14 January 2013
Turkey, S&P fail to reach ratings deal
Standard & Poor’s said yesterday it would no longer offer a full rating service for Turkey, ditching much of its work with the economically booming country eight months after 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 February 14 it would withdrawing all its ratings on individual Turkish debt, leaving only the rating on the sovereign’s overall credit-worthiness.
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 “ideological”.
“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% of its sovereign ratings are “unsolicited”, but these do include the US and Britain.
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 as well as the heavy inflows of foreign capital, which the country needs to pay for that gap.