Bangkok--21 Sep--Standard & Poor's
Standard & Poor's Ratings Services today assigned its 'BB-' senior unsecured debt rating to the proposed U.S. dollar-denominated global bond issue by the Republic of Philippines. The bond issue, which matures in 2021, forms part of a liability management exercise, in which the new instrument will be offered in exchange for specified shorter-maturity bonds.
At the same time, Standard & Poor's has affirmed its 'BB-' senior unsecured debt rating on the Republic's outstanding bond maturing in 2034, which will be tapped into as part of the exchange offer.
The sovereign credit rating on the Philippines (foreign currency BB-/Stable/B; local currency BB+/Stable/B; ASEAN scale rating axBBB+/axA-2) is supported by its external liquidity position, which has seen steady improvement despite the recent contraction in global demand. Net international reserves are approaching US$50 billion, equivalent to more than nine months of import cover, and more than five times short-term external debt by residual maturity. Short-term liquidity risk for the Philippines is therefore moderate, compared with its similarly rated peers.
The Philippines' record of steady economic growth is another rating support. Over the past decade, real GDP growth averaged 4.9% without significant fluctuation except for 2009, when growth fell to 1.0%. This is despite ongoing political volatility and numerous institutional and structural impediments. The Philippines' steady growth is likely to provide a solid basis for further debt reduction as fiscal consolidation resumes, after the hiatus during last year's global economic slowdown.
The ratings are constrained by the country's high public debt, and the attendant fiscal constraints. General government debt was an estimated 56% of GDP in 2009, well above the median 40% for sovereigns in the 'BB' rating category. The general government revenue-to-debt and general government interest-to-revenue ratios have improved over the past several years but remained high, at about 300% and 18%, respectively. These ratios highlight the persistent problem of low revenue base, and indicate higher vulnerability compared with similarly rated countries.
The government's still significant, albeit declining, external debt also constrain the ratings. Foreign debt remained relatively high in 2009, at 43.8% of overall public external debt. This underscores the vulnerability of its fiscal profile to adverse external developments.
We could revise the outlook on the sovereign credit rating to positive on evidence of a renewed focus on fiscal consolidation and revenue improvement as economic conditions stabilize. The outlook may be revised to negative, however, if the current deterioration in fiscal outcomes proves more than temporary. This could materialize because of a weakening commitment to fiscal prudence or the inability of a new administration to pursue reforms.
RELATED CRITERIA AND RESEARCH
Philippines (Republic Of), published Sept. 11, 2009.
Sovereign Credit Ratings: A Primer, published May 29, 2008.
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and 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. Use the Ratings search box located in the left column.
Media Contact:
David Wargin, New York (1) 212.438.1579,
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Analyst Contacts:
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Takahira Ogawa, Singapore (65) 6239-6342