Fitch assigns 'BB' rating to Philippine global bonds


Posted at Jan 07 2010 08:05 PM | Updated as of Jan 08 2010 04:05 AM

MANILA, Philippines - Fitch Ratings has assinged a long-term foreign currency rating of 'BB' to the Philippines' $1.5-billion global bonds sold on Wednesday.

Fitch said the rating, which is below investment grade, is in line with the Philippines' long-term foreign currency IDR or issuer default rating of 'BB'.

The Philippines' long-term local currency IDR is 'BB+'. Both ratings are with stable outlooks, the London-based ratings firm noted.

Manila, one of Asia's biggest sovereign debt issuers, sold $650 million in bonds due 2020 at 106.25 cents on the dollar to yield 5.674%. It also sold $850 million in bonds due 2034 at 96.5 cents on the dollar to yield 6.664%.

"The ratings of the Philippines balance a manageable external financing requirement against weaknesses in the public finances, including a low revenue base and high debt ratios. The budget deficit seems to be on track to come in around or slightly below Fitch's projection for 2009, supporting ratings at their current levels," said Andrew Colquhoun, director in Fitch's Asia-Pacific Sovereigns Group.

Colquhoun added that relatively high public debt continues to weigh on the country's ratings.

Fitch estimates the government's budget deficit to reach P324 billion or 4.1% of gross domestic product (GDP) in 2009, without privatization revenues.

The agency does not expect significant fiscal consolidation in 2010, a presidential election year, and forecasts the deficit at P320 billion or 3.8% of GDP.

In terms of debt-to-GDP, Fitch said the Philippines' ratio will likely hit 57% at end-2009, much higher than the 'BB' range median of 38%. It added the debt-to-revenue ratio, will be at 400%, against the 'BB' average of 167%.

"This reflects the Philippines' low revenue base (revenues are projected at just 14.4% of GDP in 2009), which is a rating weakness," Fitch said.

Fitch expects the country's debt ratios to drop modestly up to 2011, consolidating the declines seen since the mid-2000s.

It noted that rising debt ratios would put downward pressure on the ratings, while a more rapid fiscal tightening "would be positive."