Fitch, Moody's assign good ratings on PH bonds
By LEE C. CHIPONGIAN
At least two credit rating agencies assigned decent scores on the Philippines’ bonds as the Marcos administration returns to the global debt market with an offer of 5.5, 10.5 and 25-year tenors on Monday, Jan. 9.
Fitch Ratings announced that it has tagged a “BBB” rating on the proposed US dollar bond offerings while Moody’s Investors Service attached a “Baa2” rating on the same global bonds.
Fitch’s “BBB” and Moody’s “Baa2” indicate good prospects on positive fundamentals and moderate risk. It generally reflects both credit rating agencies’ sovereign ratings for the Philippines.
The Marcos government intends to borrow up to $10 billion this year from foreign sources such as via global bond sale and external loans including project and program loans.
This was revealed earlier when the government said it will borrow P2.207 trillion from local and foreign creditors, of which P553.5 billion or $10.04 billion are from foreign sources.
It was in October 2022 when the Marcos administration first tapped the international bond market and it raised $2 billion.
Moody's in a statement said a “senior unsecured ratings of Baa2” is assigned to the bond offerings drawn from the country’s shelf programme with tranches maturing in 2028, 2033 and 2048.
Despite its assessment of strong GDP recovery, Fitch has a negative outlook on the country’s ratings because of global headwinds, and ongoing fiscal consolidation.
“The rating on the proposed bonds is sensitive to any changes in the Long-Term Foreign-Currency IDR (issuer default rating),” said Fitch, citing factors that could lead to negative rating action or downgrade such as “reduced confidence in a return to strong medium-term growth or diminishing policy credibility that could lead to the removal of the +1 notch in the macro pillar of the qualitative overlay, which reflects strong and sustainable projected GDP growth and a sound policy framework.”
It also cited public finances issues, external factors including the “significant deterioration in foreign-currency reserves and the country's net external creditor position”.
However, according to Fitch, “factors that could, individually or collectively, lead to positive rating action/upgrade” are the following: improved confidence in a return to strong medium-term growth and continued adherence to sound macroeconomic policies; greater confidence in sustained reductions in government debt/GDP and debt/revenue ratios due to reforms to broaden the revenue base or gains in spending efficiency that do not undermine the growth outlook; and strengthening of governance standards towards those of the rating-category peer median, or sustained convergence of GDP per capita towards peer levels
Moody's, on the other hand, has noted the “general purposes” of the bond sale which is to augment budgetary support and the “repayment of a portion of the government's borrowings.”
“The Philippines' Baa2 issuer rating takes into consideration high potential growth and a moderate government debt burden as compared to peers, as well as a sufficiently strong external position to meet forthcoming cross-border payment obligations and weather capital flow volatility. Structural credit challenges include low per capita income and some constraints to the quality of institutions, which stand in contrast to strong policy effectiveness. The Philippines also has a heightened susceptibility to environmental risks given the high incidence of climate-related shocks,” it reiterated on Monday.
“Unless the Philippines faces sustained and irreversible damage to domestic labor markets, a significant and prolonged drop in remittances or an acceleration in the fragmentation of regional supply chains, growth potential will continue to be boosted by favorable demographics and ongoing improvements in the investment climate,” added Moody’s.
Unlike Fitch, Moody’s has a stable outlook on the country’s sovereign ratings. This outlook “reflects the view that the recovery from the acute shock posed by the coronavirus pandemic will restore rapid economic growth relative to peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics. This scenario is balanced against the risk that the economy's potential is damaged more significantly than Moody's currently assumes, or that fiscal and economic reform momentum does not resume, leaving the Philippines' economic and fiscal strength somewhat weaker,” it said.