, February 18, 2005
 (STAR) By Mary Ann Ll. Reyes  -  Credit ratings agency Moody’s Investors Service has downgraded the foreign currency senior unsecured debt rating of Philippine Long Distance Telephone Co. (PLDT) by one notch to Ba3 from Ba2, a consequence of its two-notch sovereign rating cut on the Philippines’ foreign currency debts.

However, Moody’s said it is affirming the company’s B1 preferred stock rating with a stable outlook.

Moody’s explained that the debt rating incorporates convertibility risk, which is the likelihood of government declaring a debt moratorium to counter a foreign currency crisis.

It said it views foreign currency bonds subject to international law as less likely to be subject to a debt moratorium than foreign currency obligations subject to local law. Therefore, there is a differential between PLDT’s foreign currency bond rating and the sovereign rating.

As such, PLDT’s foreign currency bond rating is a function of its own risk of default and the probability of a Philippine government default on its foreign debt (implied by its B1 rating), the likelihood that the government would declare a moratorium in the event of a default, and if it did, the chances that it would exempt a company such as PLDT.

Moody’s earlier downgraded the Philippines’ long-term foreign and local currency ceilings and ratings due to concerns that the large build-up in government and external debt introduces "heightened vulnerability to shocks despite recent efforts by the government and Congress to enact fiscal reforms."

It lowered the long-term foreign-currency country ceiling for bonds to B1 from Ba2, the long-term foreign-currency ceiling for bank deposits to B1 from Ba3, and the local-currency rating of the government to B1 from Ba2.

It said that while the Arroyo administration inherited a much-weakened fiscal structure, "progress in enacting reform is proving difficult as the President’s majority coalition in Congress grapples with politically painful choices."

RP can regain good ratings — BSP By Des Ferriols The Philippine Star 02/18/2005

The Bangko Sentral ng Pilipinas (BSP) said yesterday the Philippines can still regain a "positive outlook" on its credit ratings provided there is substantial progress in government’s fiscal reform program.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said the approval of key reforms in Congress and passage of pending revenue bills as well as improvements in the power sector would dictate whether Moody’s would keep its negative outlook.

"Moving towards a positive outlook was possible within the year if the government could sustain the momentum of its reforms," Buenaventura said.

Credit rating agencies usually give specific ratings for long and short-term borrowings accompanied by an outlook of either "positive," "stable" or "negative."

A positive outlook means a country is under review for a possible upgrade while a stable outlook means that a country is expected to stay within its present credit rating.

A negative outlook, on the other hand, indicates that the sovereign could be facing yet another downgrade, possibly within the next six months.

According to Buenaventura, it might be possible for the country to get a "positive" outlook and this would help improve perceptions. "We might not be upgraded for a while but a positive outlook is good enough in the meantime," he said.

However, Buenaventura said that since the Arroyo administration has already made a commitment to undertake its fiscal reforms, the upgrade in the outlook would merely follow these reforms once they are done.

"Of course, there must be significant achievements for us to be able to get a positive outlook so close to being downgraded but these are things that we should be doing anyway," Buenaventura said. "We need to prove them wrong."

Buenaventura said the shock from Moody’s two-notch downgrade was understandable but largely temporary. "The market has already priced this in anyway. If there will be adverse reaction, it would come from the forex market and only for a short while."

Buenaventura said it was fortunate that the national government had already borrowed a significant amount for its 2005 requirements. "If we had waited for the Moody’s downgrade, I don’t think we would have been able to get that much with those terms," he said.

According to Buenaventura, Moody’s downgrade indicated that the country was a long way off from making a convincing case before the international committee.

"It is hard to get upgraded but it is not impossible, all we have to do is walk the talk," he said.

Buenaventura said he was not worried about the spreads on the country’s sovereign bonds, however, since the market has long since priced in a two-notch downgrade.

"When S&P gave us a one-notch downgrade with a negative outlook, our spreads tightened a bit," he said. "So now, we’ll just go back to the levels before the S&P ratings action. At least we won’t be any worse off," he added.

Reported by: Sol Jose Vanzi

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