Wrap Text
Moody's downgrades DBSA following downgrade South African government; negative outlook maintained
MOODY'S INVESTOR SERVICE
Rating Action: Moody's downgrades two South African development institutions to
Baa1; outlook negative
Global Credit Research - 04 Oct 2012
Action follows sovereign downgrade
Limassol, October 04, 2012 -- Moody's Investors Service has today downgraded to Baa1, from A3, the foreign-
currency long-term issuer ratings of South Africa's two rated development finance institutions, Development Bank
of Southern Africa (DBSA) and Industrial Development Corporation of South Africa (IDC). The negative outlook was
maintained on both institutions' issuer ratings, in line with the outlook on South Africa's government bond rating.
Today's rating actions were prompted by the weakening of the South African government's credit profile, as
captured by Moody's recent downgrade of South Africa's government bond rating to Baa1 (negative), from A3
(negative), on 27 September 2012. For further information refer to the sovereign press release "Moody's
downgrades South Africa's government bond rating to Baa1; outlook remains negative."
RATINGS RATIONALE
In accordance with Moody's rating methodology for Government Related Issuers (GRIs), DBSA's and IDC's senior
unsecured bond ratings incorporate ratings uplift from Moody's assumption of a "very high" likelihood of
government support, given (1) their development mandates and their strategic importance in terms of policy
implementation; (2) their support of institutional and industrial capacity development; and (3) their full government
ownership with no intention to privatise.
Consequently, Moody's incorporates three notches of rating uplift, due to government support assumptions, from
both institutions' baseline credit assessment (BCA) of ba1, which aligns the issuer ratings of these institutions with
South Africa's rating of Baa1 (negative outlook). Prior to the sovereign downgrade, the relevant rating uplift due to
government support for both institutions was four notches from their BCA.
WHAT COULD MOVE THE RATINGS UP/DOWN
Any indication of a weakening of the South African authorities' willingness to support either DBSA or IDC, or any
significant deterioration in their capacity to extend financial support, could negatively affect DBSA's and IDC's debt
ratings.
In Moody's view, there is little likelihood of any upwards rating momentum over the near-term, as reflected in the
negative outlook. Moody's believes that systemic support for DBSA and IDC will not increase during this timeframe
and that their standalone credit assessments are unlikely to strengthen sufficiently in the currently challenging
economic environment to warrant upwards ratings pressure.
METHODOLOGY USED
The principal methodologies used in rating DBSA and IDC are: (i) "Government-Related Issuers: Methodology
Update" (July 2010); and (ii) "Finance Company Global Rating Methodology" (March 2012). Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
As of the end of March 2012, Development Bank of Southern Africa had total assets of ZAR52.3 billion (US$6.8
billion) and Industrial Development Corporation of South Africa had total assets of ZAR112.2 billion (US$14.6
billion).
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Nondas Nicolaides
Vice President - Senior Analyst
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Yves J Lemay
MD - Banking
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Releasing Office:
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