Sat, 27th May 2017

Anirudh Sethi Report


Archives of “negative outlook” Tag

S&P affirms France at AA, outlook remains negative & Affirms Spain at BBB, outlook stable

France review from Standard & Poors.

  • They believe that France likely to stay the course on economic reforms although they see implementation risks
  • Negative outlook indicates that S&P could lower long-term rating this year or next if France deviates from its fiscal path
  • Projects that current account deficit will stabilize at around 1% of GDP in 2015-16
  • Anticipate a somewhat smoother fiscal adjustment path over 2015-2018

There is lots of good news here and it’s clear that the negative outlook will be removed if France stays on its current path for another 6 or 12 months.

But it’s not enough good news to move the euro, which has slid back down to 1.0589 after rising to 1.0635 a few hours ago.

S&P sees Spain in stronger position.

  • Reforms since 2010 put Spain in favorable position to benefit from weaker oil, depreciated euro and QE
  • Have raised 2015-2017 average annual GDP projection for Spain by 0.3 pp to 2.2% with some upside potential
  • Expects ECB policy to gradually lead to private sector lending as Spain’s recovery gains momentum
  • Expect Spanish net govt debt to peak at over 93% of GDP in 2017

Plenty of good news in the ratings report but most of it is because the ECB is driving rates (and the euro) down.

Standard & Poor’s says chances of India downgrade higher than for Indonesia

Standard & Poor’s considers chances of a credit ratings downgrade for India higher than for Indonesia, Bloomberg News reported on Tuesday, citing comments made by an analyst of the credit rating agency at a briefing in Seoul.

S&P analyst Kim Eng Tan also said there was more than a one-in-three chance for India rating cut within two years, according to Bloomberg.

S&P has a “BBB-minus” rating on India with a “negative” outlook. A downgrade would push Asia’s third largest economy to “junk” status.

S&P rates Indonesia at “BB-plus.”

The Indian rupee touched a session low of 68.80 to the dollar after the news.

Fitch Downgrades Telecom Italia to ‘BBB-‘; Outlook Negative

Fitch Ratings has downgraded Telecom Italia SpA’s (TI) Long-term Issuer Default Rating (IDR) to ‘BBB-‘ from ‘BBB’. The Outlook on the Long-term IDR is Negative. A full list of rating actions is at the end of this comment.

The downgrade reflects the worsening operating conditions in TI’s domestic business due to regulatory pressure, a continued mobile price war and a weak economic environment. The erosion of TI’s cash flow generation looks to continue into 2014. If the domestic business can be stabilised, and leverage brought under control, Fitch fundamentally views TI as an investment grade credit.


– Domestic business deteriorating
TI’s H113 results and full year domestic guidance were weaker than Fitch expected. TI’s revenue and EBITDA trends in 2013 are likely to be worse than that reported in 2012. The mobile price war in Italy is showing no signs of abating and the effects of a weak Italian economy could to persist into 2014.

– Erosion of financial flexibility
Increasing pressures in the domestic business, TI’s main generator of cash flow, means visibility is worsening. Management has shown in the past it has been able to deal with regulatory and competitive pressures to prevent TI’s credit metrics deteriorating. The Negative Outlook reflects Fitch’s concerns that TI’s financial cushion to deal with future adverse shocks to the business has been reduced. Read More 

Fitch Affirms Serbia at ‘BB-‘; Outlook Negative (Full Text )

Fitch Ratings has affirmed Serbia’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB-‘ with Negative Outlook. The agency has also affirmed the Short-term foreign currency IDR at ‘B’ and the Country Ceiling at ‘BB-‘.


The affirmation of Serbia’s sovereign ratings reflects the following factors:

– The uncertain outlook for public finances. In 2012 the fiscal deficit rose to 6.4% of GDP against the government’s own target of 3.6%, partly due to pre-election spending. The government passed a supplementary budget in order to bring public finances under control. Nonetheless, Fitch expects the budget deficit to remain close to 6% of GDP in 2013 and 5% in 2014.

– Public debt is rising fast, and Fitch projects it will reach 65% of GDP by 2014. Serbia’s debt dynamics are vulnerable to an exchange rate depreciation shock as 81.5% of public debt is denominated in foreign currency thereby reducing Serbia’s debt tolerance.

– Fragile economic recovery; Fitch expects the current account deficit to narrow to 7.1% of GDP at end-2013 helped by stronger export performance. Real GDP contracted 1.6% in 2012 and Fitch forecasts slow growth of 2% for this year and over the medium term. Projections are however highly dependent on the automobile sector.

– The government has announced an ambitious restructuring plan regarding state-owned enterprises (SOE) and public sector entities, which is funded. However, Fitch notes that the government has yet to demonstrate the political resolve necessary to implement unpopular structural reforms, while no progress has been yet made on a comprehensive pension system reform. Read More 

Moody’s changes outlook on US Aaa sovereign rating to stable from negative; rating affirmed (Full Text )

Moody’s Investors Service today moved the outlook on the Aaa government bond rating of the United States back to stable, replacing the negative outlook that has been in place since August 2011. At the same time, Moody’s also affirmed the US government’s Aaa rating.

 The action reflects Moody’s assessment that the federal government’s debt trajectory is on track to meet the criteria laid out in August 2011 for a return to a stable outlook, removing the downward pressure on the rating over Moody’s outlook period.

 The US budget deficits have been declining and are expected to continue to decline over the next few years. Furthermore, the growth of the US economy, which, while moderate, is currently progressing at a faster rate compared with several Aaa peers and has demonstrated a degree of resilience to major reductions in the growth of government spending. Therefore, the US government’s debt-to-GDP ratio through 2018 will demonstrate a more pronounced decline than Moody’s had anticipated when it assigned the negative outlook.

 Moody’s noted that despite the more favorable fiscal outlook over the next several years, without further fiscal consolidation efforts, government deficits are anticipated to increase once again over the longer term. If left unaddressed, over time this situation could put the rating again under pressure. Such a conclusion, however, would be unlikely within the horizon referenced by the rating outlook.

 The implications of this rating action for other directly and indirectly related ratings will be reported via separate press releases. Read More 

Moody’s withdraws Core Education’s rating

Moody’s Investors Service has withdrawn its B2 corporate family rating with a negative outlook on Core Education & Technologies Limited (“CORE”) due to business reasons and at the company’s request.


 Moody’s has withdrawn the rating for its own business reasons. Please refer to the Moody’s Investors Service’s Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

 CORE, headquartered in India, provides technology-enabled products and services primarily to the education sector.

A downgrade of India’s sovereign rating outlook would pose fresh challenges to corporate sector-Standard Chartered

-S&P still has a negative outlook on India’s sovereign rating. If GDP growth is not revived, India risks falling into a cycle of low growth and high debt. Regulations such as the Statutory Liquidity Ratio (SLR), which requires the banking system to invest 23% of its net demand and time liabilities (NDTLs) in government securities, provide an assured source of funding for government debt. Almost 98% of government debt is funded domestically.

-Thus, while a rating downgrade would not affect the funding of government debt, it would become more expensive. The corporate sector could suffer more as raising debt became both challenging and expensive.

Fitch Affirms United States at ‘AAA’; Outlook Remains Negative

Fitch Ratings has affirmed the United States (U.S.) Long-term foreign and local currency Issuer Default Ratings (IDRs) and Fitch-rated Treasury security ratings at ‘AAA’. Fitch has also affirmed the U.S. Country Ceiling at ‘AAA’ and Short-term foreign currency rating at ‘F1+’. The Outlook on the Long-term IDRs remains Negative.

The affirmation reflects the U.S.’s strong economic and credit fundamentals, including the global reserve currency status of the U.S. dollar, and progress on reducing government budget deficits. The Outlook remains Negative due to continuing uncertainty over the prospect for additional deficit-reduction measures necessary to reduce government indebtedness over the medium to long term, and near-term risks associated with the expiration of federal appropriations authority at the end of the current fiscal year (30 September 2013) and in particular a timely increase in the debt limit.

Fitch will conduct a further review of the U.S. sovereign ratings by the end of 2013, which is expected to resolve the Negative Outlook. This review will reflect our assessment of the prospects for further deficit-reduction measures in future years necessary to contain government deficits in the face of long-term spending pressures and place public debt on a downward path.

The affirmation of the U.S. ‘AAA’ sovereign ratings with a Negative Outlook reflects the following key factors. Read More 

Fitch Downgrades Cyprus’s LC IDR to ‘Restricted Default’ from ‘CCC’-Full Text

Fitch Ratings has downgraded Cyprus’s Long-term local currency Issuer Default Rating (IDR) to ‘RD’ (‘Restricted Default’) from ‘CCC’ following confirmation from the Cypriot government that the exchange of a number of domestic law government bonds has been completed.

The downgrade to ‘RD’ reflects Fitch’s opinion that the exchange constitutes a distressed debt exchange (DDE) in line with its criteria and follows the downgrade of Cyprus’s LC IDR to ‘CCC’ from ‘B’ on 3 June. Fitch has downgraded only the affected domestic bonds to ‘D’ from ‘CCC’ and affirmed the rest at ‘CCC’. With foreign law bonds unaffected by the exchange, the Long-term foreign currency IDR has been affirmed at ‘B-‘with a Negative Outlook. The Short-term foreign currency IDR and the Country Ceiling have also been affirmed at ‘B’.

Under the exchange, domestic law bonds with a total nominal value of EUR1bn that are due to expire within the EU-IMF programme period (2013-Q116) will be replaced by new bonds with the same coupon rates but with the maturity dates of the new securities extended to outside the programme period. This transaction constitutes a DDE under Fitch’s criteria, as the maturity extension at existing coupon rates represents a material reduction in terms for bondholders.

The settlement date for Cypriot-law exchanged bonds is Monday 1 July. Shortly after completion of the debt exchange and the issue of new securities, Fitch will raise Cyprus’s LC IDR out of ‘RD’ and assign ratings consistent with the agency’s forward-looking assessment of Cyprus’s credit profile following the distressed debt exchange. The post- exchange LC IDR and securities’ ratings are likely to be low speculative grade.

Fitch Revises India’s Outlook to Stable; Affirms Ratings at ‘BBB-‘ Full Text

Fitch Ratings has revised India’s Outlook to Stable from Negative and affirmed its Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BBB-‘. The agency has also affirmed the Country Ceiling at ‘BBB-‘ and the Short-Term Foreign-Currency IDR at ‘F3’.


The revision of the Outlook to Stable reflects the measures taken by the government to contain the budget deficit, including the commitments made in the FY14 budget, as well as some, albeit limited, progress in addressing some of the structural impediments to investment and economic growth.

The Outlook revision and the affirmation of India’s investment-grade ratings reflect the following factors:

– The authorities were successful in containing the upward pressure on the central government budget deficit in the face of a weaker-than-expected economy. The central government fiscal deficit was 4.9% of GDP in FY13 (financial year ended March 2013), compared with 5.7% in FY12 and Fitch’s forecast when it placed India’s ratings on Negative Outlook in June 2012 of close to 6%.

– Fitch expects the government to broadly meet its FY14 budget deficit target of 4.8% of GDP (including privatisation receipts) and to gradually reduce the high level of public debt over the medium-term. General government gross debt (GGGD) as a share of GDP was at 64% in FYE13, significantly higher than both the ‘BB’ and ‘BBB’ peer rating group medians of 33% and 40% respectively. However, it is substantially below the level of 79% of GDP when Fitch upgraded India to ‘BBB-‘ in 2006. Read More