior unsecured bonds rated on the national scale to AAA from AA+.

Finance Minister Calle Schlettwein greeted the news with a tweet that the upgrade “is an indication that our fiscal stance and consolidation is paying off”.
Yesterday, he told New Era that he believes the upgrade “distinguishes Namibia from South Africa and shields Namibia from collateral damage as a result of the South African downgrade.”

The upgrade is in respect of the South African market only.
“This shows that Fitch realises that Namibia has a credible consolidation plan in place and that the plan is working.”

“It also shows that they look at Namibia independently and not simply as an extension of South Africa,” said Dr John Steytler, economic advisor to President Hage Geingob.
Fitch’s statement on Friday also noted that while the outlook for the wider Namibian economy remains negative, the government’s fiscal consolidation plan has given rise to new confidence.

Steytler added that the upgrade augurs well for Namibia, specifically for raising capital in the domestic and South Africa market.

“I hope the rating will be reflected as such in the cost of capital. Traditionally, there has always been – in my opinion – an unfair risk premium on locally and South African-denominated Namibian debt instruments,” Steytler added.
Schlettwein on Twitter also emphasised that delinking the Namibian dollar from the South African rand at this stage would increase risk, instead of mitigating it.
“The [one-to-one between the rand and Namibian dollar] peg is still a favourable arrangement and should remain,” he wrote.

Fitch Ratings said Namibia’s upgrade followed its downgrade of South Africa’s Long-Term Local-Currency International Depository Receipt to ‘BB+’ from ‘BBB-’ on April 7.
National ratings provide a relative measure of creditworthiness for rated entities only within the country. In this context, Namibia’s AAA rating denotes Fitch’s expectations of the default risk relative to other issuers, or obligations rated on the South African scale, the agency said.
The AAA rating is the highest, and the premium rating, above all other grades below it, which denotes a risk element higher than the AAA grade.
“Namibia’s national rating is sensitive to Namibia’s sovereign rating, as well as South Africa’s sovereign rating. A change in Fitch’s assessment of either Namibia or South Africa’s credit quality would result in a change in Namibia’s national rating,” the Fitch Rating statement explained.

The upgrade comes a week after financial analysts at the financial news media group, Bloomberg, reported that Namibia is the only sub-Saharan African country that remains an investment-rated Eurobond issuer, following South Africa’s downgrade to junk status.
“The southern African nation has US$1.25 billion (about N$163,34 billion) bonds denominated in dollars, equivalent to about 10 percent of Namibia’s gross domestic product,” Bloomberg financial analysts Paul Wallace and Robert Brand reported.

Namibia’s newly acquired prestige is mostly due to international investors opting for certain, although nominally tradable, funds that investors pick over South African options due to its junk status and a mandate to pick only investment grade bonds.
Local analysts expect the new upgrade to further boost investor confidence in Namibia.

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