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New York-based credit rating firm Standard & Poor’s (S&P)
Ratings Services said the Philippines warrant issuance is enough to
upgrade its recovery rating for the foreign currency debt.
In a statement, S&P maintained its recovery
rating scale of ‘3’ for the Philippines’ foreign currency debt
following the government’s second issuance of debt-exchange
warrants.
The recovery rating scale of ‘3’ means the
investors can recover 50 percent to 70 percent of its investments in
case of a country’s default.
“We do not believe that the issuance of these
debt-exchange warrants, in their current volume, provides an
incentive for the government to offer different terms on default on
eligible foreign currency bonds that are not paired with a warrant
versus ineligible foreign currency government bonds,” said
Christian Esters, S&P analyst said.
On Monday, the Philippine government issued
$2.25-billion debt exchange warrants which may be exercised in the
event of a default of its international bonds.
In the event of a government default on the
eligible bonds, the warrants grant the right, but not the
obligation, to exchange the defaulted foreign currency bond against
a local currency government bond at the currency exchange rate
prevailing post-default.
These warrants refer to eligible foreign
currency bonds maturing between 2017 and 2032, amounting to a face
value of $10 billion.
They follow an initial issue in February 2008 of
warrants with a notional amount of $2 billion referring to eligible
foreign currency bonds with a face value of $11 billion, with tenors
up to 10 years.
Esters said S&P would consider that the
foreign currency recovery prospects could be harmed, particularly on
those eligible bonds that are not paired with a warrant, should
issuance of debt-exchange warrants increase to more significant
levels.
The national government’s debt posted
3.2-percent drop to P3.771 trillion as of February this year from
P3.896 trillion in the same period last year.
Of the total debt outstanding, foreign debt
accounted for P1.520 trillion while domestic debt amounted to P
P2.250 trillion.
Esters said the government’s incentives to
offer restructuring terms with high recovery values to creditors of
the rump foreign currency debt might be diminished below a level
consistent with a ‘3’ recovery rating.
At the same time, S&P affirmed its ‘BB-’
long-term foreign currency and issue level ratings, its ‘BB+’
long-term local currency rating, and its ‘B’ short-term foreign
and local currency sovereign ratings on the Philippines.
In addition, the ‘BB+’ transfer and
convertibility assessment on the sovereign is affirmed.
The outlook on both the foreign and local
currency ratings is stable.
-- Maricel E. Burgonio
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