Pioneer Foods, the second-largest fast-moving consumer goods group in South Africa, is the first confirmed corporate casualty of the country’s credit-ratings downgrade. The food giant on Friday announced the collapse of a deal that would have created Africa’s largest consumer goods company.

Immediately after the announcement of the downgrade, “everything just stalled,” said Phil Roux, Pioneer Foods CEO.

“Panic ensued and news flow was terribly negative abroad and consequently they (the multinational with whom Pioneer hoped to secure a deal) advised that while they are a massive organization they just cannot, given the state of investment required, deepen their risk in any shape, manner or form,” said Roux.

From the Sunday Times. Story by Palesa Vuyolwethu Tshandu, Pericles Anetos and Lutho Mtongana.

Roux, who is under a nondisclosure contract, could not name the multinational or the value of the investment but said that before the downgrade, the company was optimistic about South Africa’s prospects.

The parties had finalized 95 percent of the deal, including the contractual agreements and pricing.

As a result, Pioneer Foods curtailed six capital investments planned for the country “until confidence is restored with us as businessmen, that this is the place where you can get the desired return that you need.”

South Africa’s foreign-currency debt was downgraded to junk by S&P Global Ratings and Fitch after President Jacob Zuma’s cabinet reshuffle, which involved the removal of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas from the Treasury and the appointment of new Finance Minister Malusi Gigaba.

Kevin Cron, head of corporate, mergers and acquisitions and securities at Norton Rose Fulbright, said that the downgrade was not good news for the mergers and acquisitions.

Foreign investors “may be hesitant to invest in South Africa and that would be a depressant on M&A.”

However, said Cron, if the rand weakens in the near future South Africa could become an attractive investment destination for those who wish to take a “longer-term view of the country and continent.”

With economic conditions expected to get tougher, companies will struggle, which might offer buying opportunities to companies looking to expand or get into particular sectors.

South Africa has been a good investment opportunity as many multinationals see the country as the gateway to the rest of Africa.

Last year, global beer brewer AB InBev acquired SABMiller for $103-million.

Norton Rose Fulbright was approached on Friday morning by a “major private-equity fund for a potential deal with a South African company,” which Cron said indicated deals were there to be made for investors with a risk appetite.

ENS chairman Michael Katz said it is still seeing deals but most are South African with no foreign element.

It is difficult at the moment to identify what impact the downgrade will have on M&A in South Africa, Katz said, but there are M&As in the private-equity field.

“In the equity capital market there seems to be quite a bit of interest and we have been approached by foreign players to work with them on some equity capital transactions.”

South African companies could also go through a period of distressed sales if economic conditions worsen.

Read more at Sunday Times.