State-owned companies have R165-billion worth of debt that is linked to SA's sovereign rating‚ R10.6-billion of which would require additional guarantees and/or cash injections should the country's rating be downgraded to subinvestment grade‚ the head of Treasury's budget office Michael Sachs said Friday. Credit ratings agency Standard and Poor's is currently engaged in reassessing its rating of SA and is due to announce the result early next month. There are fears that low economic growth‚ the lack of structural reforms and the lack of progress in the governance of state-owned companies have been flagged as risks to the current rating.A deterioration in the balance sheets of state-owned companies was one of the possible spillover effects of a credit ratings downgrade‚ Sachs said in a presentation to Parliament's two finance committees on Treasury's response to public hearings on the medium term budget policy statement.“A sovereign ratings downgrade would likely be followed by rating downgrades of most state-owned compaines (which) are highly leveraged and have about 40% of their total debt denominated in foreign currency‚" Sachs said.A ratings downgrade would increase the funding costs of state-owned companies and result in a deterioration in their balance sheets which could in turn affect SA’s sovereign rating as they might require more guarantees or other forms of financial support.He noted that some of the bonds or loans of state-owned companies had covenants contingent on maintaining an investment grade rating.Other likely effects of a downgrade were a rise in debt service costs which would harm government non-interest expenditure; a decline in investor confidence; a depreciation of the rand exchange rate; a rise in inflation; and portfolio outlows which would reduce funding for the current account deficit.Sachs said it was very concerning that private sector capital formation was expected to contract by 3% this year‚ which indicated the lack of investment taking place in the economy. It was vital to boost investor confidence.“The largest constraint to private investment in recent quarters has been low confidence related to policy uncertainty and electricity shortages‚" Sachs said.” – TMG Digital/BusinessLIVE..