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South African Banks Prepare for Worst as Junk Rating Looms

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  • South African Banks Prepare for Worst as Junk Rating Looms

South African banks are preparing for the worst when it comes to the threat of another downgrade of the country’s debt.

“FirstRand anticipated the downgrades since 2015 and has been working on a number of proactive strategies to mitigate the impact,” said Andries du Toit, the treasurer at Johannesburg-based FirstRand Ltd., the country’s second-biggest bank by assets. The measures included tightening lending and boosting liquidity and capital buffers, he said.

The credit ratings of the continent’s largest lenders such as Standard Bank Group Ltd., Barclays Africa Group Ltd., Nedbank Group Ltd. and FirstRand are inextricably tied to that of South Africa, where they make most of their profit. Banks also need to hold sovereign bonds for regulatory purposes, meaning that any increase in the government’s borrowing costs immediately causes the capital the companies need to support lending to become more expensive.

In a move that may help establish a sizable offshore base, FirstRand last month offered to buy all of the U.K.’s Aldermore Group Plc for about 1.1 billion pounds ($1.4 billion). Although the purchase of the challenger to some of Britain’s biggest lenders won’t save FirstRand from higher costs in South Africa, it’s a step to creating a platform to source offshore funding and to earn income in a currency other than rand.

FirstRand increased its total Tier 1 capital levels to 17.1 percent as of the end of June compared with 16.9 percent a year earlier.

Pending Reviews

At stake for the nation’s lenders is the credit assessment on the country’s local-currency bonds, which account for 90 percent of the government’s issued debt. S&P Global Ratings and Moody’s Investors Service, which are both due to announce their latest reviews on Nov. 24, still rate rand-denominated debt as investment grade.

A change in either one of those evaluations could see South Africa removed from some indexes tracked by global investors, triggering outflows and pushing up borrowing costs. While the ratings companies could wait until after the ruling African National Congress’s conference next month to decide on who will replace President Jacob Zuma, the agencies may be swayed to act sooner after National Treasury on Oct. 25 said that the budget deficit will widen and debt levels will climb.

The country’s foreign-currency debt was downgraded to junk by S&P and Fitch Ratings Ltd. after former Finance Minister Pravin Gordhan was fired by President Jacob Zuma at the end of March.

“Banks are cyclical investments so will be impacted by any downturn as a result of a sovereign downgrade and the resultant impact on the economy and our clients,” said Mike Davis, Nedbank Group Ltd.’s executive for balance-sheet management. “We have, however, been aware of this risk for a long while and are well prepared for such an event should it happen.”

‘Front-Loaded’

The lender has no plans to raise additional funding in the market this year, having “front-loaded” earlier in 2017 in anticipation of a credit downgrade, said Davis. Only about 8 percent of its funding is raised in bond markets, with the bulk of it provided by deposits. Barclays Africa didn’t respond to emailed requests for comment.

Even with operations across 19 other countries on the continent, Standard Bank still would not be able to achieve credit ratings above that of its home market, which accounts for about 70 percent of its revenue, according to data compiled by Bloomberg.

The rating of a bank “is linked by credit-rating agencies to sovereign exposures it holds,” said Arno Daehnke, the finance director of Johannesburg-based Standard Bank, Africa’s largest lender. “It is difficult to pierce the sovereign ceiling, even after the consideration of foreign-asset holdings.”

The pressure on the banks has been evident in their slowing profit growth and lackluster share prices. The six-member FTSE/JSE Africa Banks Index has climbed 0.9 percent this year, compared with the all-share gauge’s 18 percent rally to a record high.

“The bank undertakes scenario planning on an ongoing basis, including the possibility of a downgrade of the sovereign local-currency rating to sub-investment grade,” Standard Bank’s Daehnke said. “The bank accesses a diverse source of retail and wholesale funding markets, and the mix is not expected to change materially in the next two to six months.”

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Energy

How Nigeria’s National Power Grid Collapsed Ten Times Within 9 Months 

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The national power grid has again collapsed, leaving many Nigerians in total darkness.

Investors King can authoritatively report that this is the tenth time the power grid will be disrupted this year alone.

For this recent collapse, the grid, reportedly lost power generation around 1:39 pm on Tuesday.

Information revealed that power generation was 2,711 megawatts as of 1:00 pm, having previously peaked at 3,631 MW.

Earlier, power generation peaked at 3,934.77 MW around six o’clock in the morning.

However, between 2 pm and 3 pm, hourly generation dropped to 0.00 MW.

The Transmission Company of Nigeria confirmed that the national grid experienced a partial disturbance at about 1:52 pm on Tuesday, 5th November 2024.

TCN spokesperson Ndidi Mbah mentioned that the recent collapse was due to a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Mbah pointed out that data from the National Control Centre revealed that a part of the grid was not affected by the bulk power disruption.

TCN however indicated that work work is in progress to restore power.

She explained that engineers are already working to quickly restore bulk power supply to the states affected by the “partial disturbance.”

Mbah noted that presently, bulk power supply has been restored to Abuja at 2:49 pm, maintaining that “we are gradually restoring it to other parts of the country.”

She apologized to Nigerians for whatever inconvenience the collapse might have caused.

Findings by Investors King revealed that the grid had collapsed at ten different times between March and November, this year.

Times the grid collapsed included February 4, March 28, April 15, July 16, two times in August 5, October 14, October 15, twice in October 19 and now today, November 5.

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Energy

Darkness Falls Again: TCN Explains Latest National Grid Collapse

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The Transmission Company of Nigeria (TCN) has provided an explanation for the latest National Grid collapse, which occurred on Tuesday, November 5.

Tuesday’s collapse, marking the 10th in 2024 alone, left Nigerians in total darkness.

Recall that the National Grid collapsed twice in October, sparking concerns among Nigerians.

Reacting to the latest collapse via a statement on Tuesday, the General Manager of TCN Public Affairs, Ndidi Mbah, disclosed that the collapse happened at 1:52 pm.

The GM revealed that the grid collapse was caused by line and generator trippings.

Mrs. Mbah said, “TCN states that the national grid experienced a partial disturbance at about 1:52 pm today, 5th November 2024.

“This followed a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Data from the National Control Centre (NCC) revealed that a part of the grid was not affected by the bulk power disruption.

Mbah disclosed that operators are working to restore power in affected states, adding that power was restored in Abuja.

She explained, “TCN engineers are already working to quickly restore bulk power supply to the states affected by the partial disturbance. Presently, bulk power supply has been restored to Abuja at 2:49 pm, and we are gradually restoring power to other parts of the country.”

Apologizing to Nigerians, TCN said, “We sincerely apologize for any inconvenience this may cause our electricity customers.”

Investors King, in an earlier report, revealed that in an attempt to address the persistent collapse of the national grid, the Nigerian Electricity Regulatory Commission (NERC) announced that discussions were underway with Independent Operators to take over the management of the grid.

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Energy

Nigeria Partners with ECOWAS and Morocco to Launch $26B African Gas Pipeline

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The Nigerian government, in partnership with the Economic Community of West African States (ECOWAS), Morocco, and Mauritania, has announced plans to advance the $26 billion African Atlantic Gas Pipeline project to drive economic growth across Africa.

This development was revealed on Monday, November 5, by Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), at the ECOWAS Inter-Ministerial Meeting on the Nigeria-Morocco Gas Pipeline Project.

Speaking at the meeting, which was attended by ECOWAS Ministers of Hydrocarbons and Energy as well as representatives from Morocco and Mauritania, Kyari stated that, once completed, the project will connect 13 African countries.

Represented by Olalekan Ogunleye, NNPC’s Executive Vice President for Gas Power & New Energy, Kyari said this will be Africa’s largest pipeline project.

Ogunleye confirmed that progress has been made with the front-end engineering design completed, the phase two study finalized, and work ongoing for environmental and social impact assessments as well as land acquisition and resettlement.

He emphasized NNPC’s readiness to execute the project: “Today, we come together to make significant progress in the African Atlantic gas pipeline project, which is a transformative initiative connecting at least 13 African nations in shared prosperity and development. These achievements underscore our capability to deliver this landmark project, supported by strong regional collaboration.”

Ekperikpe Ekpo, Minister of State for Petroleum Resources (Gas), described the project as a game-changer for the regional economy, stating, “We stand at a critical juncture where these agreements can reshape our energy landscape, strengthen our economies, and uplift our people.”

He also highlighted that the project will increase Africa’s presence in the global gas market, noting that “the agreements demonstrate a strong commitment to advancing hydrocarbon and energy trade across ECOWAS, enhancing access to natural gas in West Africa, and expanding Africa’s global footprint in the gas market.”

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