By Kim-Mai Cutler
Aug. 4 (Bloomberg) -- The Seychelles, an Indian Ocean archipelago north of Madagascar, had its long-term credit rating lowered by Standard & Poor’s after bondholders demanded the government meet a missed debt payment.
The rating was cut three steps to CCC, eight grades below investment grade, S&P said in a statement from London late Aug. 1. The grade was put on watch ``with negative implications,’’ S&P added, meaning it may be lowered again in coming weeks.
Seychelles bondholders posted a notice in the Financial Times last week saying the government missed interest and principal payments on 54.75 million euros ($85.3 million) of privately placed securities due 2011. The government, which has $230 million of rated global bonds, said it didn’t pay because of ``irregularities in the issuance-approval process and a lack of transparency in the note documentation,’’ S&P said.
``In a situation where they may be in default on commercial debt, it may become more difficult for them to refinance debt in general,’’ David Beers, S&P’s London-based managing director of the global sovereign ratings group, said in an interview today. ``Seychelles is an important high-end tourist destination. The global economy is slowing and they’re not immune to headwinds from that. They’re in a challenging situation economically.’’
The country paid the first installment of the notes on June 1, but missed a payment due on July 1, E. Michael Hunter, chairman of the Seychelles noteholders’ committee, which posted the July 31 notice in the FT, said in an e-mail.
Ahmed Afif, the principal secretary of debt management for the Seychelles Finance Ministry, didn’t return calls seeking comment. Brian Charlette, director of public debt, referred calls to Afif. One message sent to the central bank’s e-mail address for inquiries on public debt wasn’t answered.
``There’s been no information, there was absolutely nothing I could find out about the default,’’ said Markus Piros, an accountant at Commerzbank AG in Frankfurt, who said he bought the bonds as a personal investment a year ago.
LONDON (Reuters) - Standard & Poor’s (S&P) on Thursday cut its credit rating on the Republic of Seychelles after the country failed to service a note and warned that the tiny African nation may also default on its global bond.
S&P downgraded Seychelles’ foreign currency sovereign rating to “selective default” or “SD” from “CCC/C”, citing the country’s failure to pay the principal due on July 1 of a privately placed 54.75 million euros amortising note due 2011.
The ratings agency also lowered its rating on Seychelles’ $230 million global bond due 2011 to “CCC-” from “CCC”.
“Since the private placement note is already in default, there is high risk they will default on the global bond,” David Beers, S&P head of global sovereign ratings group told Reuters.
“There’s a growing risk that when the next coupon for the global bond is due in October, they won’t pay up.”
Seychelles’ 85,000 population has one of the highest incomes in Africa but also a heavy debt burden.
S&P, which also lowered the country’s local currency rating to “B”, said the government’s partial debt default raises questions about its debt-management policies and would lead to an increased reliance on the domestic markets to finance its budget deficit.
“Seychelles’ international liquidity is low; we estimate gross financing needs at 164 percent of current account receipts in 2008, and the June 2008 central bank figures show reserves of just $40.2 million, equivalent to 1.5 weeks of this year,” S&P said
THIS IS PROOF THAT OUR ECONOMY
Seychelles Is `Seeking Advice’ After Default Notice
Aug. 6 (Bloomberg) -- The Seychelles, an Indian Ocean archipelago north of Madagascar, said it’s ``seeking advice’’ after investors demanded the government meet a missed debt payment.
The country had its credit rating cut three steps by Standard & Poor’s last week after bondholders posted a notice in the Financial Times saying the government failed to pay interest and principal on 54.8 million euros ($85.3 million) of securities maturing in 2011. The Seychelles said it didn’t pay because of ``irregularities in the issuance-approval process and a lack of transparency in the note documentation,’’ S&P said.
``The government has received a copy of the notice and we are seeking advice on the way forward,’’ Ahmed Afif, a principal secretary at the Seychelles’s Finance Ministry, said in an e- mailed response to questions from Bloomberg News today. He declined to comment further.
The country paid the first installment of the notes on June 1 and then missed a payment due on July 1, according to E. Michael Hunter, chairman of the Seychelles noteholders’ committee, which posted the July 31 notice in the London-based FT.
Seychelles government bonds plunged yesterday, with the yield on the dollar-denominated October 2011 security almost tripling to 30.7 percent. The price of the 9.125 percent note sank 37.46 cents on the dollar to 58.20, from 95.66 on July 31.
Waning Tourism
S&P cut the country’s debt rating to CCC, eight levels below investment grade, on Aug. 1. The rating was also put on watch ``with negative implications,’’ S&P said, meaning it may be lowered again in coming weeks.
The standoff with investors comes as slowing global economic growth hurts tourism in the Seychelles, according to S&P. The industry employs about 30 percent of the labor force, United Nations data shows.
The former British colony is made up of an archipelago of about 115 islands scattered over more than 1 million square kilometers (386,102 square miles) in the western Indian Ocean. It has a $710 million economy and a population of 84,000.
To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Kim-Mai Cutler in New York at kcutler@bloomberg.net.