Fitch Rates Philippines' Bond at 'BBB-(EXP)'

Wed Jan 8, 2014 11:07pm EST

HONG KONG, January 08 (Fitch) Fitch Ratings has assigned Philippines' forthcoming USD-denominated global bonds due 2024 an expected rating of 'BBB-(EXP)'. The final rating is contingent on the receipt of final documentation conforming to information already received. The expected rating is in line with Philippines' Long-Term Foreign Currency Issuer Default Rating (IDR) of 'BBB-'/Stable. The sovereign's Long-Term Local Currency IDR is 'BBB'/Stable. Part of the proceeds from the bond issuance is intended for liability management purposes with the aim to accumulate net present value (NPV) and annual coupon payment savings, as well as to lengthen the average maturity profile. KEY RATING DRIVERS The Philippines' 'BBB-' IDR reflects the following key rating drivers: -The sovereign external balance sheet is strong relative to peers. A persistent current account surplus, underpinned by remittance inflows, has led to the emergence of a net external creditor position in 2009. As a result, Philippine asset markets were less under pressure than some of its peers in the context of market expectations related to the US central bank's unwinding of its quantitative easing program. -GDP growth has been strong and less volatile than many of its peers. Large remittance inflows provide strong support to domestic demand. -While improvements in fiscal management have made general government debt dynamics more resilient to shocks, the low government revenues remain a weakness in the Philippines' credit profile. -Fundamental structural weaknesses include relatively poor governance standards, lagging development (as illustrated by a low UN Human Development Index score) and a low average per capita income. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. The main factors that could lead to a negative rating action, individually or collectively, are: -A reversal of reform measures and deterioration in governance standards. -Sustained fiscal slippage, leading to a higher fiscal debt burden. -Deterioration in monetary policy management that allows the economy to overheat. -Instability in the banking sector, leading to a crystallisation of contingent liabilities on the sovereign balance sheet. The main factors that could lead to a positive rating action, individually or collectively, are: -Sustained strong GDP growth that narrows income and development differentials with 'BBB' range peers. -Broadening of the fiscal revenue base, as well as further improvements in the structure of the Philippine sovereign debt stock. KEY ASSUMPTIONS -The administration will persist with its fiscal, governance and social reform agenda. -The Philippines is not hit by a severe economic or financial shock sufficient to cause a significant contraction in GDP and trigger stress in the financial system. Contact: Primary Analyst Art Woo Director +852 2263 9757 Fitch Ratings (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Andrew Colquhoun Senior Director +852 2263 9938 Committee Chairperson Ed Parker Managing Director +44 20 3530 1176 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.