Moody’s Investors Service and Standard & Poor’s are standing pat on their rating decisions, saying that there is a good reason why they still consider Philippine bonds to be junk.
Ritesh Maheshwari, managing director and lead analytical manager for corporate and government ratings at S&P, said a country’s credit rating need not always be in line with capital market assessment.
He said interest rates and spreads of bonds were usually influenced by short-term outlook on the performance of a country, while credit ratings hinged more on the expected medium- to long-term credit performance of that country.
“We [S&P] are more focused on the longer term. If we were focused on the short term, then we would have been changing our ratings much more often that we currently do,” Maheshwari said in a briefing at the sidelines of the 45th annual meeting of the Board of Governors of the Asian Development Bank held in Manila last week.
He gave the statement when asked to comment about the pitch being made by the Philippines for an investment grade.
According to Finance Secretary Cesar Purisima, the Philippines is the world’s most underrated country, citing the wide gap between the country’s credit ratings, and the favorable market perception of Philippine bonds as manifested by low interest rates and tight spreads.
Philippine bonds are being traded in the international capital market at rates similar to those carried by bonds issued by countries enjoying investment grade, Purisima said. The interest rates on Philippine bonds are much lower compared with those carried by bonds issued by countries with the same credit rating as the Philippines.
The Philippines is rated two notches below investment grade by S&P and Moody’s.
Given the gap between the country’s credit ratings and the interest rates on Philippine bonds, Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas said it that was time for credit rating agencies to come up with a more market-harmonized methodology for coming up with credit ratings.
Tetangco also suggested that credit ratings should be more transparent on how they come up with country ratings.
But Jennifer Elliott, managing director and Asia Pacific region head for Moody’s, said that there was no need for harmonization of methodologies. In fact, having different methods for coming up with an assessment of a country’s credit worthiness is prudent, she added.—Michelle V. Remo