Bonds, Currencies, Emerging Markets, Frontier Markets, Stocks

Emerging Markets Feeling The Heat From S&P

Standard and Poor'sEmerging market economies are feeling the sting amid an oil price crisis and a slowdown in global growth which is battering economies, markets, and companies; alongside political risk these factors are eroding creditworthiness, which has lead to a spate of downgrades from ratings firm Standard & Poor’s (S&P).

S&P has been the first ratings firm to downgrade sovereign debt from Saudi Arabia to Poland so far this year.

On February 17, Saudi Arabia headlined a list of oil-producing nations whose credit ratings were cut by S&P: 

  • Saudi Arabia was cut two levels to A- from A+ as the decline in oil prices will have “a marked and lasting impact” on the economy of the biggest OPEC producer.
  • Oman’s rating was lowered to BBB- from BBB+, following a reduction in November.
  • Kazakhstan was lowered to BBB- from BBB.
  • Bahrain was cut to BB from BBB-, putting it two steps below investment grade, or junk.

Saudi Arabia’s downgrade comes less than four months after S&P cut the kingdom’s credit rating by one level to A+ in October of last year.

Bahrain’s unexpected cut to junk came a day after the nation set prices on its $750 million bond offer, forcing the Gulf kingdom to abort the sale.

S&P also cut Brazil’s sovereign rating deeper into junk on the same day, trimming Latin America’s largest economy by one level to BB with a negative outlook, citing fiscal and political challenges for its economy.

Last month S&P unexpectedly cut Poland’s sovereign rating by one level to BBB+ from from A- with a negative outlook, meaning that there’s at least a one-in-three chance of a further rating cut over the next 24 months, as the firm cites concern over the new government’s push to take control of key institutions risked their independence.

This was the first-ever rating cut for Poland by S&P.

Poland’s Finance Minister Pawel Szalamacha said that the downgrade expanded S&P’s remit beyond that of determining default odds and that S&P is “overstepping the proper role of the credit rating agency”.

S&P is taking the hardest line among ratings agencies on emerging markets in what Brown Brothers Harriman & Co. calls “harsh.”

S&P’s BB junk rating of Brazil is two levels below that of Moody’s. Bahrain, seen as junk at BB by S&P, has an investment-grade Baa3 from Moody’s. Poland, rated at BBB+ by S&P is two levels below Moody’s. As for Saudi Arabia, S&P’s A- assessment is three levels less than the one at Moody’s.

 S&P also reduced the outlook of Colombia’s BBB rating, one of only two governments in Latin America that retains an investment grade, to negative from stable.

“It seems S&P is again being overly harsh by suggesting a move to BBB- is now possible,” Brown Brothers analysts said in recent note to clients. “We were very surprised by this move, and disagree with it.”

“S&P is definitely known for being more aggressive and we see that it keeps up with that trend,” Win Thin, head of emerging-market strategy at New York-based Brown Brothers Harriman, told Bloomberg. “They seem to be more negative on the way down. Out of six downgrades, I agree with three.”

Which nation’s sovereign rating will be cut next?

Stay tuned.



  1. Pingback: IEA Cheif ‘Sounds Alarm’ On Oil Industry As Further Investment Cuts Seen | EMerging Equity - February 24, 2016

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