Italy, Spain, Portugal Among Six Cut by Moody's

Tue, Feb. 14, 2012

(Bloomberg) -- Moody's Investors Service cut the debt ratings of six European countries including Italy, Spain, Portugal, Slovakia, Slovenia and Malta, and said it may strip France and the U.K. of their top Aaa ratings, citing Europe's debt crisis. Caroline Hyde and Mark Barton report on Bloomberg Television's "First Look." (source: Bloomberg)

Moody's cuts Portugal to junk, warns of 2nd bailout

Wed, Jul 6, 2011
By Andrei Khalip and Walter Brandimarte

LISBON/NEW YORK (Reuters) - Moody's became the first ratings agency to cut Portugal's credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets.

The downgrade on Tuesday was not entirely unexpected and served as a reminder that Europe's debt troubles extend beyond Greece, which has dominated news headlines over its second financial bailout.

Some economists think Ireland may also need additional support, and investors worry Spain and Italy could be next in line for aid.

"It goes to show that this whole crisis isn't over just yet," said Jay Bryson, global economist for Wells Fargo Securities in Cape Hatteras, North Carolina. "Even if they cough up some more money for Greece, and that looks like it's a done deal, it's not over."

The protracted sovereign debt struggle has darkened the global economic outlook, cooling demand for Asia's exports and leaving financial markets on edge.

Mohamed El-Erian, co-chief investment officer for bond fund PIMCO, said it was unlikely that Europe's troubles would constitute a "Lehman moment" that paralyses the U.S. economy, but it was a drag on an already disappointing recovery.

The debt troubles add another wrinkle to the European Central Bank's interest rate decision on Thursday. Economists widely expect the ECB to raise its benchmark rate, which would be the second hike this year, to try to cool inflation.

But the move could raise already high borrowing costs for Portugal and other so-called "peripheral" European countries. Yields on long-term Portuguese government bonds are well above 10 percent, more than three times higher than those of Germany.

MISSING TARGETS

Moody's Investors Service slashed Portugal's credit rating by four levels, to Ba2, causing the debt-laden Iberian country to follow Greece into junk territory below investment grade. Greece is rated much lower, at Caa1.

Portugal in April became the third euro zone country to request a bailout, after Greece and Ireland.

Moody's cited heightened concerns that Portugal will not be able to fully meet deficit reduction and debt stabilization targets set out in its loan agreement with the European Union and International Monetary Fund.

Portugal is receiving funds from a three-year, 78-billion-euro EU/IMF bailout programme and does not need to issue long-term debt in the market until 2013.

But Moody's said there is an increasing probability Portugal will not be able to borrow at sustainable rates in capital markets in the second half of 2013 and for some time thereafter.

There was a "growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition," Moody's said.

Of the three major ratings agencies, Standard & Poor's and Fitch Ratings both have Portugal at BBB-minus, the bottom of the investment grade range.

The first repercussions of the downgrade could come as early as Wednesday, when Portugal is due to place up to 1 billion euros in a 3-month Treasury bills auction. It may have to pay a higher premium to entice buyers.

Portugal's new centre-right government said in a statement that Moody's did not take into account strong political backing for austerity after a June 5 election, and an extraordinary tax announced last week.

"BIT EXTREME"

Unlike the previous minority Socialist government, the new ruling coalition has a comfortable majority in parliament to pass austerity measures and reforms. It did acknowledge, though, that the rating cut "shows the vulnerability of the country's economy amid a debt crisis."

It also reaffirmed commitment to deepening and speeding up austerity measures that the country vowed to implement under its bailout pact, saying a strong macroeconomic adjustment was "the only way to reverse the course and restore confidence."

The country has to slash its budget deficit to 5.9 percent of gross domestic product this year after overshooting its target last year, when the gap was 9.2 percent, and then reduce it to 3 percent by the end of 2013.

Anthony Thomas, Moody's analyst for Portugal, told Reuters "evidence that Portugal is meeting or indeed exceeding its deficit reduction targets" could be a positive that may lead the agency to change its outlook on the country's credit rating to stable from negative.

But he also said the outlook depends a great deal on whether euro zone officials will require private-sector participation when extending new financing to the region's troubled countries. Right now, such participation is planned to be only voluntary so as not to cause ratings agencies declaring it a "credit event."

Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, said Moody's move was "a bit extreme" and was likely to exacerbate concerns over Portugal's debt.

"The capacity to return to the markets after a while depends on a more global, structural solution by Europe rather than on what each troubled country does. I think it's too early to think of a second bailout for Portugal right now, not this year at least," he said.

Garcia said the ratings agencies were not taking into account the European Union's political determination to avoid a euro zone member's default, despite the union's strong support for Greece, which is in a far worse shape than Portugal.

"Either they don't believe in the power of the political will by the European Union to avoid default, or they are underestimating this political union," he said. (Reuters)

Moody’s Cuts Ireland Rating Two Levels, Outlook Negative

Apr 15, 2011 1:19 PM GMT+0530
By Finbarr Flynn and Dara Doyle

Ireland’s credit rating was cut two levels by Moody’s Investors Service to the lowest investment grade as the government struggles to lower the budget deficit and restore economic growth.

Moody’s reduced the rating to Baa3 from Baa1, leaving the country’s outlook on negative, according to an e-mailed statement today. That’s the same rating as Iceland, Tunisia, Romania and Brazil. Standard & Poor’s on April 1 cut Ireland’s rating one level to BBB+ with a stable outlook.

Irish taxpayers may spend as much as 100 billion euros ($145 billion) trying to solve Europe’s worst banking crisis as the country draws funds from last year’s bailout. Ireland is trying to convince investors at home and abroad it has finally plugged the hole in its lenders after four failed attempts following the collapse of the country’s property boom in 2007.

Irish debt restructuring is not a “plausible scenario,” Dietmar Hornung, a Frankfurt-based analyst at Moody’s, said in a telephone interview today. The country has a “good track record of delivering” fiscal consolidation, while the negative outlook reflects the “unbalanced risks” facing the nation.
‘Significant Threats’

The extra yield investors demand to hold Irish rather than German 10-year bonds has narrowed to 596 basis points from 687 basis points since central bank Governor Patrick Honohan disclosed on March 31 how much additional capital the country’s lenders need.

Fitch Ratings yesterday affirmed Ireland’s BBB+ rating and removed the threat of a downgrade, calling latest efforts to resolve the banking crisis “credible.” The ratings company maintained a negative outlook, citing “significant threats to an economic recovery and fiscal consolidation.”

Ireland’s central bank yesterday forecast gross domestic product to rise 0.9 percent this year, saying consumer demand will remain “subdued” as the government cuts spending. The European Central Bank last month projected the 17-member euro- region economy will expand about 1.7 percent in 2011.

“The country’s weak economic growth prospects are driven by the fiscal consolidation process, the ongoing contraction in private-sector credit, and a more adverse interest-rate environment,” Moody’s said. “The Irish government’s financial strength could decline further if economic growth were to be weaker than currently projected, or if fiscal adjustment were to fall short of the government’s planned consolidation path.”
‘Uncomfortable’ Place

Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London, said in an e-mailed note today that Ireland is now in the “most uncomfortable of places to be on the ratings scale, one false step from junk.”

Ireland’s government has injected about 46 billion euros into banks and taken majority stakes in four of them. Honohan said on March 31 it is realistic to expect Bank of Ireland Plc and Irish Life & Permanent Plc, the two lenders not already owned by the government, to fall under state control.

Finance Minister Michael Noonan said last month Ireland can sustain mounting debt levels if it fixes its lenders and maintains economic growth.

Other euro-region governments are also seeking ways to lower budget deficits and restore investor confidence. S&P last month cut Portugal for the second time in a week to the lowest investment-grade rating of BBB-. The country last month became the third euro nation after Greece and Ireland to ask for aid.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that a debt restructuring in the euro region could cause a “chain reaction through the banking sector,” calling the environment still “fragile.”

“The downgrade is disappointing to say the least,” Bloxham Stockbrokers analysts including Dublin-based Alan McQuaid said in an e-mailed note today. “However, given the ongoing uncertainty over Ireland’s fiscal position, it is not altogether surprising.” (sourced Bloomberg)

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Int'l rating body upgrades Indonesia's rank

Friday, April08, 2011 15:21:59

JAKARTA, April 8 (Xinhua) - International rating agency Standard & Poor's Ratings (S&P) upgraded Indonesia's long term foreign debt and sovereign credit rank from BB to BB+ with positive outlook, detikcom online news reported on Friday.

S&P also maintained Indonesia's short term debt rank at "B".

The upgrade is based on improving the government's financial balance and external liquidity as well as strong economic performance and prudent fiscal management.

It said that the upgrade could sustain if inflation pressure could be curbed, debt position reduced and debt balance improved, or if fiscal and external vulnerability are reduced though reforms.

"Indonesia's positive outlook reflects some kind of upgrade if inflation could be tamed in line with further improved financial balance that are combined with successful implementation of the government's policy on fiscal, administration and structural reforms agenda," said S&P credit analyst Agost Bernard. By English.news.cn

Moody's reviews POSCO's A2 rating for possible downgrade

March 29 (Reuters) - POSCO (005490.KS: Quote) * Moody's reviews POSCO's A2 rating for possible downgrade

India not as corrupt as China and Russia: Fitch

NEW DELHI: India is not as corrupt as China and Russia, according to the global credit rating agency Fitch.

Mar 6, 2011, 07.26pm IST |AFP

The country, however, suffers from excessive regulation and tax laws, which is concern for foreign investors, Fitch Group managing director for Corporate Rating Richard Hunter told PTI in an interview.

"We will certainly rank India well below Russia and China when it comes to concerns about corruption. Really big concern about India is regulation and tax treatment," he said.

These comments come at a time when the nation is facing a plethora of corruption cases relating to allocation of 2G spectrum, conduct of Commonwealth Games , allotment of flats in Adarsh Housing Society and Devas-Antrix deal.

Hunter further said that the recent corruption cases have not dent the confidence of investors in India, adding that "Corruption is certainly not a specialty in which India will win the gold medal."

However, he said, domestic and foreign investors are concerned about the burdensome regulatory regime in India.

"Corruption is something that does deter investors much more in China. There is respect for Indian legal system," he said.

Hunter said the rating outlook for most Indian companies is stable for the current year.

Tags : corruption, Indian legal system