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MOODY'S ASSIGNS BA2 RATING TO ARMENIA'S US$700 MILLION 6% NOTES DUE 2020
Moody's
Sept 27 2013
Global Credit Research - 27 Sep 2013
New York, September 27, 2013 -- Moody's Investors Service has today
assigned a rating of Ba2 to the Government of Armenia's 700 million
US$-denominated notes due 2020. The notes will bear interest at a rate
of 6% per annum. The rating is derived from Armenia's Ba2 government
bond rating with stable outlook.
RATINGS RATIONALE
Moody's notes that Armenia's rating is supported by its prudent fiscal
policy, which is reflected in recent deficit reduction from 7.5%
in 2009 to 1.5% in 2012, in part achieved by under-realised capital
expenditure and gradual revenue-mobilization. The latter is underpinned
by tax reform to broaden the tax base and the introduction of a funded
multi-pillar pension system from 2014 onwards. Other credit positive
factors include the favourable cost of funding due to borrowings from
official lenders.
At the same time, Armenia's Ba2 rating is constrained by the economy's
small size and its reliance on commodity exports and on remittances,
mainly from Russia. In this regard, Armenia's already high economic and
financial exposure to Russia is set to intensify within the Customs
Union of Russia, Belarus and Kazakhstan as opposed to the previously
considered EU Deep and Comprehensive Free Trade Area (DCFTA). Moreover,
the country's limited tax take and relatively high corruption rank
also represent credit challenges.
Armenia's moderate geopolitical risks stem from its strained relations
with neighbouring Azerbaijan and Turkey. With respect to economic
event risk, the supply side shock stemming from the increase in natural
gas and energy tariffs that came into effect in July 2013 will likely
weaken the country's shock-absorption capacity, especially in view of a
sufficient, but limited international reserve buffer at 3.9 months as
of June 2013. While we expect a gradual reduction in Armenia's still
large current account deficit at 11.1% of GDP in 2012 over the medium
term, the economy has accrued a sizable external debt stock at 77%
of GDP as of end-2012. The multilateral debt repayment schedule and
the graduation from concessional funding further drives the external
debt service ratio over the next few years.
The US$700 million note sale proceeds amounting to 7% of 2012 GDP
will be used for general governmental purposes and potentially for
infrastructure investment. They add to the general government debt
stock of 44.1% of GDP to the extent that they are not used for the
repayment of the US$500 million loan from Russia. At the same time,
the note sale proceeds are set to temporarily boost gross foreign
exchange reserves.
Moody's also notes that the high degree of dollarisation in the
banking system amid rapid, but slowing credit growth toward nominal
GDP growth levels underpins the country's medium financial event risk.
This is particularly relevant if the country was to experience a
foreign-exchange funding shortfall, mitigated in part by the central
bank's macro-prudential regulations regarding banks' foreign-currency
exposures.
GDP per capita (PPP basis, US$): 5,838 (2012 Actual) (also known as
Per Capita Income)
Real GDP growth (% change): 7.2% (2012 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.2% (2012 Actual)
Gen. Gov. Financial Balance/GDP: -1.5% (2012 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -11.1% (2012 Actual) (also known as
External Balance)
External debt/GDP: 76.7 (2012 Actual)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 15 August 2013, a rating committee was called to discuss the
rating of the Armenia, Government of. The main points raised during
the discussion were:
The issuer's economic fundamentals, including its economic
strength, have not materially changed. The issuer's institutional
strength/framework, has not materially changed. The issuer's fiscal
or financial strength, including its debt profile, has materially
increased. The issuer's susceptibility to political and economic event
risk and the susceptibility to risks in the banking system have not
materially changed.
The principal methodology used in this rating was Sovereign Bond
Ratings published in September 2013. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in
relation to each rating of a subsequently issued bond or note of
the same series or category/class of debt or pursuant to a program
for which the ratings are derived exclusively from existing ratings
in accordance with Moody's rating practices. For ratings issued on
a support provider, this announcement provides certain regulatory
disclosures in relation to the rating action on the support provider
and in relation to each particular rating action for securities that
derive their credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the
definitive rating in a manner that would have affected the rating. For
further information please see the ratings tab on the issuer/entity
page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and whose
ratings may change as a result of this rating action, the associated
regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures, if
applicable to jurisdiction: Ancillary Services, Disclosure to rated
entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to
the credit rating and, if applicable, the related rating outlook or
rating review.
Please see www.moodys.com for any updates on changes to the lead rating
analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elisa Parisi-Capone Asst Vice President - Analyst Sovereign Risk
Group Moody's Investors Service, Inc.
250 Greenwich Street New York, NY 10007 U.S.A.
JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
Bart Jan Sebastian Oosterveld MD - Sovereign Risk Sovereign Risk
Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
Releasing Office: Moody's Investors Service, Inc.
250 Greenwich Street New York, NY 10007 U.S.A.
JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
https://www.moodys.com/research/Moodys-assigns-Ba2-rating-to-Armenias-US700-million-6-notes--PR_283235?WT.mc_id=NLTITLE_YYYYMMDD_PR_283235%3c%2 fp%3e
Moody's
Sept 27 2013
Global Credit Research - 27 Sep 2013
New York, September 27, 2013 -- Moody's Investors Service has today
assigned a rating of Ba2 to the Government of Armenia's 700 million
US$-denominated notes due 2020. The notes will bear interest at a rate
of 6% per annum. The rating is derived from Armenia's Ba2 government
bond rating with stable outlook.
RATINGS RATIONALE
Moody's notes that Armenia's rating is supported by its prudent fiscal
policy, which is reflected in recent deficit reduction from 7.5%
in 2009 to 1.5% in 2012, in part achieved by under-realised capital
expenditure and gradual revenue-mobilization. The latter is underpinned
by tax reform to broaden the tax base and the introduction of a funded
multi-pillar pension system from 2014 onwards. Other credit positive
factors include the favourable cost of funding due to borrowings from
official lenders.
At the same time, Armenia's Ba2 rating is constrained by the economy's
small size and its reliance on commodity exports and on remittances,
mainly from Russia. In this regard, Armenia's already high economic and
financial exposure to Russia is set to intensify within the Customs
Union of Russia, Belarus and Kazakhstan as opposed to the previously
considered EU Deep and Comprehensive Free Trade Area (DCFTA). Moreover,
the country's limited tax take and relatively high corruption rank
also represent credit challenges.
Armenia's moderate geopolitical risks stem from its strained relations
with neighbouring Azerbaijan and Turkey. With respect to economic
event risk, the supply side shock stemming from the increase in natural
gas and energy tariffs that came into effect in July 2013 will likely
weaken the country's shock-absorption capacity, especially in view of a
sufficient, but limited international reserve buffer at 3.9 months as
of June 2013. While we expect a gradual reduction in Armenia's still
large current account deficit at 11.1% of GDP in 2012 over the medium
term, the economy has accrued a sizable external debt stock at 77%
of GDP as of end-2012. The multilateral debt repayment schedule and
the graduation from concessional funding further drives the external
debt service ratio over the next few years.
The US$700 million note sale proceeds amounting to 7% of 2012 GDP
will be used for general governmental purposes and potentially for
infrastructure investment. They add to the general government debt
stock of 44.1% of GDP to the extent that they are not used for the
repayment of the US$500 million loan from Russia. At the same time,
the note sale proceeds are set to temporarily boost gross foreign
exchange reserves.
Moody's also notes that the high degree of dollarisation in the
banking system amid rapid, but slowing credit growth toward nominal
GDP growth levels underpins the country's medium financial event risk.
This is particularly relevant if the country was to experience a
foreign-exchange funding shortfall, mitigated in part by the central
bank's macro-prudential regulations regarding banks' foreign-currency
exposures.
GDP per capita (PPP basis, US$): 5,838 (2012 Actual) (also known as
Per Capita Income)
Real GDP growth (% change): 7.2% (2012 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.2% (2012 Actual)
Gen. Gov. Financial Balance/GDP: -1.5% (2012 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -11.1% (2012 Actual) (also known as
External Balance)
External debt/GDP: 76.7 (2012 Actual)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 15 August 2013, a rating committee was called to discuss the
rating of the Armenia, Government of. The main points raised during
the discussion were:
The issuer's economic fundamentals, including its economic
strength, have not materially changed. The issuer's institutional
strength/framework, has not materially changed. The issuer's fiscal
or financial strength, including its debt profile, has materially
increased. The issuer's susceptibility to political and economic event
risk and the susceptibility to risks in the banking system have not
materially changed.
The principal methodology used in this rating was Sovereign Bond
Ratings published in September 2013. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in
relation to each rating of a subsequently issued bond or note of
the same series or category/class of debt or pursuant to a program
for which the ratings are derived exclusively from existing ratings
in accordance with Moody's rating practices. For ratings issued on
a support provider, this announcement provides certain regulatory
disclosures in relation to the rating action on the support provider
and in relation to each particular rating action for securities that
derive their credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the
definitive rating in a manner that would have affected the rating. For
further information please see the ratings tab on the issuer/entity
page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and whose
ratings may change as a result of this rating action, the associated
regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures, if
applicable to jurisdiction: Ancillary Services, Disclosure to rated
entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to
the credit rating and, if applicable, the related rating outlook or
rating review.
Please see www.moodys.com for any updates on changes to the lead rating
analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elisa Parisi-Capone Asst Vice President - Analyst Sovereign Risk
Group Moody's Investors Service, Inc.
250 Greenwich Street New York, NY 10007 U.S.A.
JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
Bart Jan Sebastian Oosterveld MD - Sovereign Risk Sovereign Risk
Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
Releasing Office: Moody's Investors Service, Inc.
250 Greenwich Street New York, NY 10007 U.S.A.
JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653
https://www.moodys.com/research/Moodys-assigns-Ba2-rating-to-Armenias-US700-million-6-notes--PR_283235?WT.mc_id=NLTITLE_YYYYMMDD_PR_283235%3c%2 fp%3e