Monday 18 December 2017

Moody's keeps the analysts guessing on Ireland's junk status

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Donal O'Donovan

Donal O'Donovan

ANALYSTS are now split on whether Moody's will lift Ireland's debt rating tomorrow in what has become a highly anticipated decision for the Government and investors.

An upgrade from junk status had been widely tipped until last week when a scheduled review of Portugal's government rating passed without any comment from the agency.

"We admit to being very confused following Moody's silence on Portugal last Friday, despite an entered review date in the new EU calendar," said Fiona Hayes of Cantor Fitzgerald in Dublin.

Downgrades by Moody's of the leading Irish banks last month means an upgrade of the government, or "sovereign," rating now looks less likely, she said.

"It is difficult to see a scenario where Moody's can downgrade Irish banks but upgrade the Irish sovereign in the space of one month," Ms Hayes added.

Moody's is the last of the so-called big three debt rating agencies that continues to rank Irish government debt as a "sub investment grade" or junk status.

Moody's is scheduled to review Ireland's debt on Friday -- which analysts and senior sources here had tipped as the likely date for an upgrade.

Under new European Union rules each of the main rating agencies must review all sovereign ratings once every six months and Moody's is due to review the Irish case on January 17.

Moody's raised Portugal's rating outlook to stable in November, so was able to ignore the review scheduled for January 10.

In the case of Ireland the last comment from the agency was in September and the next scheduled review after this week is not until May, so an update this week looks to be required under EU rules.

That does not necessarily mean a change however.

Danske Bank's Owen Callan said he still expects Moody's to upgrade either the outlook or the actual rating for Ireland, but said Moody's silence on Portugal's credit rating reduces the likelihood of an uplift Ireland's credit rating.

The National Treasury Management Agency has been lobbying hard for an upgrade -- citing Ireland's improved economic situation.

If Friday passes without an improvement it will be seen as a blow to the Government, even though the country has been able to return to borrowing on the markets.

Many investment funds ban their managers from holding so called lower rated or "junk bonds," and that means countries like Ireland can only borrow from the smaller pool of investors with looser rules.

Last week Taoiseach Enda Kenny was told by officials in Saudi Arabia that investment grade credit ratings are crucial if they are to invest in Irish government bonds.

ANTICIPATION

The same holds for many investors in the Middle East and Asia.

Fitch and Standard and Poor's both rate Ireland at BBB+. Moody's currently rates Irish bonds as a sub-investment grade rating of Ba1 -- two notches below the other agencies.

Anticipation that Moody's would upgrade the Irish debt increased last month after the agency upgraded Greece's credit, in what was seen as a softening of its stance on the so-called European periphery.

 

Irish Independent

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