* "A" rating similar to Poland, Czech Republic and Mexico
* Junk rating a risk if split with UK turns acrimonious
* Currency union unlikely, would be negative for UK rating
* Independent Scotland would have higher borrowing costs
(Adds further Moody's comments)
By David Milliken
LONDON, May 1 An independent Scotland would
probably receive an investment-grade credit rating but face
higher borrowing costs than the rest of the United Kingdom,
ratings agency Moody's said on Thursday.
Moody's is the first major ratings agency to say explicitly
how it would be likely to grade the creditworthiness of Scotland
if it votes for independence in a referendum on Sept. 18.
The campaign against independence currently has a modest
lead in polls.
"While there are significant uncertainties associated with
Scottish arrangements post-independence, an 'A' rating is
perhaps the most likely at the outset, but with risks tilted to
the downside," Moody's said.
This would give Scotland a similar rating to countries such
as Poland, the Czech Republic and Mexico, and would be two to
four notches below Britain's Aa1 rating, meaning higher
borrowing costs for the new Edinburgh government.
"It is reasonable to say they would be higher than the rest
of the UK, as Scotland has no established market presence,"
Moody's analyst Sarah Carlson told Reuters.
Scotland could look forward to a higher credit rating over
time if markets grew more confident about the new government,
and if Scotland tackled its fiscal issues, she added.
Moody's report is slightly more positive about Scotland's
prospects than one from rival ratings agency Standard & Poor's
in February, which said an independent Scotland would face a
challenge that was "significant, but not unsurpassable".
However, the Moody's report noted that Scotland would risk
starting off with a speculative-grade rating - commonly referred
to as "junk" - if the independence vote triggered protracted,
acrimonious talks between London and Edinburgh.
A difficult split could also lead to the credit rating for
the rest of Britain being downgraded by one or two notches, it
One key area of contention is what currency Scotland will
use. The Scottish National Party government in Edinburgh wants
to retain use of sterling, but that is opposed by all the main
political parties in London.
Moody's said the rest of the United Kingdom would be at a
slight risk of a rating downgrade if it entered into a currency
union with Scotland, and thought this arrangement unlikely.
By contrast, Scotland's rating would depend on reaching a
deal swiftly and implementing the new currency arrangement well,
rather than on keeping sterling, Moody's said.
However, a new currency could affect the ratings of banks
based in Scotland such as Royal Bank of Scotland and
Lloyds Banking Group - for example if sterling bonds
were converted into a new currency that soon lost value.
Overall the prospects for Scotland's economy after
independence were likely to be similar enough to now for other
corporate bonds to be much affected.
(Reporting by David Milliken; editing by Andrew Roche)