Moody's ready to give an upgrade
Thursday, June 01, 2000
LOUIS BECKERLING
An expected credit upgrade for the Government, leading Hong Kong banks and the transport sector could bolster the economy as a result of lower borrowing costs.
Moody's Investors Service has placed the SAR's Prime 2 short-term foreign-currency ceiling and A1 Hong Kong dollar issuer rating on review for possible upgrade.
The move triggered similar ratings reviews on Hong Kong and Shanghai Banking Corp, its 62-per cent owned subsidiary Hang Seng Bank, the Mass Transit Railway Corp and the Kowloon Canton Railway Corp.
Moody's vice-president and senior analyst Deborah Schuler said the SAR's improved economic fundamentals and strong emergence from the Asian financial crisis prompted the reviews.
The announcements come just days after the SAR unveiled first-quarter gross domestic product growth of 14.3 per cent, its strongest in 13 years.
On the bond market yesterday the spread of the benchmark KCRC 2010 issue over US Treasuries narrowed five basis points from 207 to 202, while the spread on the MTRC 2009 issue narrowed from 195 to 190 basis points.
"Both issues had a positive day," said HSBC head of Asian credit trading, James Milligan.
Moody's downgraded Hong Kong's short-term foreign-currency rating from its highest rating, Prime 1, during the Asian crisis. Sovereign ratings on foreign currency debt obligations of governments set a ceiling on ratings for corporate borrowers.
Although there had been some decline in international reserves, this was not significant and the reserves had since risen, Moody's said.
Rival agency Standard & Poor's adjusted Hong Kong's sovereign forex rating from A plus (its second-highest rating), to A in August 1998, reflecting the impact of the crisis. It remains at A, but a negative outlook attached to the rating was upgraded to stable in December last year.
Hong Kong's main rival for the mantle of financial capital of the region, Singapore, retained its Prime 1 short-term foreign currency rating from Moody's during the crisis.
The difference between the two top ratings is marginal, with Prime 1 referring to a "superior" ability to repay debt obligations, and Prime 2 a "strong" ability to repay, Ms Schuler said.
The ratings of short-term and long-term debt may not coincide since the former focuses on liquidity, while the latter attaches more emphasis to longer-term cash flows.
Hong Kong's Prime 2 short-term rating compares with a long-term rating of AA3 -- three grades below the top. Singapore has a long-term foreign currency rating of AA1, one notch below the top-rated AAA paper.
The difference was explained by the fact that Singapore had not suffered the same attack as Hong Kong during the crisis, Ms Schuler said.
"Also, though the Hong Kong rating is not tied one-to-one with the mainland, it will always be close -- and China carries an a3 rating," she said. |
