(The following was released by the rating agency)
March 24, 2011--Standard & Poor's Ratings Services lowered its long-term sovereign credit ratings on Republic of Portugal to 'BBB' from 'A-'. The 'BBB' long-term ratings and the unchanged 'A-2' short-term credit ratings remain on CreditWatch, where they were placed on Nov. 30, 2010, with negative implications.
The rating action follows the government's loss of a key vote on its latest austerity package on March 23, 2011, and the subsequent resignation of Prime Minister Jose Socrates. In our view, the resulting increased political uncertainty could hurt market confidence and heighten Portugal's refinancing risk.
Prime Minister Jose Socrates resigned after the parliament rejected the Portuguese minority government's latest austerity package. The government presented these measures as part of Stability and Growth Pact 2011-2014 on March 11, 2011, but failed to gain support from the main opposition party, and the package was rejected in a crucial vote on March 23. Early general elections are expected in the next few months.
'We expect that a successor government would have no choice but to adopt some version of these reform proposals, given investors' apparently reduced appetite for Portuguese government debt, though perhaps on a delayed basis,' Standard & Poor's credit analyst Eileen Zhang said. 'Rising public savings should also, in our view, contribute to the reduction in Portugal's large external imbalances, as we believe the Portuguese private sector's export performance will likely be insufficient to quickly narrow Portugal's current account deficit, which has averaged 9.7% of GDP since Portugal joined the eurozone in 1999.'
Apart from the domestic political debate, Portugal's ratings are affected by the discussions at the European level on the design of the European Stability Mechanism (ESM). Based on current information and expectations, we could lower the ratings on Portugal again by one notch once the details of the ESM are officially announced. In particular, if we believe the ESM increases the likelihood of Portugal's government bondholders being subject to a restructuring or a stand-still as a result of the terms of an ESM loan, becoming subordinated to ESM lending, or if Portuguese bonds experience materially reduced trading liquidity, we could lower the ratings on Portugal. We expect that such a rating action could take place as early as next week. Apart from the clarification of the ESM's role and lending policies, we expect to resolve the CreditWatch status of Portugal's ratings within a few weeks.
On the other hand, we could affirm the ratings at 'BBB/A-2' if our current views about the ESM and its potential effect on Portugal's sovereign debt were to change as a result of further developments and if we were to take the view that the downside and upside risks to our forecasts are broadly balanced.
Keywords: MARKETS RATINGS PORTUGAL
COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
March 24, 2011--Standard & Poor's Ratings Services lowered its long-term sovereign credit ratings on Republic of Portugal to 'BBB' from 'A-'. The 'BBB' long-term ratings and the unchanged 'A-2' short-term credit ratings remain on CreditWatch, where they were placed on Nov. 30, 2010, with negative implications.
The rating action follows the government's loss of a key vote on its latest austerity package on March 23, 2011, and the subsequent resignation of Prime Minister Jose Socrates. In our view, the resulting increased political uncertainty could hurt market confidence and heighten Portugal's refinancing risk.
Prime Minister Jose Socrates resigned after the parliament rejected the Portuguese minority government's latest austerity package. The government presented these measures as part of Stability and Growth Pact 2011-2014 on March 11, 2011, but failed to gain support from the main opposition party, and the package was rejected in a crucial vote on March 23. Early general elections are expected in the next few months.
'We expect that a successor government would have no choice but to adopt some version of these reform proposals, given investors' apparently reduced appetite for Portuguese government debt, though perhaps on a delayed basis,' Standard & Poor's credit analyst Eileen Zhang said. 'Rising public savings should also, in our view, contribute to the reduction in Portugal's large external imbalances, as we believe the Portuguese private sector's export performance will likely be insufficient to quickly narrow Portugal's current account deficit, which has averaged 9.7% of GDP since Portugal joined the eurozone in 1999.'
Apart from the domestic political debate, Portugal's ratings are affected by the discussions at the European level on the design of the European Stability Mechanism (ESM). Based on current information and expectations, we could lower the ratings on Portugal again by one notch once the details of the ESM are officially announced. In particular, if we believe the ESM increases the likelihood of Portugal's government bondholders being subject to a restructuring or a stand-still as a result of the terms of an ESM loan, becoming subordinated to ESM lending, or if Portuguese bonds experience materially reduced trading liquidity, we could lower the ratings on Portugal. We expect that such a rating action could take place as early as next week. Apart from the clarification of the ESM's role and lending policies, we expect to resolve the CreditWatch status of Portugal's ratings within a few weeks.
On the other hand, we could affirm the ratings at 'BBB/A-2' if our current views about the ESM and its potential effect on Portugal's sovereign debt were to change as a result of further developments and if we were to take the view that the downside and upside risks to our forecasts are broadly balanced.
Keywords: MARKETS RATINGS PORTUGAL
COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.