* Dollar bond oversubscribed as investors ignore challenges
* Rand cheered by investor interest
* Downgrades to junk still looming
(Recasts lead with successful foreign bond issuance)
By Mfuneko Toyana
JOHANNESBURG, Sept 30 South Africa issued a pair
of new dollar bonds worth $3 billion on Friday in a surprise
show of confidence by investors in an economy that narrowly
avoided recession and faces possible downgrades to junk in
The rand erased losses after the issuance was
announced, and was 0.86 percent firmer against the dollar at
13.7600 by 1440 GMT, lapping up the positive sentiment as
yield-hungry investors ignored the country's dismal growth
"There have been a lot of ratings downgrades across the
globe this year, which really helps those countries which
maintain their investment grade ratings," said managing director
of ETM Analytics George Glynos.
"So South Africa is still benefiting from the fact that it
has an investment grade rating."
Fitch and SP Global Ratings both score the country's debt at
BBB-, the lowest rung on the investment ladder, with a negative
outlook. The next round of reviews are due in December.
On Thursday a Standard & Poor's executive warned that slow
reform of state-owned firms and the upheaval swirling around the
finance minister, along with low growth, posed a risk to the
country's investment grade status.
Deputy Governor of the Reserve Bank Daniel Mminele echoed
those concerns at a financial conference on Friday, saying that
the current growth rates were "woefully inadequate" and that the
country needed to stabilise policies to reassure
While the economy managed to grow 3.3 percent in the second
quarter after a 1.2 percent contraction in the first, analysts
warn growth will remain around 1 percent in the medium term,
stifled by falling global demand for commodities and weak
production at home.
The central bank estimates Africa's most industrialised
economy will grow only 0.4 percent in 2016.
Investors have also been rattled by a probe into Finance
Minister Pravin Gordhan by an elite police unit investigating
his role in establishing a spy unit in the revenue service.
Opposition parties and civil society have described the
probe as a "witch-hunt" by factions allied to President Jacob
Zuma. The president denies that there is a rift between him and
the finance minister.
Nineteen of 23 economists surveyed by Reuters in August said
that the investigation of the finance minister posed a
"significant" risk of triggering a downgrade.
The country also faces high unemployment, poverty and
student unrest, while infighting in the ruling African National
Congress and accusations of government corruption are seen
hobbling much-needed economic reforms.
(Additional reporting by Ed Stoddard; Editing by Dominic Evans)