Credit downgrades in emerging markets outnumbered upgrades by more than five-to-one in the first quarter of the year, according to Standard & Poor’s, which warned more were on the way.
The US rating agency downgraded 53 emerging market countries, state bodies or companies in the first three months of the year, affecting more than $820bn worth of debt. It only upgraded 10 EM entities over the same period, with about $26bn of debt outstanding.
The biggest driver of the ratings purge were sovereign downgrades of Brazil and Ukraine, which had knock-on effects for S&P’s assessment of local companies, but the agency cautioned that more downgrades were likely to come further afield in the coming months.
“The downgrades of the sovereign ratings on Brazil and Ukraine drove the majority of the rating actions in the region. Looking forward, the negative bias, or the proportion of issuers with negative outlooks or on CreditWatch with negative implications, in the emerging markets region is at its highest level since 2010.” >> Read More
Fitch Ratings has affirmed India’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BBB-’. The issue ratings on India’s senior unsecured foreign and local currency bonds are also affirmed at ‘BBB-’. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed at ‘BBB-’ and the Short-Term Foreign Currency IDR at ‘F3′.
KEY RATING DRIVERS
The affirmation of India’s sovereign ratings reflects the following factors:
- India’s sovereign ratings benefit from relatively high real GDP growth: the five-year average is 6.7%, compared with the median of 3.2% for peers in the ‘BBB’ rating category (sovereigns rated ‘BBB-’, ‘BBB’ and ‘BBB+’). However, the Indian economy has lost much of its dynamism in recent years and the average is coming down. Fitch forecasts real GDP growth to rise from 4.7% in FY14 (financial year ending on 31 March 2014) to 5.5% in FY15 and 6.0% in FY16.
- The course of the Indian economy is uncertain in light of the on-going parliamentary elections, with the results due to be announced on 16 May 2014. Once the next coalition starts implementing its economic policies, it will become clearer whether the economy can return to a higher sustainable growth path or whether it remains stuck at current levels. A policy push that includes structural and governance reforms, fiscal consolidation and efforts to rein in inflationary pressures would likely require a coherent coalition with a strong electoral mandate. >> Read More
Moody’s Investors Service has today downgraded Ukraine’s government bond rating to Caa3 from Caa2. The outlook on the Caa3 rating is negative.
The downgrade is driven by the following three factors, which exacerbate Ukraine’s more longstanding economic and fiscal fragility:
1.) The escalation of Ukraine’s political crisis, as reflected by the recent regime change in Kiev as well as the annexation of Crimea by Russia (Baa1, on review for downgrade).
2.) Ukraine’s stressed external liquidity position, in light of a continued decline in foreign-currency reserves, the withdrawal of Russian financial support and a rise in gas import prices. This assessment accounts for the near-term liquidity relief that the recently agreed IMF staff-level agreement will provide.
3.) The decline in Ukraine’s fiscal strength, with an expected increase in the debt-to-GDP ratio to 55%-60% by the end of 2014 (from 40.5% at year-end 2013) due to a sizable fiscal deficit, a significant GDP contraction and a sharp currency depreciation.
Concurrently, Moody’s has also downgraded to Caa3 from Caa2 the rating of the Ukrainian State Enterprise “Financing of Infrastructural Projects”. The outlook is negative in line with the outlook on the sovereign rating. The enterprise’s debt is fully and unconditionally guaranteed by the government of Ukraine.
In Moody’s assessment, the recent developments in Ukraine and the resulting material changes to sovereign creditworthiness necessitate this rating action being released on a date not listed for this entity on Moody’s 2014 sovereign release calendar published, in accordance with EU Regulation 462/2013 (“CRA”). >> Read More
Fitch Ratings has revised the Outlook on Russia’s Long-term foreign and local currency Issuer Default Ratings (IDR) to Negative from Stable and affirmed the IDRs at ‘BBB’. The issue ratings on Russia’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB’. The Short-term rating has been affirmed at ‘F3′ and the Country Ceiling at ‘BBB+’.
Under EU credit rating agency (CRA) regulation, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. The next scheduled review date for Fitch’s sovereign rating on Russia was 25 July 2014, but Fitch believes that developments in Russia warrant such a deviation from the calendar and our rationale for this is laid out below.
KEY RATING DRIVERS
The rating actions reflect the following key rating drivers and their relative weights: >> Read More
Moody’s Investors Service, (“Moody’s”) has today changed the outlook on Germany’s Aaa government bond rating to stable from negative. Concurrently, Moody’s has affirmed Germany’s Aaa ratings.
The key drivers for today’s outlook change are:
(1) Diminished risks that Germany’s government balance sheet will be affected by further collective support to other euro area countries, in particular to Italy (Baa2 stable) or Spain (Baa2 positive), along with reduced contagion risks within the wider euro area.
(2) Progress with respect to fiscal consolidation as reflected in nearly balanced budgets in 2012 and 2013 and a declining debt-to-GDP ratio.
(3) Diminished risks that Germany’s government balance sheet will be affected by a further crystallization of contingent liabilities from the German banking system.
Moody’s has affirmed Germany’s Aaa rating due to the country’s advanced and diversified economy, very high debt affordability and a history of stability-oriented macroeconomic policies.
In a related rating action, Moody’s has today changed the outlook to stable from negative on the Aaa rating from of FMS-Wertmanagement (FMS-WM) and affirmed FMS-WM’s Aaa and Prime-1 ratings.
FMS-WM is a resolution agency or “bad bank” scheme for 100% state-owned Hypo Real Estate Group created under the Financial Market Stabilisation legislation in Germany. FMS-WM is rated on par with the German sovereign. This is due to a loss compensation obligation from the Financial Market Stabilisation Fund vis-à-vis FMS-WM, which is ultimately an obligation of the German sovereign.
RATIONALE FOR OUTLOOK CHANGE
–FIRST DRIVER: DECLINING RISKS FROM EURO AREA DEBT CRISIS– >> Read More
11 February 2014 - 12:03 pm
Moody’s Investors Service says that the emergence of a strong coalition as a result of the upcoming general elections in India (Baa3 stable) would not act as a near-term game changer for Indian creditworthiness.
However, a fragmented government without either a clear mandate or policy platform would heighten downside credit risks.
As indicated, Moody’s does not believe that a strong showing by one of the major parties would, by itself, translate into an immediate improvement in India’s economic growth and fiscal consolidation, which are key determinants of the country’s overall credit quality.
“Firstly, growth trends over the past few decades show little direct correlation with election outcomes. Secondly, the influence of external conditions on Indian growth is underappreciated, and developed country growth and global liquidity trends will be crucial determinants,” says Rahul Ghosh, a Moody’s Vice President and Senior Research Analyst.
Moreover, the increasing importance of regional parties will continue to hamper the efficacy of nationwide policymaking, regardless of the political complexion of the eventual central government. >> Read More
07 February 2014 - 23:40 pm
Fitch Ratings-London-07 February 2014: Fitch Ratings has downgraded Ukraine’s Long-term foreign currency Issuer Default Rating (IDR) to ‘CCC’ from ‘B-’, and affirmed the Long-term local currency IDR at ‘B-’. The Outlook on the local currency IDR is Negative.
The issue ratings on Ukraine’s senior unsecured foreign and local currency bonds are also downgraded to ‘CCC’ from ‘B-’ and affirmed at ‘B-’ respectively. The Country Ceiling is downgraded to ‘CCC’ from ‘B-’ and the Short-term foreign currency IDR is downgraded to ‘C’ from ‘B’.
Under EU credit rating agency (CRA) regulation, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. The next scheduled review date for Fitch’s sovereign rating on Ukraine was 28 February 2014, but Fitch believes that developments in Ukraine warrant such a deviation from the calendar and our rationale for this is laid out below.
KEY RATING DRIVERS >> Read More
06 February 2014 - 0:10 am
Moody’s Investors Service has today upgraded Mexico’s government bond ratings to A3 from Baa1. The outlook is stable.
The decision to upgrade Mexico’s sovereign ratings was driven by the structural reforms approved last year, which Moody’s expects will strengthen the country’s potential growth prospects and fiscal fundamentals. As the full impact of the reforms becomes more evident over time, Moody’s expects that Mexico’s credit metrics will report firm – but gradual – improvements, thereby further reinforcing the country’s already robust sovereign credit profile.
Specifically, the upgrade of Mexico’s sovereign ratings was driven by the following four factors linked to the country’s reform package:
- Approval of a comprehensive reform agenda, which reflects political will to address longstanding structural issues
- Improved medium-term economic prospects associated with higher potential growth that is likely to result from the comprehensive reform package
- A strengthened fiscal outlook that incorporates higher government savings and additional buffers >> Read More
10 January 2014 - 7:19 am
Hong Kong-09 January 2014: Positive pressure on Emerging Asian sovereign ratings has ebbed as the region’s vulnerabilities have moved increasingly into focus, Fitch Ratings says in a report published today.
Economies with greater external funding needs and less resilient policy frameworks are likely to be more at risk from market stresses stemming from the tapering of the US Federal Reserve’s bond-buying programme. Policy management will be key in shielding sovereign credit profiles from these stresses, particularly for India and Indonesia, Fitch said in the report.
Fitch expects economies in Emerging Asia to grow 6.5% in 2014 – still the strongest of any global region, but the slowest pace since the regional crisis year of 1998. If regional giants China and India are excluded, the agency projects growth in Emerging Asia to be 5.1%. The main factors weighing on growth prospects, particularly in the ASEAN region, include maturing credit cycles, slower growth in China and falling commodity prices.
Tighter US dollar funding conditions highlight the levels of leverage and the issue of external sustainability for regional economies. However, Fitch thinks the strengthening of sovereign credit fundamentals since the 1998 Asian crisis should see the region navigate these challenges without systemic stress. Seven of nine Emerging Asian sovereigns are on a Stable Outlook. >> Read More
08 January 2014 - 10:13 am
Fitch Ratings will hold a teleconference to discuss the outlook for Asia-Pacific Sovereign Ratings at 4pm (Hong Kong/Singapore time) on Monday, 13 January 2014. The call is in conjunction with the agency’s reports “2014 Outlook: Emerging Asia Sovereigns” and “Asia-Pacific Sovereign Overview”, to be published on 10-13 January 2013.
Fitch expects the Emerging Asia economy to expand 6.5% in 2014 – still the strongest growth of any global region, but the slowest regional rate since the crisis year 1998. Tighter US dollar funding conditions are bringing some of the region’s vulnerabilities into focus. Economies with higher external funding needs and less resilient policy frameworks are likely to be most at risk from market stresses driven by tapering of the US Federal Reserve’s bond-buying programme. Meanwhile, the outlook for rebalancing and reform in China is a source of uncertainty not just for China’s own credit profile, but also for the regional and global economy.
Andrew Colquhoun, Head of Asia-Pacific Sovereign Ratings, will host the call.
Participants are requested to complete online registration ahead of the call at this link: