Debt keeps RP bonds off investment grade rating

Despite its better-than-expected macroeconomic environment in the first half of the year, the Philippines failed to secure investment grade ratings for its bond sale and exchange program because of its high level of public sector debt and low tax take. Global credit rating companies noted Tuesday the country’s improved macroeconomic conditions but did not upgrade its sub-investment rating in the wake of government’s $3 billion bond exchange program launched Monday and the $500 million global bond sale that was part of the program. The Aquino administration will used the money from the bond sale to plug the P325-billion budget deficit this year New York-based Standard and Poor’s (S&P's) gave the bond issue a below triple B or BBB rating – the minimum investment grade for sovereign debts. A steady improvement in external liquidity conditions with the gross international reserves nearly $50 billion supported the bonds, said Agost Bernard, S&P’s managing director for sovereign ratings. “The ratings are constrained by the country’s high public debt, and the attendant fiscal restraints," S&P said. Philippine government debt was 56 percent of the gross domestic product in 2009, compared to the 40 percent median ratio for its peers around the world. Still, the country’s rating could climb “on evidence of renewed focus on fiscal consolidation and revenue improvement as economic conditions stabilize," Bernard said. Fitch Ratings of London rated the Philippine bonds at double B or BB, a sub-investment grade, and Moody’s Investor Service gave the issue a Ba3 rating –also below investment grade. "In August 2010, Fitch affirmed the Philippines' Long-term foreign currency and local currency Issuer Default Ratings at 'BB' and 'BB+', respectively, with Stable Outlooks," Fitch said in a statement Monday. "Philippines' sovereign ratings reflect a balance between the strength of external finances well-supported by strong foreign remittance inflows against some poor economic fundamentals, such as low investment and incomes, and weaknesses in the public finances including the sovereign's chronically-low tax take," it said. It considered the bond sale and exchange offer as parts of government debt management goals, and expect no rating implications to follow, Fitch added. The persistent "ability of the central bank to anchor inflationary expectations" would influence future adjustments in ratings for the Philippines "and reflects the continued weakness of revenue collections as well as a large public sector debt overhang relative to its rating peers," Moody’s said. —VS, GMANews.TV