S&P keeps Albania’s rating unchanged ahead of new €500 mln Eurobond

Tirana Times
By Tirana Times August 7, 2018 14:51

S&P keeps Albania’s rating unchanged ahead of new €500 mln Eurobond

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  • We might take a negative rating action if we observed material fiscal slippages, resulting from higher fiscal deficits or materialization of contingent liabilities from PPP projects or arrears, warns the rating agency

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TIRANA, Aug. 7 – U.S.-based Standard and Poor’s has reconfirmed Albania’s ‘B+/B’ long- and short-term sovereign credit ratings with a stable outlook in a rating that remains unchanged for the fourth consecutive year with not much impact on Albania’s upcoming attempt to tap international markets for a new Eurobond.

“The stable outlook reflects our view that Albania will deliver solid economic growth and is unlikely to incur significant fiscal or external imbalances over the next three to four years,” says S&P, one of the ‘big three’ credit rating agencies.

The rating comes at a time when S&P expects Albania’s growth to linger around an average annual growth of 3.8 percent over the next four years, in similar levels compared to the 9-year high it hit last year, and public debt to drop 65.5 percent by 2021, down from about 71 percent of the GDP this year, with both forecasts under a more pessimistic scenario compared to the Albanian government’s agenda.

A stronger and more pronounced period of sustainable economic growth, fostered by continuous attraction of foreign direct investment and successfully combating the informal economy could lead to a positive rating action, says S&P, adding that ongoing fiscal consolidation and de-euroization efforts could put upward pressure on the ratings.

S&P says its ratings are constrained by Albania’s relatively weak institutional framework, characterized in particular by an ineffective judiciary system and limited rule of law.

In similar style compared to international financial institutions, S&P criticizes the Albanian government’s €1 billion public private partnership program to upgrade road, education and health infrastructure as posing a threat to the public debt reduction agenda.

“We might take a negative rating action if we observed material fiscal slippages, resulting from higher fiscal deficits or materialization of contingent liabilities from PPP projects or arrears. We could also lower the rating if we observed a prolonged period of repressed credit growth, pointing to weaker monetary transition mechanisms,” says S&P.

The credit rating agency has kept its Albania rating unchanged since early 2014 after the country signed a three-year fiscal consolidation deal with the International Monetary Fund that was not renewed after it expired in early 2017.

The last time S&P downgraded Albania was in late 2013 when the country’s long-term sovereign credit ratings were changed to ‘B’ from ‘B+ with a negative outlook affected by a significant widening of the fiscal deficit and rollover risk on increased debt stock following the June 2013 general elections.

In its latest rating action, Moody’s Investors Service, another ‘big three’ rating agency, also reaffirmed Albania’s B1 long-term foreign and local currency issuer ratings with a stable outlook.

Obligations rated B are considered speculative and subject to high credit risk. Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.

The Albanian government has recently picked American, Italian and French financial institutions as joint lead managers for Albania’s upcoming Eurobond in the next few months when the Albanian government plans to raise up to €500 million in international capital markets.

The last time Albania addressed international markets was in late 2015 when it managed  to secure €450 million in a five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond in 2010.

The current market conditions seem favorable as the European Central Bank continues to keep its key rates at a historic low of zero while Europe’s single currency currently trades at a 10-year low against the Albanian lek, making external debt repayments much cheaper for the Albanian government.

 

Tirana Times
By Tirana Times August 7, 2018 14:51