Tag Archives: Rating

UK loses top credit rating

Posted February 23, 2013 21:41:22

Ratings agency Moody has downgraded the UK’s credit rating from AAA to Aa1.

It is the first time since the 1970′s that Britain has not had the top rating…

The downgrade is a huge political blow for the government, especially chancellor George Osborne who said it was a stark reminder of the debt problems facing the country.

Moody’s said the government’s debt reduction program faced big challenges ahead as the British economy struggles with recession and unemployment.

The UK has enjoyed a AAA rating since 1978 and Moody’s said economic growth would remain sluggish, but added the country ‘s credit worthiness remains extremely high.

Shadow chancellor Ed Balls said it was a “humiliating blow” to the chancellor and the prime minister who had said the AAA rating was a mark of economic and political credibility.

Topics: world-politics, business-economics-and-finance, economic-trends, united-kingdom

Fitch warns on UK’s AAA rating

HM Treasury Fitch has warned about the Treasury’s “credibility being damaged” The UK continues to risk losing its top AAA credit rating if it does not reduce its debt, a senior figure at Fitch Ratings has told the BBC.


David Riley reiterated that Fitch was unhappy that the chancellor said in the Autumn Statement that the Treasury would miss its 2015-16 target to start cutting the level of net debt.


Mr Riley said this had weakened the Treasury’s “credibility”.


The Treasury said it was committed to reducing the public debt.


“The government is committed to getting the public finances back onto a sustainable footing,” said a Treasury spokesman.


“The timeline for getting debt falling as a percentage of GDP has been endorsed by international organisations including the IMF and the OECD, as well as the CBI and the governor of the Bank of England.”


Fitch has had the UK’s AAA rating on “negative” outlook since March 2012, meaning that it is warning it may cut it.


Mr Riley, managing director of Fitch’s global sovereigns division, told BBC Radio 4′s World At One programme: “One of the factors that has been driving our negative outlook on the UK’s AAA rating – and therefore poses a risk to the UK’s AAA status – is the fact we have been consistently increasing our projection in terms of the level of government debt, and also pushing out the date and year when the debt will stop rising and start falling.”


The UK’s net sovereign debt was the equivalent of 68% of the country’s annual economic output, or GDP, at the end of last year.


Mr Riley warned that if this was to rise to 100%, “in our view that is not really consistent with the UK retaining a AAA rating”.

Fitch keeps France’s AAA rating

French finance minister Pierre Moscovici Finance Minister Pierre Moscovici has previously brushed off the ratings agencies Fitch has maintained the French government’s top credit rating – the only major ratings agency left to say the country deserves to be AAA.


Rival agency Moody’s downgraded France in November while Standard & Poor’s cut its rating in January.


However, Fitch has kept its negative outlook, suggesting France could be downgraded soon.


The UK, Germany and Canada are the only major economies to currently have a AAA rating from all three agencies.


A cut to a credit rating means that a country is perceived as more risky to lend to, which means the cost of borrowing from international investors can rise.


When its rating was cut by Moody’s last month, French Finance Minister Pierre Moscovici downplayed the importance of the decision.

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Ordered by Moody’s rating; eurozone in bold

France had narrowly avoided falling into recession during the third quarter of 2012, registering 0.2% economic growth from the previous quarter.


Over the course of the past 12 months, however, the French economy has more or less stagnated.


France’s Socialist government is enacting reforms that buck the trend of austerity in Europe, such as President Francois Hollande’s decision to reinstate retirement at 60 for some workers.


It has also raised the wealth tax on citizens and increased the highest rate of income tax to 75%.


A recent edition of the Economist magazine dubbed France “the time bomb at the heart of Europe”, claiming it had an under-competitive economy and over-dependence on government spending.


On Thursday, Standard & Poor’s became the last of the three main rating agencies to put the UK’s AAA rating on “negative outlook”.


The UK, Germany and Canada are the only major economies to currently have AAA ratings from all three agencies.

S&P cuts Ukraine rating one notch to ‘B’

SP23KIEV: Standard & Poor’s cut on Friday Ukraine’s long-term sovereign rating one notch to ‘B’ due to worries about its growing financing needs and failure to attract foreign currency.


“This downgrade reflects our opinion that Ukraine faces significant external financing needs in 2013 and beyond, and uncertain prospects for securing sufficient foreign currency,” S&P said, adding it was also keeping a negative outlook.


Ukraine’s government is likely to face higher borrowing costs next year due to change in global conditions or investor perceptions, S&P said.


The country needs to repay $3.5 billion to the IMF next year, and its external debt servicing will climb to 7 percent of government revenues, it said.


Earlier this week Moody’s ratings agency downgraded its assessment of Ukraine’s debt by one notch further into non-investment grade territory due to doubts about the government’s ability to implement reforms, worries about liquidity and a weak macroeconomic outlook.


The IMF agreed in July 2010 a $15.3-billion credit line for Ukraine and has already disbursed $3.4 billion in two instalments, the last dating back to 2010.


It has however refused for two years to disburse any more money, saying the authorities have not carried out sufficient reform.


The IMF, which has postponed a mission to Ukraine from mid-December to January due a surprise resignation of the government, is likely to take issue with the country’s domestic gas tariffs and inflexible exchange rate regime, S&P said.


“As a result, discussions with the IMF could extend well into 2013 and in our view any agreement may prove difficult to implement,” S&P predicted.


The negative outlook may be revised to stable if the government secures funding quickly and sets the economy “on a more sustainable growth path,” it said.


The economic problems represent a growing headache for President Viktor Yanukovych, already internationally isolated over the jailing of his main political rival Yulia Tymoshenko.


In a sign of the economy’s precarious situation, Ukraine’s Prime Minister Mykola Azarov and entire government resigned Monday.


Economists say that the government will inevitably have to again call on IMF loans to see it through 2013.

Copyright AFP (Agence France-Presse), 2010

Moody’s cuts AAA rating of ESM rescue fund

Washington: Moody’s cut the triple-A rating of the European Stability Mechanism rescue fund on Friday by one notch and gave it a negative outlook, citing its earlier downgrade of key ESM backer France.

Moody’s said the French downgrade on November 19, a one-step cut also from Aaa, reflects its view that there has been “a marginal diminution” in the likelihood that Paris will keep to its financial obligations, including its commitment to support the ESM.

For that reason, Moody’s also lowered the ESM’s rating to Aa1. It cut the ESM’s predecessor, the European Financial Stability Facility, to a “provisional” Aa1 from provisional Aaa, for the same reason.

“The credit risks and ratings of the ESM and the EFSF are closely aligned to those of its strongest supporters,” Moody’s said.

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“France is the second largest contributor to the two entities’ financial resources, as a provider of callable capital in the case of the ESM and as a guarantor country in the case of the EFSF.”

Germany is the largest backer of the two mechanisms, and its credit rating remains at the top-level Aaa.

The ESM and EFSF are crucial mechanisms for the rescue plan for the Eurozone, routing aid from Europe’s wealthy countries to the crisis-stricken governments and banks of Greece, Spain, Portugal and Ireland.

Moody’s said both remain highly rated because they have strong capital bases and firm controls and that the ESM enjoys, as a lender, preferred creditor status.

ESM chief Klaus Regling objected to the Moody’s downgrade as unwarranted.

“Moody’s rating decision is difficult to understand,” he said in a statement.

“We disagree with the rating agency’s approach which does not sufficiently acknowledge ESM’s exceptionally strong institutional framework, political commitment and capital structure.”

Eurogroup President Jean-Claude Juncker, who also serves as ESM and EFSF chairman, said: “The 17 euro area Member States are fully committed to ESM and EFSF in political and financial terms and stand firmly behind both institutions.”

Moodys warns Queensland on credit rating

Updated November 26, 2012 12:29:50

The international ratings agency Moody’s has downgraded its outlook for Queensland’s credit rating.

Moody’s says the change from Aa1 with a stable outlook, to Aa1 with a negative outlook, reflects the state’s deteriorating financial performance since the 2007-08 financial year and high debt levels.

The ratings agency says the state has faced high infrastructure costs in recent years due to rapid population growth in the south, and demand from the resources sector in the north.

Moody’s says the severe floods of early last year also hit Queensland’s budget.

In a statement, the agency welcomed the state’s new budget plan, but it says the measures face several headwinds.

“The state government has implemented a new fiscal redress plan that aims to restore budgetary balance by 2014/15, largely through constraining growth in expenditures to 2.5 per cent on average over the next four years compared to the 8.7 per cent registered over the past four years,” Moody’s says.

“This more prudent fiscal approach is a positive development, but actual improvements would take a few years and will be challenged by upward pressures on expenditures related to rapid population growth.”

But it says the state’s Aa1 rating reflects its strong budget flexibility and diverse economic base, as well as support from the Federal Government.

Moody’s says the state must reach a sustainable surplus for its outlook to return to stable.

Topics: business-economics-and-finance, economic-trends, government-and-politics, australia, qld

First posted November 26, 2012 11:25:31

Rating agencies come under scrutiny

Credit-rating companies in the United States are beset by shortcomings, failing to act quickly enough to issue downgrades and not properly documenting ratings decisions, the Securities and Exchange Commission (SEC) said in a report.

The SEC said Thursday that the country’s largest credit-rating firms — Standard & Poor’s Corp, Moody’s Investors Service and Fitch Ratings — did not follow their own policies in issuing ratings and failed to accurately document their decisions.

This was the second report the SEC has issued about ratings firms, a responsibility the agency inherited under the Dodd-Frank financial reform act. The report evaluated the performance of rating companies from August 2010 through September 2011.

Eight of nine firms made changes that the SEC had recommended in a 2011 report, the agency said in its latest report. One of the “smaller” firms “failed to appropriately address the vast majority of recommendations from the 2011 examination,” the SEC said in the report. The report did not name any firm, instead identifying them as the “three largest” or “smaller” ratings companies.

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“The SEC’s enhanced oversight … is having a positive effect,” said Thomas J. Butler, director of the SEC’s credit ratings office, which was created under Dodd-Frank.

“The firms have been generally responsive to the staff’s recommendations, which are intended to strengthen … policies, procedures and operations and to make their internal governance and controls more robust.”

The three large credit-rating firms said they were satisfied with the SEC’s report and were working to make improvements that the agency suggested. S&P spokesman Edward Sweeney said in a statement that the firm “has continually enhanced its ratings process, governance and compliance function, including proactively making a number of the changes that are now being recommended by the SEC.”

S&P is the largest credit-rating firm in the world, with more than 1,400 analysts and managers. Credit-rating firms evaluate companies and government agencies seeking to issue debt through bonds or other securities. The ratings they receive affect the interest rate on the debt. Joshua Rosner, managing director of research firm Graham Fisher & Co, said he believes the ratings companies have “poor internal controls, a lack of strong oversight and no reduction in the conflicts of interest that exacerbated the (2008 economic) crisis.”

“We’ve all gotten a few years older, but very, very little has changed since 2008,” Rosner said. Rosner and others criticised the ratings firms for failing to reduce the credit ratings of mortgage-backed securities largely blamed for the 2008 economic crisis.

“We’ve done some wonderfully impressive rain dances in hopes things would change but have taken very little meaningful action to make sure they have,” Rosner said.

French downplay credit rating cut

Pierre Moscovici said the downgrade was motivation to pursue structural reforms The French government has downplayed the importance of rating agency Moody’s decision to deprive the country of its top triple-A credit rating.


Moody’s downgraded France’s debt from Aaa to Aa1, and kept its negative outlook, meaning it could be cut again.


Moody’s blamed stalled economic growth, the risk of a Greek euro exit and the risk that France has to contribute to bailing out other eurozone countries.


“Judge us on our results,” French Finance Minister Pierre Moscovici said.


Rival ratings agency Standard & Poor’s downgraded France from AAA in January. Of the big three agencies, only Fitch still gives France its top rating.

‘Second place’

“The rating in no way places a question over the fundamentals of our country’s economy – neither the reforms undertaken by the government, nor the quality of the signature on our debt,” said Mr Moscovici.


He pointed to the fact that Moody’s had only downgraded its rating of the country’s long-term debts by one notch, and still gave France’s short-term debts its top rating.

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Ordered by Moody’s rating; eurozone in bold

The finance minister said Moody’s decision reinforced the need for the government to pass a package of economic reforms that is proving unpopular with voters.


The ratings agency’s move had not affected sentiment on the financial markets, which still held French debts in high regard, the government claimed.


“France still represents sound value. It is in second place just after Germany,” said government spokesperson Najat Vallaud-Belkacem, speaking on French radio.


“Even today, investors lend to France in very favourable conditions. For example, we make short-term borrowings at negative rates, and that is going to continue.”


Moody’s said the primary reason for the downgrade had been France’s “persistent structural economic challenges” and the threats they pose to economic growth and the government’s coffers.


“These include the rigidities in labour and services markets, and low levels of innovation, which continue to drive France’s gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base,” Moody’s said.


Mr Moscovici said the downgrade was motivation to pursue structural reforms.


He also blamed the downgrade on the economic management of previous governments and added that France was still committed to cutting its public deficit to 3% of output next year.

‘Time bomb’

Data released last week showed that France had narrowly avoided falling into recession during the third quarter of 2012, registering 0.2% economic growth from the previous quarter.


Over the course of the 12 months, however, the French economy has more or less stagnated.

Continue reading the main story
The Moody’s decision may not matter very much to the French government’s cost of borrowing on world markets – at least in the short run. In the grand scheme of things, it may not matter very much at all, given how many other countries have also lost their triple A”

End Quote As well as the latest downgrade, France’s new Socialist government has also had to put up with criticism from the financial community and the press, particularly in light of President Francois Hollande’s decision to reinstate retirement at 60 for some workers.


The latest edition of the Economist magazine dubbed France “the time bomb at the heart of Europe”, claiming it had an under-competitive economy and over-dependence on government spending.


French Prime Minister Jean-Marc Ayrault accused the Economist of “excess” saying that “France is not at all impressed”.


Nonetheless, the French authorities’ reaction to criticism has been notably more sanguine under the current government than under former President Nicolas Sarkozy.


When Standard & Poor’s indicated that it intended to become the first rating agency to knock France off the triple-A top spot last December, French policymakers sought to deflect attention to the UK, whose top credit rating was reaffirmed.


The head of the French central bank, Christian Noyer, demanded that the UK should be downgraded first, while the then Finance Minister Francois Baroin poked fun at the UK, saying: “Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average.”

Q4 2011 Q1 2012 Q2 2012 Q3 2012

Source: Eurostat; figures show % change compared with previous quarter

Fitch reaffirms Commercial Bank of Dubai rating

Dubai: Fitch recognises Commercial Bank of Dubai’s (CBD) strong capitalisation and consistent performance through the crisis, the ratings agency said.

Fitch expects revenue and profit growth given the still challenging operating environment. Fitch indicates that CBD’s margins remain strong due to its niche focus on family-owned business groups in the UAE, preference towards short-term lending and good access to low cost funding.

Furthermore, CBD continues to derive strong non-interest earnings from mainly trade finance and transaction banking.

CBD’s Fitch core capital ratio of 19.3 per cent at the end of September is high compared with peers and provides a good buffer against concentration risk.

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Doubts raised over CSG’s green rating

Updated November 15, 2012 11:48:01

A scientific study is raising serious doubts about the green credentials of the expanding coal seam gas (CSG) industry, suggesting it is far less environmentally clean than it claims.

Coal seam gas is booming across southern Queensland and is now expanding into NSW, and the industry is pushing its economic benefits as well as its green credentials.

Rick Wilkinson from the Australian Petroleum Production and Exploration Association (APPEA) says compared to coal, CSG can provide energy with up to 70 per cent less greenhouse gas emissions.

But there is one critical element in this equation: how much greenhouse gas emissions leak into the atmosphere during the extraction process, what the industry calls fugitive emissions.

Peter Rayner from the University of Melbourne says fugitive emissions are “emissions that escape from the intended process of production”.

“They’re emissions that escape, maybe through pipelines or from wellheads or through the soil, that aren’t an intended part of the process of generating the natural gas,” he said.

In an attempt to measure these elusive emissions, researchers from the Southern Cross University took part of their laboratory into the field, around northern NSW and the Tara gas fields in southern Queensland.

Their results so far are striking. Researcher Isaac Santos says the amount of leaking methane is about 3.5 times higher than had been expected.

“This is new technology so our specific approach of driving a car and taking readings on the go is new,” he told the ABC’s 7.30 program.

This method allowed them to take many more samples than was previously available.

As expected, their spectrometer recorded low atmospheric levels of methane outside the gas fields. But once they got near the gas wells, the picture changed quite dramatically.

“They’re extremely high,” Dr Santos said.

What we now need to do is to check firstly the same field as it evolves through its stages of production, and secondly, to see whether this is happening elsewhere.

Carbon cycle scientist Peter Rayner

“They’re some of the highest ever found anywhere. Those concentrations are higher than found in Siberia in some of the largest gas fields from Russia.”

Professor Rayner, a carbon cycle scientist, has studied the Southern Cross University data and agrees it raises some significant questions.

“It could be a one-off. That’s the problem with doing one study, we don’t know,” he said.

“What we now need to do is to check firstly the same field as it evolves through its stages of production, and secondly, to see whether this is happening elsewhere.”

He says the data suggests the methane came from under the ground, which could have serious consequences.

“The problem is that methane is a much more serious greenhouse gas than carbon dioxide,” he said.

“So every little bit of methane that you leak as you try and mine this stuff, process it or burn it, contributes much more than the carbon dioxide.”

That is bad news for any industry operating under a carbon tax.

But the industry’s peak body, APPEA, says this is all highly speculative.

“I think the study’s incomplete,” Mr Wilkinson told 7.30.

“I think there’s much more work that needs to be done before they can reach conclusions.

“Do I think that this would fundamentally change the industry? No. These are very small amounts that we’re working with here and even within the range that are being talked about, it would not fundamentally change the equation that says gas is better for the environment than coal.”

These are very small amounts that we’re working with here and even within the range that are being talked about, it would not fundamentally change the equation that says gas is better for the environment than coal.

APPEA chief operating officer Rick Wilkinson

But those farmers and environmentalists who’ve been campaigning against CSG are asking why these sort of studies were not done before the industry was given the green light.

Drew Hutton from anti-CSG group the Lock the Gate Alliance says the study shows that CSG is a dirty, polluting industry.

“Governments give them a big push, off they go, no preliminary research, no baseline studies, no precautionary principle applied, just let ‘em loose on the environment and then do your studies a decade or so later,” he said.

But with no baseline study, the researchers admit it is difficult to assess the true significance of their findings.

“I think the take-out message is that we’ve got to make sure we take samples before we change the way the environment is working,” he said.

“We found very high concentrations and we are now in a position (to ask) what the hell that means.”

Mr Wilkinson says the studies should have been done 10 or 15 years ago.

“The issue is now should we support ongoing development research? Yes, we should and that’s what our position is,” he said.

Editor’s note (15/11/12): The story previously introduced Drew Hutton as from the Queensland Greens. He is from anti-CSG group the Lock the Gate Alliance.

Topics: oil-and-gas, industry, business-economics-and-finance, mining-rural, mining-environmental-issues, environment, science-and-technology, lismore-2480, nsw, australia, tara-4421, toowoomba-4350

First posted November 14, 2012 22:35:15

State credit rating stable, for now

Posted October 02, 2012 16:09:16

Tasmania has retained its AA-plus credit rating from the independent agency, Standard and Poor’s.

The agency says the Tasmanian Government continues to demonstrate fiscal discipline but says limited budgetary flexibility is a ratings constraint.

The Premier, Lara Giddings, says it is a pleasing result.

“They acknowledge the strength of the decisions that have been made by this Government and the strong financial management that we are showing,” she said.

“They in fact also highlight the fact they do not see the minority government as a problem at all, in fact to the contrary.”

While she welcomes the result, the Premier says she is not confident of a similar result from a second agency, Moody’s.

“Moody’s has recently downgraded South Australia and Queensland has also been under some pressure.”

“So we are very concerned in that respect about the mood of Moody’s, so to speak.”

Topics: economic-trends, states-and-territories, tas, hobart-7000, launceston-7250

Moody’s downgrades Tas credit rating

Updated October 03, 2012 19:54:36

The Tasmanian Premier, Lara Giddings, has refused to rule out further budget cuts amid Moody’s downgrading of the state’s credit rating.

The credit agency has Tasmania’s on Aa1 but is stable.

In a statement, the agency says the ratings downgrade reflects persistent large deficits which first emerged in 2008 and the likelihood the debt burden will not show any significant decline over the medium term.

It cites slow growth in GST receipts despite weakness in the local economy and spending outpacing revenue.

Moody’s also blames the high Australian dollar and global uncertainty for the downturn in the woodchip, manufacturing and tourism industry, resulting in the state’s slow growth nationally by less than one per cent in 2010-11.

However, the agency says the stable outlook reflects the Government’s commitment to reducing the budget deficit.

The credit rating influences the interest rate Tasmania pays on state debt, impacting on the budget.

It could also have a further impact on business confidence.

The Premier, Lara Giddings, has admitted the downgrading will mean the government will pay more interest on loans, but could not say how much.

“That does, in fact, impact on the cost of borrowings for the state,” she said.

“It will cause a little more pressure on our state budgets, in that respect, where there are borrowings and we have to find the increased interest as a result of that.”

Ms Giddings left the door open over whether it means further budget cuts.

“Obviously any impacts on the budget we have to take into account in the lead up to the next budget.”

The Opposition Leader, Will Hodgman, says it is further proof of budget mismanagement.

“This will be a very serious blow to Tasmania’s economy and our financial situation.”

Economists say the downgrade reinforces the need to return the budget to surplus.

Moody’s recently downgraded South Australia and Queensland.

Topics: states-and-territories, economic-trends, tas, hobart-7000, launceston-7250

First posted October 03, 2012 11:40:17

Rating cut piles pressure on Spain

Madrid: Spain faced renewed pressure to take the politically humiliating step of seeking sovereign aid on Thursday after a credit agency cut its rating to near junk, triggering a spike in its borrowing costs.

Standard and Poor’s said recession was limiting Spain’s options on policy and said Madrid’s delay in asking for aid could drag on the new rating, which it kept on negative outlook — indicating another cut is in prospect.

Another headache for the government came with data showing consumer prices rose at their fastest pace in 16 months in September, further depressing demand among cash-strapped consumers.

“We expect the current situation to continue to run until either market or political pressures become more acute,” US investment bank JP Morgan said in a note to clients. “The promise of ECB action may be holding back both sorts of pressure in the near-term, and there is little evidence to suggest that either will necessarily reappear over the next few weeks.”

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The European Central Bank’s plan to buy the bonds of struggling governments has raised hopes of an end to the most acute phase of the euro zone’s crisis. Spain’s delay in asking formally for such aid is steadily undermining such hopes.

Prime Minister Mariano Rajoy, who has said he will only make an aid request decision when he had all the details, is thought to be waiting for regional elections on October 21 and, if the ECB effect keeps debt costs down, he may delay a decision further.

While neither Rajoy or the euro zone’s paymaster Germany seem keen for Spain to dive in to a rescue plan, further market pressure or a sovereign downgrade to junk would hasten the process, economists say.

“In the short term we suspect that the noise and column inches generated by the S&P downgrade will be disproportionate to its impact,” Citi said in a note.

“But the longer term impact could be very significant if the market sees the trajectory towards Spain’s eventual exclusion from (investment grade) indices as inevitable.”

Secretary of State for the Economy Fernando Jimenez Latorre reiterated that Madrid was still considering whether to apply for aid.

S&P’s action brought it in line with peer Moody’s, which also has Spain on the verge of losing its investment grade and is due to complete a review of that rating this month.

S&P revises rating methods for commercial property bonds

Standard & Poor’s rolled out changes to how it rates commercial property bonds in its latest attempt to regain a share in the $600 billion market after it had to pull preliminary ratings in a high-profile deal last year over “inconsistencies”.

The latest methodology seeks to harmonise its ratings criteria for new issues and also how it monitors existing transactions. The rating agency said reviews of ratings on outstanding deals using its new criteria could lead to both downgrades and upgrades of up to $102 billion of commercial mortgage-backed securities within the next six months.

In July of last year Goldman Sachs and Citigroup cancelled a $1.5 billion securitisation of commercial mortgages after S&P pulled its ratings on the deal. S&P found potentially conflicting methods in the way it rated new and existing deals. No issuer has since hired it to rate a commercial property deal backed by a large pool of loans.

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S&P said that its latest guidelines included new methods to measure returns on real estate investments for different cities and regions. The changes will affect US and Canadian CMBS deals.

Over the past year, S&P has also revamped its team that rates commercial mortgage bonds, including naming Peter Eastham as head of the US CMBS ratings group, replacing Barbara Duka who left the business.

Eastham said the new guidelines reflected “our commitment to more stable ratings and an improved way of evaluating the relative credit risks of various CMBS structures and loans”.

The market for commercial mortgage bonds has rallied this year as investors have sought alternatives to lower-yielding government bonds, even as delinquency rates for property loans bundled into bonds surpassed 10 per cent.

The increase was largely due to five-year loans that were issued in early 2007 when underwriting standards were less strict. Loans are delinquent when payments are 30 days past due.

Despite this, the delinquency rate fell in August for the first time in five months, according to research group Trepp.

“As most of the five-year loans have now passed their maturity date, the upward pressure that they put on the delinquency rate when they could not be refinanced is largely gone,” Trepp analysts said. “For the immediate future, the worst of the delinquencies should be behind us.”

Euro slips in Asia after S&P cuts Spain rating

TOKYO: The euro weakened in Asia on Thursday after Standard & Poor’s cut Spain’s sovereign debt rating, while traders also had an eye on a meeting of the Group of Seven major economies in Tokyo.

The European common currency was changing hands at $1.2840 in Tokyo morning trade against $1.2887 in New York late Wednesday, while it fell to 100.26 yen from 100.74 yen.

The dollar declined to 78.06 yen against 78.18 yen.

Standard & Poor’s slashed Spain’s rating late Wednesday by two notches to just above junk level, citing a deepening recession and strains from the country’s troubled banks.

“The news caught the market off guard as we were focused on possible rating action by Moody’s,” Osao Iizuka, head of FX trading at Sumitomo Mitsui Trust Bank, told Dow Jones Newswires.

A senior dealer at a Japanese bank said: “The focus is on whether London players will react to the S&P news again when they come to the market later in the day.”

Also in Tokyo finance ministers and central bankers from the G7 are to hold talks later in the day on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Tokyo.

They are expected to discuss the plodding global economy as well as the yen’s ongoing strength, which is hammering Japan’s economy.

S&P cuts Spain’s credit rating

10 October 2012 Last updated at 22:31 GMT Spanish protesters Government austerity measures have proved deeply unpopular with the Spanish people Ratings agency Standard & Poor’s has downgraded Spain’s credit rating, highlighting a deepening recession and mounting pressure on Madrid’s finances.

S&P cut Spanish debt from BBB+ to BBB-, one level above junk status, and warned of possible further downgrades.

Spain is struggling with high debt levels and the highest rate of unemployment in the eurozone.

Madrid has introduced drastic spending cuts and tax rises, but many think it will have no option but seek a bailout.

“The downgrade reflects our view of mounting risk to Spain’s public finances, due to rising economic and political pressures,” S&P said.

“The deepening economic recession is limiting the Spanish government’s policy options.”

Rising debt

Last month, the government unveiled its latest budget designed to make savings of around 13bn euros ($16.7bn; £10.4bn) next year, by cutting public sector wages, education, health and social services.

The cuts were the latest in a series of austerity measures that have sparked angry protests across Spain.

Despite the cuts, tax rises, labour market and pension reforms, the Spanish government has said the country’s overall debt levels will rise next year to more than 90% of total economic output.

The country’s borrowing costs have remained high for months, leading many analysts to argue it is only a matter of time before Madrid is forced to ask its eurozone partners for financial assistance.

However, last week, Spanish Economy Minister Luis de Guindos denied his country would be asking for help.

“Spain does not need a bailout at all,” he said.

India could see rating cut despite reforms: S&P


MUMBAI: Global ratings agency Standard & Poor’s warned on Wednesday that India still faced at least a “one-in-three” risk of its credit rating being cut to junk status, despite a blitz of economic reforms.


The Congress-led government of Prime Minister Manmohan Singh in the past few weeks has announced a string of reforms intended to boost foreign investment and spur the sharply-flagging economy.


The reiteration of the ratings downgrade threat — initially issued in April — sent India’s stock market down by 162 points to close at 18,631.10.


Standard & Poor’s (S&P) said there was “at least a one-in-three likelihood” of a downgrade of India’s sovereign rating within the next 24 months.


The statement came a day after the International Monetary Fund lowered its forecast for India’s 2012 growth by one percentage point to 4.9 percent, due to stalled investment caused by graft issues, red tape and poor business sentiment.


India’s growth right now is bumping along at 5.5 percent, according to the most recent official quarterly figures — its slowest pace in about three years.


The ratings agency said global economic uncertainties are intensifying.


“In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India,” the agency said.

Fitch affirms Britains AAA credit rating, negative outlook

PARIS: Fitch Ratings on Friday maintained Britain’s “AAA” credit rating with a negative outlook, warning that weak economic growth and a rising debt level was increasing the likelihood of a downgrade.

Fitch said “weaker than expected growth and fiscal outturns in 2012 have increased pressure on the UK’s ‘AAA’ rating”.

With Fitch estimating that Britain’s debt in 2015-2016 may approach 100 percent of gross domestic product (GDP), the limit for a top “AAA” rating “the likelihood of a downgrade has therefore increased.”

It said the negative outlook reflects Britain’s “very limited fiscal space, at the ‘AAA’ level, to absorb further adverse economic shocks in light of the UK’s elevated debt levels and uncertain growth outlook.”

Fitch had put Britain’s rating on negative outlook, or subject to downgrade, in March.

Given the uncertainties of the fiscal and economic projections Fitch said it did not expect to resolve its negative outlook on Britain’s rating until 2014.

However it warned a downgrade was likely if Britain’s medium-term growth outlook worsened, there were indications that government debt would exceed 100 percent of GDP, or an easing of fiscal policy that pushes back a reduction in debt levels.

“Global economic headwinds, including those emanating from the on-going Eurozone crisis, have compounded the drag on UK growth from private sector deleveraging and fiscal consolidation as well as from depressed business and consumer confidence, weak investment, and constrained credit growth,” said Fitch.

The ratings agency said it now expects Britain’s economy to contract by 0.3 percent in 2012 compared to an expectation of growth of 0.8 percent when it last formally reviewed the country’s rating in March.

S&P affirms Australias AAA rating

SYDNEY: International credit agency Standard & Poor’s on Wednesday affirmed mining-driven Australia’s AAA rating with a stable outlook, but warned about its growing reliance on the Chinese economy.

Australia is one of only a handful of nations to hold the top rating, with its economy growing a solid 0.6 percent in the three months to June and 3.7 percent from a year earlier.

But the figure was less than half the upwardly revised 1.4 percent in the first quarter of 2012 and below analyst predictions of 0.8 percent, held back by key trade partner China’s slowdown and European woes.

S&P said the AAA rating reflected Australia’s “ample fiscal and monetary policy flexibility, economic resilience, public policy stability, and a financial sector that appears to be sound”.

“While strong demand for its commodities continues — from emerging Asia, and particularly China — we believe Australia’s economic prospects remain favorable,” said credit analyst Kyran Curry.

But he also warned that it faces significant risks.

“Considerable risks remain for Australia’s growth prospects, prosperity, and credit quality,” he said.

“These stem from its growing dependence on trade with China. If demand for Australia’s resources were to weaken, this could lead to a range of disorderly dislocations in its economy, including in its labour and property markets.”

Australia was the only advanced economy to dodge recession during the global downturn due to the relative resilience of Asia — a crucial market for its resources exports — along with a series of government stimulus packages.

Treasurer Wayne Swan hailed the rating.

“(We are) one of seven countries in the world with that rating,” he said.

“This rating reflects sound fiscal policy, the resilience of the Australian economy and that’s good news for Australia.”

Moody”s downgrades EU rating outlook to ”negative”

NEW YORK: Moody’s on Monday lowered the European Union’s long-term issuer rating outlook from stable to negative, saying the move reflected credit risks of the bloc’s key budget contributors.


“It is reasonable to assume that the EU’s creditworthiness should move in line with the creditworthiness of its strongest key member states,” it said, citing negative outlooks for Britain, France, Germany and the Netherlands.


Despite Moody’s pronouncement, the euro rose to a two-month high of $1.2618 in Asian trading Tuesday, compared with $1.2598 late Monday in London trade. Dealers were keeping faith with the euro amid rising expectations that the European Central Bank (ECB) will on Thursday announce a round of sovereign bond purchases from struggling economies.


Moody’s maintained the EU’s triple-A rating, saying its “two key rationales” for assigning the bloc its highest rating remained unchanged: its “conservative budget management” and “the creditworthiness and support provided by its 27 member states.” Britain, France, Germany and the Netherlands — which together account for about 45 percent of the EU’s budget revenue, according to Moody’s — also maintain a AAA credit rating.


The agency, however, did not exclude the possibility of a future EU downgrade, saying in its statement that a “deterioration in the creditworthiness of EU member states” could prompt such a move.

Moody”s downgrades EU rating outlook to ”negative”

NEW YORK: Moody’s on Monday lowered the European Union’s long-term issuer rating outlook from stable to negative, saying the move reflected credit risks of the bloc’s key budget contributors.


“It is reasonable to assume that the EU’s creditworthiness should move in line with the creditworthiness of its strongest key member states,” it said, citing negative outlooks for Britain, France, Germany and the Netherlands.


Despite Moody’s pronouncement, the euro rose to a two-month high of $1.2618 in Asian trading Tuesday, compared with $1.2598 late Monday in London trade. Dealers were keeping faith with the euro amid rising expectations that the European Central Bank (ECB) will on Thursday announce a round of sovereign bond purchases from struggling economies.


Moody’s maintained the EU’s triple-A rating, saying its “two key rationales” for assigning the bloc its highest rating remained unchanged: its “conservative budget management” and “the creditworthiness and support provided by its 27 member states.” Britain, France, Germany and the Netherlands — which together account for about 45 percent of the EU’s budget revenue, according to Moody’s — also maintain a AAA credit rating.


The agency, however, did not exclude the possibility of a future EU downgrade, saying in its statement that a “deterioration in the creditworthiness of EU member states” could prompt such a move.

Moody”s downgrades EU credit rating outlook

NEW YORK: Ratings agency Moody’s on Monday lowered the European Union’s credit rating outlook from “stable” to “negative,” saying it reflected negative outlooks assigned to the bloc’s key budget contributors.


“It is reasonable to assume that the EU’s creditworthiness should move in line with the creditworthiness of its strongest key member states,” it said, citing negative outlooks for Britain, France, Germany and the Netherlands.

Rating downgrade raises risk premium on investment: ADB

ADB says rating cut, circul­ar debt main hurdle­s in way of invest­ment.  “I have visited KESC and I am impressed by the way the company is working to reduce transmission and distribution losses,” ADB’s DG Private Sector Operations Philip Erquiaga.


ISLAMABAD: The Moody’s decision to downgrade Pakistan’s credit rating, the deteriorating macroeconomic conditions and circular debt are the main impediments in the way of investment, which has plunged to historic lows, says a top official of the Asian Development Bank (ADB).


Speaking to the media after conclusion of his visit here on Friday, ADB’s Director General Private Sector Operations Department Philip Erquiaga said the credit rating downgrade has raised risk premiums on investment.


Erquiaga was visiting Pakistan to review lending activities and risk management and explore opportunities for future lending and investments in the private sector. His comments came at a time when the country was struggling to cope with worsening economic indicators and their fallout.


He urged the government to take effective measures to reverse the situation. However, the government has so far shown reluctance to accept the adverse implications of the cut in credit rating.


ADB’s Country Director for Pakistan Werner Liepach, who was also present in the media briefing, said the rating downgrade was a serious concern and the reversal of the situation was highly unlikely before general elections.


In July, New York-based Moody’s – one of the three largest credit rating agencies in the world – slashed Pakistan’s foreign and local currency bond ratings from B3 to Caa1, equal to the lowest rating Pakistan has ever got.


Erquiaga cautioned that no one would invest in Pakistan when investors were worried that their payments would be delayed because of the circular debt and there would be problems in getting uninterrupted power supply. Security situation was another concern for the investors, he said.


Erquiaga said in many ways Pakistan was facing the same challenges in attracting new investment as other countries were. He stressed that transparency, consistency of policies and processes were essential for promoting investment in the country, adding rules must not be changed arbitrarily and terms of agreements must be respected.


“While moving forward, the government must maintain transparency in privatisation and tendering,” said Erquiaga.


Defending the privatisation process, he said contrary to the impression created by vested interests, the privatisation of Karachi Electric Supply Company was a success story. “I have visited the KESC and I am impressed the way the company is working to reduce transmission and distribution losses. The ADB has given $150 million to the KESC management.”


Highlighting the bank’s performance, he pointed out that the ADB has extended loans to the private sector in the areas of energy, trade finance and capital markets. Its private sector lending portfolio in Pakistan stands at $622 million in 10 projects.


The DG said the ADB was looking for opportunities to facilitate new investment in establishment of independent power plants.


To a question about funds required for setting up terminals for import of liquefied natural gas (LNG) and liquefied petroleum gas (LPG), the DG said at the moment no such project was ready for investment. But he expressed the bank’s willingness to help Pakistan diversify its energy mix as well as assist the private sector in this regard.


Liepach said Pakistan would have to ensure consistency of policies for seeking ADB’s investment, which at the moment was lacking.


Published in The Express Tribune, September 1st, 2012.

Dictum meum pactum: S&P reaffirms Pakistan’s sovereign credit rating

Mainta­ins long term credit rating, upgrad­es short term rating. ” Debt servicing and other expenditure rigidities against a narrow revenue base of 12.5% of GDP result in ongoing fiscal slippages,” S&P credit analyst Agost Benard.

S&P, one of the three largest credit rating agencies in the world, appeared to have been looking at much the same data as Moody’s, but arrived at a different conclusion. In a statement released to the press, the company said: “The sovereign ratings on Pakistan take into account the country’s weak fiscal profile and associated high public and external leverage, low income level, as well as the underlying weak political and policy setting. These constraints are balanced against strong remittance inflows that help sustain a still-adequate external liquidity position.”

The agency appeared to have analysed in depth Pakistan’s ability to pay its own electricity bills, but ultimately judged that its existing rating captured the risks of the delayed payments that many power companies have currently been facing.

“Our ‘B’ rating category considers the potential of administrative weaknesses to result in payment delays from ministries to agencies,” said S&P credit analyst Agost Benard.

Local analysts broadly concurred with the views expressed by S&P. “Our view is that the S&P rating is a more accurate reflection of Pakistan’s creditworthiness. We feel that Moody’s is overly pessimistic in their outlook on Pakistan,” said Atif Zafar, an economic analyst at JS Global Capital, an investment bank.

Others felt that while Moody’s may not be wrong, S&P seems to have delivered a more balanced view. “At the end of the day, while it is not entirely a subjective call, it does depend to an extent on the analysts’ own views of things. Both Moody’s and S&P are looking at the same variables, though we feel that Moody’s was harsh in not taking into consideration the recent improvements. S&P is not saying that things are great, but they are saying that they have not gotten materially worse,” said Imtiaz Gadar, an economist at KASB Securities.

S&P certainly did highlight several challenges faced by the Pakistani economy, not least of which is the high debt servicing burden faced by the government.

“The interest burden on this debt poses a great constraint on discretionary spending, given already sparse fiscal resources,” said Benard. “The large interest bill and other expenditure rigidities against a narrow revenue base of about 12.5% of gross domestic product (GDP) result in ongoing fiscal slippages.”

The agency nonetheless did upgrade Pakistan’s short-term credit rating to B, from C. However, analysts cautioned against getting excited over this seeming upgrade.

“S&P recently revised its criteria for short-term ratings to link it directly to long-term ratings. Hence, the raising of the short-term rating does not reflect an improvement in Pakistan’s short-term creditworthiness,” said Burj Capital, in a note issued to clients on Friday afternoon.

The New York-based rating agency reaffirmed its stable outlook on Pakistan’s sovereign credit ratings. However, it did warn that the ratings may be revised downwards “if major slippages in policy occur, resulting in rising public debt, or if the balance-of-payments position deteriorates and external liquidity comes under greater stress.”

Unlike Moody’s, S&P also seemed more open to the possibility of raising Pakistan’s credit rating, provided that the country “shows progress in its fiscal consolidation efforts, manifested in moderating deficits and a steady reduction in the public debt burden.”

Some observers were more cynical in their assessment of what the rating meant for Pakistan’s economy.

“A junk bond is a junk bond. The difference between B- and CCC+ is simply one of semantics,” said one former investment banker in Karachi, who wished to remain anonymous.

Published in The Express Tribune, July 21st, 2012.

Mood swings: ‘Rating downgrade to further dent investor confidence’

Foreig­n invest­ors have alread­y been moving cautio­usly for last three months. “New foreign investors will not invest in the stock market, but being the regulator I cannot comment in which direction the stock market moves,” Securities and Exchange Commission of Pakistan Chairman Muhammad Ali

ISLAMABAD: 

Moody’s decision to downgrade Pakistan’s sovereign credit ratings will affect trading in the stock market as foreign investors will further shy away from investing in equities, said Muhammad Ali, Chairman Securities and Exchange Commission of Pakistan (SECP) here on Tuesday.

To a question, Ali said the credit rating agency’s decision will further shatter confidence of foreign investors, who have already been moving cautiously for the last three months due to various reasons.

He was speaking to the media about recent developments taking place in the equity market.

“New foreign investor will not invest in the stock market, but being the regulator I cannot comment in which direction the Karachi Stock Exchange index, currently trading at 14,457 points, will move,” said a cautious Ali as his statement could have profound implications for the market.

The SECP chairman was the first high-ranking government functionary, who briefly spoke about implications of the ratings downgrade to junk status. Citing the reasons, Moody’s pointed to a worsening current account balance, declining foreign exchange reserves and looming payments to the International Monetary Fund, which may lead to default on international payments.

So far, finance ministry officials including the minister and secretary have kept mum over the issue. The government has already defaulted on payment of sovereign guarantees extended to the independent power producers.

On Monday, President Asif Ali Zardari told Japanese investors that despite Moody’s downgrade, the benchmark KSE-100 index was trading above 14,000 points, according to a handout issued by the presidency.

The Moody’s move may compound woes of the country, which is already facing difficulties in attracting foreign investment. Foreign investment plunged 63% in the last fiscal year, the fifth consecutive year of decline. It stood at only $741.5 million compared to roughly $2 billion a year ago. Portfolio investment remained negative at $71 million, according to the State Bank of Pakistan.

Muhammad Ali said average daily turnover at the bourse rose after January due to amendments in the capital gains tax law, but the trading volume has started coming down again because of various reasons. In 2011, average daily turnover was $39.1 million, which increased to $54.1 million later, he added.

Ali said the Federal Board of Revenue (FBR) will soon issue enabling rules for CGT, which will help the National Clearing Company of Pakistan to deduct the tax. Collection will be made from April 24, the day when the president promulgated the CGT Ordinance.

Speaking on the occasion, SECP’s Commissioner Securities Market Division Imtiaz Haider revealed that during a recent meeting with the KSE management, SECP turned down a proposal for allowing KSE blank sale of shares, an activity in which the broker sells shares without having possession.

He pointed out that blank sale was illegal across the globe, which cannot be permitted in Pakistan as well.

He, however, said SECP was considering allowing intra-day short selling, meaning brokers can sell some percentage of shares without having actual possession, but will square the deal before the end of day’s activity.

Published in The Express Tribune, July 18th, 2012.