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Fitch Places 6 South African Funds on RWN; Downgrades Absa MMF
August 13, 2014 / 5:49 PM / 3 years ago

Fitch Places 6 South African Funds on RWN; Downgrades Absa MMF

(The following statement was released by the rating agency) LONDON, August 13 (Fitch) Fitch Ratings has placed six South African funds' National Fund Credit Ratings on Rating Watch Negative (RWN) and simultaneously downgraded Absa Money Market Fund as follows: -Absa Money Market Fund: downgraded to 'A(zaf)' from 'AA+(zaf)'; placed on RWN -Investec Money Market Fund: 'AA+(zaf)' placed on RWN -Investec STeFI Plus Fund: 'AA(zaf)' placed on RWN -Nedgroup Investments Core Income Fund: 'AA-(zaf)' placed on RWN -Nedgroup Investments Money Market Fund: 'AA+(zaf)' placed on RWN -STANLIB Extra Income Fund: 'AA-(zaf)' placed on RWN The National Fund Volatility Ratings are unaffected. KEY RATING DRIVERS The RWN is driven by these funds' exposure to African Bank (unrated) following the bank's receipt of emergency support on 10 August 2014 from the South African Reserve Bank. As a result holders of senior and wholesale debt instruments issued by African Bank have had their holdings written down to 90% of face value while subordinated instruments have been written down to zero. The RWN reflects both the realised write-down on African Bank debt instruments and the potential for further credit deterioration or negative effects on instrument prices. It also affords Fitch time to determine the most appropriate way to incorporate African Bank's evolving credit risk profile into its rating analysis. The downgrade of the Absa Money Market Fund reflects the impact of the write-down of the fund's African Bank exposure on its price and income. Of the money market funds (MMFs) rated by Fitch in South Africa, Absa Money Market Fund has the highest, longest-dated exposure to African Bank. The fund recognised a capital loss because of its application of regulatory guidance on the treatment of African Bank exposures. Fitch considers the level of loss incurred inconsistent with a highly rated, stable unit value, MMF. RATING SENSITIVITIES Fitch will resolve the RWNs as it gains greater clarity on the status of debt instruments issued by African Bank. A key decision point will be the first maturities of African Bank debt instruments held by Fitch-rated funds, which we expect within the next six weeks. Additionally, Fitch will use the RWN period to gather additional information on the funds' exposure to African Bank, strategies for managing African Bank exposure, and African Bank's credit quality. Fitch also rates the following funds in South Africa (see below). None of these funds have direct exposure to African Bank and, as such, their ratings are not affected by today's action: - Investec Corporate Money Market Fund: 'AA+(zaf)'/'V1(zaf)' - Nedgroup Investments Corporate Money Market Fund: 'AA+(zaf)'/'V1(zaf)' - Sanlam Alternative Income Fund: 'AA-(zaf)'/'V-NR(zaf)' - Southchester (RF) Limited: 'AA+(zaf)'/'V2(zaf)' - STANLIB Corporate Money Market Fund: 'AA+(zaf)'/'V1(zaf)' RATING CRITERIA Fitch rates MMFs in South Africa under its global bond fund rating criteria. This reflects the differences the agency perceives between South African MMFs and other Fitch-rated MMFs under its international and national MMF rating criteria. Specifically, the high level of concentration in these funds, a structural characteristic of the South African market, is inconsistent with Fitch's view of the risk profile of a MMF. As a result of this concentration risk South African MMFs are typically unable to achieve a 'AAA(zaf)' National Fund Credit Rating. There are also regulatory differences between US and European MMFs (subject to Rule 2a-7 in the US and ESMA guidelines for MMFs in Europe) and the regulatory regime in South Africa. Contacts: Primary Analyst Alastair Sewell Senior Director +44 20 3530 1147 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Richard Woodrow, CFA Associate Director +44 20 3530 1388 Committee Chairperson Roger Merritt Managing Director +1 212 908 0636 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Additional information is available at The sources of information used to assess this rating were the public domain and the fund managers of affected funds. Applicable criteria 'Global Bond Fund Rating Criteria', dated 13 August 2013, are available at Related research: 'South Africa Sets Precedent for Senior Bank Bail-In', dated 13 August 2014 Applicable Criteria and Related Research: Global Bond Fund Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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