South Africa's political infighting adding to downgrade risk: Moody's

Moody's, which rates South Africa two notches above sub-investment grade, said its negative outlook reflected "wide and rising political divisions that generate policy uncertainty and impede structural reforms".

• Moody’s decision shows Jacob Zuma is a disaster‚ says Sipho Pityana 

President Jacob Zuma and Finance Minister Pravin Gordhan are locked in a power struggle over spending at state-owned companies and plans for a multi-billion dollar nuclear power programme, political and financial analysts say.

• Brace for bad news at the petrol pumps‚ as Hawks-Gordhan controversy hurts SA rand 

Zuma denied this week that there was a "war" between the Presidency and Treasury.

"Policy paralysis and infighting is another risk, which is becoming evident with, for example, increased uncertainty about continuity of leadership at the National Treasury," Moody's said in its quarterly credit opinion.

Moody's affirmed its Baa2 rating on South Africa in May. Fitch and S&P Global Ratings have South Africa one step above subinvestment, or "junk", with negative outlooks. All three are expected to make their next ratings decisions in December.

Moody's on Wednesday said it may cut the ratings of five South African state-owned firms over funding risks.

Asset manager Futuregrowth, which manages client assets of about $12 billion, and rival Abax Investments said this month they had reduced or stopped lending to several state-run firms due to political uncertainty and governance issues.

Moody's said in a statement it was putting Eskom's Ba1 rating on review for downgrade on the grounds that its funding needs were exacerbated by the rising cost of buying power from independent producers, as well as its spending to revamp and build new power stations.

Eskom is building new plants and transmission lines to augment a power grid that nearly collapsed in 2008 and forced the company to implement controlled blackouts, or load shedding, early last year that dented economic growth.

Eskom will engage ratings agency Moody's on its decision to put the power utility's credit rating on review, it said on Thursday.

Moody's is also reviewing the ratings of four other state-controlled entities: the Development Bank of Southern Africa, the Industrial Development Corporation , the South African National Roads Agency (SANRAL) and Land Bank.

"Today's review for downgrade ... primarily reflects the increased risk of funding and liquidity challenges, following some signals of increased risk aversion by funding counterparties owing to market concerns regarding the governance of South African state-owned enterprises," Moody's said.

Many of South Africa's 300-odd state-owned companies, including South African Airways, are a drain on the government's purse and rating agencies have singled out some as threat to the country's investment grade rating.

President Jacob Zuma last month defended plans to give his office supervision over state-controlled companies after allies of under-fire Finance Minister Pravin Gordhan said it was a tool to limit his control.

Analysts have said Zuma's team and the Treasury under Gordhan have disagreed about government spending, including on loss-making state firms, such as South African Airways.

Gordhan has pledged to rein in government spending to limit rising inflation, narrow a gaping budget deficit and appease ratings agencies considering cutting South Africa to "junk" status in reviews expected by December.