The downgrade ripple effect
S&P Global’s downgrade to junk status is no doubt going to impact consumers, businesses and government. The question is, to what extent? Companies, especially parastatals, will be seen as having higher implied risk. Therefore, it will be more difficult to issue debt in the sense that there will be less demand and the demand will be at higher interest rates. Institutions buying the debt will also know that they will have to take on more risk, which makes the higher interest rates less attractive.
It is ultimately a negative sum game for South Africa, as ‘someone’ loses. Companies will most likely need to pay more to service debt, thus reducing their profit and potentially increasing pressure on consumers by offering lower value for money to try compensate. Further, economic growth stems from consumers’ ability to spend and with this being impacted, the economy will also be negatively affected, resulting in fewer jobs and less disposable income amongst consumers.
As for the banking industry, banks are likely to struggle more to get funding and their cost of capital will increase. This is especially true for banks that obtain a large part of their funding from foreign sources. They will also very likely try to shift the pressure to their retail and commercial clients. On the plus side, South Africa’s banks are well capitalised and relatively stable.
NCR releases guidelines on debt that is on-sold
The National Credit Regulator issued a notice on 4 April, calling all credit providers, debt collectors and credit bureaus to consider the principles in relation to the listing of debt that has been sold, on a credit bureau. The guidelines remind all companies that acquired and exercise the rights of a credit provider – for example companies to whom a debtor book is sold – to register as a credit provider. It furthermore requires that the maximum display period of a debt should not exceed five years.
For further information, contact Alison Magrath on 011 554 2822 or Mmbatho Senyarelo on 011 554 2786.
Deadline looms for Workplace Skills Planning
April is Workplace Skills Planning month. With only a few days left until the 30th of April, all employers are required to submit their Workplace Skills Plans and Annual Training Reports to their respective SETAs. Companies who do not comply could also potentially miss out on sponsored/funded skills development opportunities offered by the respective SETAs.