Moody’s may down­grade Por­tu­gal on weak growth prospects, debt con­cerns

The Pak Banker - - International -

LIS­BON: Moody's In­vestor Ser­vice warned on Tues­day it may down­grade debt-rid­den Por­tu­gal's A1 rat­ing by one or two notches af­ter a re­view that will take up to three months, cit­ing weak growth prospects and high bor­row­ing costs.

Por­tu­gal has moved into the eye of the storm in Europe's debt cri­sis, with mar­kets wor­ried it will be next to take a bailout af­ter Ire­land and Greece, al­though Moody's said its sol­vency was not in ques­tion.

The cost of in­sur­ing Por­tuguese sov­er­eign debt against de­fault rose in re­sponse and the euro slipped a touch.

The pre­mium in­vestors de­mand to hold Por­tuguese 10-year bonds rather than safer Ger­man Bunds rose 9 ba­sis points from Mon­day's set­tle­ment lev­els to 368 bps. Last month, the spread hit a euro life­time record of over 481 bps, but has nar­rowed since thanks to bond buy­ing by the Euro­pean Cen­tral Bank.

The rat­ings agency said it had con­cerns about Por­tu­gal's abil­ity to ac­cess cap­i­tal mar­kets at a sus­tain­able price and cited "un­cer­tain­ties about Por­tu­gal's longer-term eco­nomic vi­tal­ity, which will be ex­ac­er­bated by the im­pact of fis­cal aus­ter­ity."

It said that if the govern­ment sought an in­ter­na­tional bailout, it would have a pos­i­tive im­pact on short-term un­cer­tain­ties, but would raise con­cerns about medium-term ac­cess to pri­vate mar­ket fund­ing. "In Moody's opin­ion, Por­tu­gal's sol­vency is not in ques­tion," said An­thony Thomas, Moody's lead an­a­lyst for Por­tu­gal.

"But the likely de­te­ri­o­ra­tion in debt af­ford­abil­ity over the medium term and on­go­ing con­cerns about the econ­omy's abil­ity to with­stand fis­cal con­sol­i­da­tion and pri­vate sec­tor delever­ag­ing mean its out­look may no longer be con­sis­tent with an A1 rat­ing."

The agency also said it was concerned the govern­ment may need to sup­port the bank­ing sec­tor for it to re­gain ac­cess to pri­vate cap­i­tal mar­kets, which may have an im­pact on the coun­try's debt met­rics.

Por­tu­gal's debt woes have shut the coun­try's banks out of the in­ter­bank mar­ket for loans and they have been re­ly­ing heav­ily on liq­uid­ity pro­vided by the ECB. Nev­er­the­less, Por­tu­gal's banks are con­sid­ered solid and not rep­re­sent­ing any im­me­di­ate prob­lem as in Ire­land.

Moody's rat­ing for Por­tu­gal is two notches above that of Stan­dard and Poor's, which put the Ibe­rian coun­try on neg­a­tive credit watch on Novem­ber 30, but a notch be­low that given to the coun­try by Fitch. The state­ment on Tues­day is the lat­est in a se­ries of rat­ings-re­lated jolts for the euro zone's most-in­debted sov­er­eigns af­ter a five-notch cut by Moody's for Ire­land last week. -Reuters

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