Fiji US$250 Million Bond Assigned ‘B-’ Rating; Recovery Rating ‘4’
Melbourne, March 11, 2011—Standard & Poor’s Ratings Services said today that it has assigned its 'B-' long-term senior unsecured debt rating to the US$250 million five-year bond issued by the Republic of Fiji (foreign currency B-/Positive/C, local currency B/Stable/C). This bond issue replaces the US$150 million notes that are due to mature on Sept. 13, 2011, and are expected to fund capital works.
At the same time, Standard & Poor's assigned a recovery rating of '4' to the bond. This is in line with our policy to provide our estimates of likely recovery of principle in the event of debt restructuring or a debt default for issuers with a speculative-grade rating. A recovery rating of '4' indicates our expectation of a 30%-50% recovery in the event of a payment default. According to our criteria, bonds with a '4' recovery rating are rated on par with the issuer credit rating. We have therefore equalized the rating on Fiji’s bond with the ‘B-’ foreign currency sovereign credit rating.
The issuer credit ratings on Fiji reflect our opinion of the country’s persistent fiscal and current account deficits, as well as deficiencies in available data--a factor that complicates our analysis. These factors are offset, in part, by Fiji’s improved external indicators. The delay in the return to democratic rule in Fiji has already been reflected in the ratings, and our forecasts assume a status quo. However, we believe that diminished institutional transparency and independence, as well as decrees that weigh on civilian and media freedoms, weaken the prospects for investment and for donor re-engagement and thus the nation’s growth prospects.
The positive outlook on Fiji’s foreign currency rating reflects our view of the improvement in Fiji’s external position, including in the level of foreign exchange reserves. An upgrade of the foreign currency rating could follow improvements in one of several areas, including strengthening Fiji’s political institutions, improving donor relations, enhancing growth prospects through labor or market reforms, bettering the external indicators, or placing the government’s debt trajectory on a steady downward slope. On the other hand, Fiji’s ratings could stabilize at current levels if none of these developments materializes or if external or domestic shocks sharply reduce Fiji’s international reserves from current reported levels.
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