Bangkok--14 Jul--Standard & Poor's
Standard & Poor's Ratings Services today assigned its 'BB-' senior unsecured debt rating to the Republic of Philippines' (foreign currency BB-/Stable/B; local currency BB+/Stable/B) proposed global bond issue of US$750 million maturing in 2020.
The sovereign credit ratings on the Philippines derive support from the apparent resilience of the sovereign's external accounts, whereby an improving liquidity position continues to lower external liquidity risk despite the extremely challenging external environment.
Resilient remittance inflows, which rose 2.6% in the first four months of 2009, growing surpluses in service exports, and prudent exchange-rate management, have seen continued rise in foreign reserves despite recent contractions in foreign direct investments and portfolio investments, which turned to a positive outflow between January and the first three weeks of May 2009. The Philippines is therefore exposed to only moderate short-term liquidity risk compared with its peers in the rating category. We project its gross external financing requirements at 78% of usable reserves plus current account receipts.
The rating is also supported by the low level and low likelihood of realization of contingent liabilities posed by the banking system, given the absence of features that caused bank collapses and necessitated government bailouts in numerous other countries. System-wide asset quality and capitalization are not expected to deteriorate materially from 2008 levels of 4.2% nonperforming loans and a capital adequacy ratio of 14.6%.
These factors are balanced against ongoing risks centered around an inadequate revenue base, slow progress in addressing this, as well as questions over collection efficiency and policy response in the current economic downturn. To a large extent, the sharp fall in fiscal revenues this year can be explained by cyclical factors, but offsetting measures that could have moderated the fiscal slippage were not forthcoming.
The outlook on the sovereign credit ratings could be revised to positive on evidence of a renewed focus on fiscal consolidation and revenue improvement as the exigencies created by the global slowdown dissipate, and that such efforts are carried forward by the new administration set to take office in June next year. By contrast, the outlook may be revised to negative if indications emerge that the deterioration currently experienced in fiscal balance outcomes is not a transitory phenomenon, either because of weakening commitment to fiscal prudence or policy paralysis in a new administration.
RELATED RESEARCH
This article is based in part on the following criteria article: "Sovereign Credit Ratings: A Primer," published May 29, 2008, on RatingsDirect.
See also "Asia-Pacific Sovereign Report Card: Amid Encouraging Signs, A Bumpy Road Lies Ahead," published June 9, 2009.
"Research Update: Ratings On The Philippines Affirmed With Stable Outlook," published July 3, 2009, on RatingsDirect.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
David Wargin, New York (1) 212.438.1579, [email protected]
Analyst Contacts:
Takahira Ogawa, Singapore (65) 6239-6342
Agost Benard, Singapore (65) 6239-6347