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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Rational who wrote (537)	1/8/1998 7:18:00 PM
From: Thomas Haegin	Respond to of 9980

Repost: S&P Lowers Thailand Foreign Currency Rating to BBB- Business Wire - January 08, 1998 12:17 %SP %NEW-YORK %GOVERNMENT V%BW P%BW NEW YORK--(BUSINESS WIRE)-- Standard & Poor's CreditWire 1/8/98 -- Standard & Poor's today lowered the Kingdom of Thailand's senior unsecured debt and long-term foreign currency issuer credit rating to triple-'B'-minus from triple-'B'. Standard & Poor's also lowered the long-term credit rating on Thailand's baht-denominated debt obligations to single-'A'-minus from single-'A'. At the same time, Standard & Poor's affirmed Thailand's 'A-3' commercial paper and short-term foreign currency issuer credit rating and lowered the short-term local currency issuer credit rating to 'A-2' from 'A-1'. The outlook on the long-term ratings remains negative. The downgrades are based on: -- The deepening financial crisis that is stifling Thailand's growth prospects. High interest rates and continued depreciation of the Thai baht have further impaired corporate and bank balance sheets. Standard & Poor's expects the economy to contract by more than 3% in 1998. Nonperforming loans (on a 90-day past-due basis) could reach about 30% of total loans of operating banks and finance companies during 1998, over one-half of which may be unrecoverable. -- The immense challenge of restructuring the financial system as capital outflows persist and domestic liquidity remains overly tight. Tangible progress has been made on financial sector reform, including the closure of 56 finance companies and passage of related legislation. Still, considerable uncertainties exist over the timing and extent of bank recapitalization, which is a prerequisite to easing credit conditions and igniting a recovery. Foreign capital flows into the sector will be impeded by deficiencies in Thailand's legal framework and the difficulty of evaluating the net worth of financial institutions in a dynamic economic environment. -- The risk that balance of payments pressures could intensify as the economic and social costs of adjustment bite, and the crisis of confidence deepens. At close to 40% of exports, high short-term external debt is a source of external payments vulnerability and an impediment to re-building central bank reserves. On current trends, an additional US$5 billion to US$10 billion in external financial assistance may be required this year above the current level of official creditor support already provided under the IMF program. Thailand's investment-grade ratings continue to reflect: -- The government's relatively low indebtedness. Government net external debt, estimated at 30% of exports in 1998, is about one-half of both Indonesia's and the Philippines', and underpins the Thai government's stronger debt servicing capacity. -- The government's commitment to the economic adjustment and reform program. The recent track record of implementation sets Thailand apart from some of its neighbors and evidences a measure of political will to adopt difficult economic policies. Microeconomic reforms should remain broadly on track, notwithstanding possible delays resulting from a potential change in government towards the end of 1998. -- The expectation that additional official creditor support will be forthcoming to meet Thailand's potential external financing gap this year, so long as financial sector reforms envisaged under the program are implemented. OUTLOOK: NEGATIVE The outlook reflects the heightened challenge of implementing reforms in a deteriorating economic and financial environment. Moreover, rising economic hardship will test both the coalition government's unity and the political leadership needed to avoid policy slippage and restore investor confidence. Significant policy slippage would jeopardize official creditor support and could trigger another downgrade. Conversely, continued implementation of reforms would restore policy credibility and the soundness of the financial sector, which are essential to stabilizing Thailand's credit standing. -- CreditWire CONTACT: Cem Karacadag, New York (1) 212-208-8984 David Beers, London (44) 171-826-3646 Robert E Richards, Melbourne (61) 3-9250-4570 Copyright 1998, Standard & Poor's Rating Services ratings.standardpoor.com -------End-----------