Posts Tagged: credit rating


Standard & Poor’s slapped emerging markets with 70 sovereign and corporate credit rating downgrades in the second quarter, and awarded just 29 upgrades, but at least ratio of cuts to promotions is improving.

The downgrade-to-upgrade ratio eased to 2.4 times in the three months through June, compared to 5.3 times in the first three months of the year, the rating agency said in a report today.

The demotions were largely triggered by cuts to Argentina, Russia and South Africa’s sovereign ratings, as well as a dimmer view on Brazil’s banking sector.

Diane Vazza, head of Standard & Poor’s global fixed income research, said in the report.

Looking forward, the rating outlooks in the EEMEA region show the highest net negative bias, followed by emerging Asia and Latin America. Russian entities are driving the elevated negative bias in the EEMEA region, just as Indian entities are doing in emerging Asia, and Brazilian and Argentine entities are doing in Latin America.


Moody’s Investors Service has today downgraded the long-term issuer and debt ratings of Espirito Santo Financial Group S.A. (ESFG) to Ca from Caa2 and affirmed the short-term debt ratings at Not Prime; this rating action concludes the review for downgrade initiated on 26 June 2014, and extended on 9 July 2014.The downgrade of ESFG reflects the heightened risk of default of ESFG and significant losses for ESFG’s creditors as a result of very recent developments in ESFG and its troubled indirect shareholders (Espirito Santo International (ESI) and Rioforte, both unrated).


The downgrade of ESFG’s issuer rating to Ca reflects the heightened risk of default for the group, combined with the potential for significant losses for bondholders. This risk is reflected by ESFG’s high direct exposure to ESI and Rioforte, that amounted to EUR2.35 billion at end-June 2014. The precarious financial health of ESI and its subsidiaries was first evidenced on 9 July 2014, when ESI announced the restructuring of maturing debt that it would otherwise not be able to repay, and more recently on 15 July 2014 when Rioforte failed to repay EUR847 million of the matured commercial paper subscribed by Portugal Telecom, SGPS, S.A. In this context, Moody’s commented that the continuing opacity around the full financial health of the Espirito Santo group contributes to the heightened concerns about ESFG’s credit profile. 

In addition to the heightened credit risk stemming from the exposure to its troubled shareholders, the increasingly limited financial flexibility of ESFG is also evidenced by the sale on 14 July 2014 of a 4.99% stake in Banco Espirito Santo, S.A. (BES; deposits B2 review for downgrade, BFSR E stable/BCA ca) to repay the obligations it had engaged under a margin loan subscribed at the time of the bank’s capital increase that concluded in June. Moody’s notes that ESFG also disclosed that 20.0% (out of a total 20.1%) of the remaining stake in BES is encumbered via a negative pledge, limiting the capacity of the holding company to raise further funds via the sale of the bank’s shares.  >> Read More


Moody’s Investors Service has today downgraded the long-term issuer and debt ratings of Espirito Santo Financial Group S.A. (ESFG) to Caa2 from B2. The entity’s ratings remain on review for downgrade and the short-term ratings have been affirmed at Not Prime.

 The downgrade reflects Moody’s view of a higher credit risk profile for ESFG following the increase in ESFG’s exposure to its indirect shareholders (Espirito Santo International (ESI) and Rioforte, both unrated) which it disclosed on 3 July 2014. Moody’s concerns regarding ESFG’s creditworthiness are heightened by the lack of transparency around both the Espirito Santo Group’s financial position and the extent of intra-group linkages including ESFG’s direct and indirect exposure to ESI.

  For a full list of affected ratings, please refer to the end of this press release.




The overall creditworthiness of countries is still on a deteriorating path six years after the financial crisis, according to Standard & Poor’s half-yearly outlook.

The average sovereign credit rating has fallen by about one notch since 2008 to somewhere between the BBB and BBB- grades, right at the bottom end of the range known as “investment grade” and perilously close to “junk”.

Negative outlooks still markedly outnumber positive ones (23 to 5 by June 30), which indicates that downgrades will outpace promotions over the next year, S&P noted.

Nonetheless, on closer inspection there are some signs that the deterioration is not as bad as it appears at first blush, and that the trend may be turning somewhat less downbeat.

Part of the reason for the weakening average credit rating is that S&P has over the past six years begun rating a slew of countries in emerging and “frontier” markets, such as Africa, with many only garnering grades in the low single-B range. Weighted by GDP the average rating is currently just above A+. That is slightly down from the AA- peak in mid-2008 but up from a decade ago.

And while negative outlooks still outnumber positive ones, the ratio between the two has improved since the end of 2012 as the eurozone crisis receded. At the post-financial crisis nadir in 2009 negative views outnumbered positive ones by 35 countries, now it is only 18 (See second chart below).

>> Read More


Moody’s Investors Service says that the power sector would continue to be a source of asset quality risk for public and private-sector banks in India if the poor financial profiles of state electricity board distribution companies (discoms) do not improve through further structural reforms.

 “The poor financial health of discoms in India is one of the key factors weighing on the asset quality of the country’s banks,” says Srikanth Vadlamani, a Moody’s Vice President and Senior Analyst.

 “So far, these problems have almost exclusively affected public-sector banks, which represent more than 70% of total banking system assets, and which are directly and indirectly exposed to the credit quality of discoms,” adds Vadlamani. >> Read More


Moody’s Investors Service says that China’s Aa3 rating and stable outlook are underpinned by the country’s macroeconomic strengths as well as by its fiscal and external cushions, and that the rating agency expects the sovereign’s credit profile to withstand the rebalancing challenges.

 Nonetheless, the success of policy measures will be critical for China’s ability to negotiate successfully the challenges which lie ahead. To that end, the government’s unfolding policy approach that favors long-term stability over short-term growth provides support to China’s sovereign credit profile.

 China’s real GDP growth — according to Moody’s central scenario — will edge down into the 6.5%-7.5% range this year and the next, while the longer-term growth outlook hinges on the success of credit tightening policies and the pace of structural reforms.

 Moody’s views were presented at the annual Moody’s & CCXI China Credit Risk Conference, with the theme: “Can China Weather the Risks of Rebalancing?” The conference takes place in Beijing today, and in Shanghai on Thursday 19 June. >> Read More


Standard & Poor’s has been censured for erroneously announcing that France’s credit rating had been downgraded in the first enforcement action taken by the EU securities watchdog.

The European Securities and Markets Authority (Esma) said the 2011 episode was the result of “control failures” within the credit rating agency’s organisation and that S&P had infringed European rules.

The incident involved an email sent to subscribers with the header “France (Republic of) (Unsolicited Ratings): DOWNGRADE” – when the country’s sovereign debt rating had in fact not been cut.

The move by Esma marks the first time it has publicly reprimanded a firm since being given the power to regulate EU credit rating agencies in 2012. But the action falls short of some of the more severe penalties the regulator can issue.

Beyond censuring firms, the watchdog’s powers include withdrawing a firm’s registration, banning it temporarily from providing credit ratings, and levying fines.

The Esma investigation found that S&P had decided to store assessments of countries’ banking systems on the same internal database as its sovereign ratings. >> Read More


The resounding victory of India’s BJP party and the ascension of its leader Narendra Modi to the premiership could have “significant implications” for the country’s credit rating, Standard & Poor’s said in a report.

The strong showing of the BJP’s National Democratic Alliance in Indian elections – likely handing it a big majority in parliament – gives Mr Modi a robust platform to tackle long-standing structural problems with India’s economy, the rating agency said.

Standard & Poor’s currently rates India at BBB-, with a negative outlook, indicating that the country could possibly fall into the “junk” category at the next review. However, in a report, S&P’s analyst Takahira Ogawa said:

What the next government says and does in the coming months is crucial to boosting confidence in the policy settings and the economy. If confidence rises, investment and consumption in India could strengthen, after being held back by the uncertainty surrounding the election.

Nonetheless, the new Indian government will face many daunting challenges in fulfilling the country’s economic potential. >> Read More


It is a big day for Portugal.

Credit rating agency Standard & Poor’s has revised its outlook on Portugal’s debt to “stable” from negative.

And although S&P has kept Portugal’s debt in junk territory at BB – the second highest junk rating – the improvement could further fuel a rally in Portuguese bonds.

From S&P’s statement:

Portugal’s economic and budgetary performance has outpaced our expectations.

The Portuguese government has fulfilled its key commitments under the EU-International Monetary Fund Economic Adjustment Program, which it is scheduled to exit on May 17, 2014, without further official support. We are therefore revising our outlook on Portugal to stable from negative and affirming our ‘BB/B’ ratings.

The stable outlook incorporates our view that Portugal’s credit metrics are stabilizing and that we currently see less than a one-in-three probability of developments occurring that could lead to an upgrade or downgrade over the next year.


Fitch Ratings says some recovery in eurozone periphery sovereign ratings is possible in a benign scenario of economic recovery and declining debt ratios. Nevertheless, the agency is generally cautious about the medium-term outlook for the eurozone as many countries face a long period of convalescence and the risk of relapse.

Fitch has taken several positive rating actions on sovereigns in the eurozone periphery as the intensity of the crisis has eased and countries have started to repair damage to their creditworthiness. These include upgrades for Greece (May 2013) and Spain (April 2014); and positive changes in Outlooks (including Negative to Stable) for Ireland (November 2012), Cyprus, Italy and Portugal (all April 2014) and Slovenia (May 2014), as well as Belgium (January 2013).

Positive rating actions reflect an end to recessions, a move into current account surpluses, a narrowing in budget deficits, enhanced financing flexibility and market access, reduced tail risk of eurozone exits, structural reforms and gains in competitiveness, an easing in banking sector risks and reforms at the eurozone level. >> Read More

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