(Clarifies in paragraph 3 of Jan 14 story that S&P's ratings
withdrawals apply to individual sovereign Turkish debt issues.)
* S&P no longer paid by Turkey
* Turkey reacted angrily to downward revision
* Junk rating seen as unjustified
By Seltem Iyigun
ISTANBUL, Jan 14 Standard & Poor's said on
Monday it would no longer offer a full rating service for
Turkey, ditching much of its work with the economically booming
country eight months after a spat over a negative report.
The credit ratings agency said it had failed to reach a deal
with Turkey and would in future only issue an "unsolicited"
assessment -- meaning that it is not paid by the country to
provide cover but does so anyway to meet investors' needs.
More broadly, it also said that as of Feb. 14 it would
withdraw all its ratings on individual sovereign Turkish debt
issues, leaving only the rating on the sovereign's overall
Turkey's Treasury played down the move, noting it had
reached deals with S&P's competitors Fitch and Moody's and did
not expect the lack of a deal with S&P to affect markets.
The country responded angrily last May when S&P cut the
outlook on its 'BB' sovereign credit rating to stable from
positive. Prime Minister Tayyip Erdogan warned Ankara may no
longer "recognise" the agency, calling its decision
"We are converting our issuer credit ratings on Turkey to
"unsolicited" as we no longer have a rating agreement with this
sovereign," S&P said in a statement.
"We will nonetheless continue to rate Turkey on an
unsolicited basis because we believe that we have access to
sufficient public information of reliable quality to support our
analysis .... and because we believe there is significant market
interest in this unsolicited rating."
S&P rates Turkey at BB, two rungs below investment grade.
Fitch has raised it to investment grade at BBB- and Moody's just
below investment grade at Ba1.
"The government is ... probably sending a non-too-disguised
message that it sets little store in the S&P rating at BB," said
Timothy Ash, head of emerging markets research at Standard Bank.
"It has long argued that the current junk bond rating is
unjustified and unfair, and we would agree," he said.
S&P says that less than 10 percent of its sovereign ratings
are "unsolicited", but these do include the United States and
It was the reasoning behind S&P's move last May that
appeared to touch a raw nerve.
The agency cited Turkey's huge current account deficit - its
negative balance of trade in good and services, earnings on
foreign investments and cash transfers such as workers'
remittances - as well as the heavy inflows of foreign capital
which the country needs to pay for that gap.
While the inflows continue, Turkey can live comfortably with
its deficit. But if they dry up, the country could be in for
"external shocks" such as a plunge of its currency which would
push up inflation and interest rates, S&P warned at the time.
Turkey was Europe's fastest growing economy in 2011 but its
external deficit widened to almost 10 percent of national output
at the same time and the deficit remains the country's main
economic weakness even as growth slowed last year.
The deficit widened to $4.48 billion in November, the latest
month for which data is available, from $1.96 billion a month
earlier, although it came in just below a Reuters poll forecast
for a deficit of $4.8 billion.
Turkish growth remains robust compared with debt-choked
Europe and much of the Middle East, and state finances are
strong. The government is aiming for a budget deficit of just
2.2 percent of national output this year and state debt is seen
at around 35 percent of GDP, well below most euro zone states.
"Most people will just ignore this," Alex Perjessy, a senior
emerging markets economist at AllianceBernstein, said of the end
of the ratings deal with S&P.
"Most people have ignored sovereign ratings on Turkey in the
past few years given the ratings have not reflected Turkish
fundamentals for some time."
(Additional reporting by Sujata Rao in London; Writing by Ruth
Pitchford and Nick Tattersall. Editing by Jeremy Gaunt.)