London (Standard & Poor’s) Aug. 1, 2008—Standard & Poor’s Ratings Services said today that it lowered its foreign currency sovereign credit rating on the Republic of Seychelles to ‘CCC/C’ from ‘B/B’.
Standard & Poor’s also said that it placed the ‘CCC/C’ foreign currency and ‘B+’ long-term local currency ratings on Credit Watch with negative implications.
The ‘B’ transfer and convertibility assessment on Seychelles is unchanged.
These rating actions follow yesterday’s notice by holders of the republic’s €54.75 million amortizing notes due 2011 of their intent to accelerate payment as a result of the republic’s failure to make interest and principal payments due on July 1, 2008. Standard & Poor’s doesn’t rate the amortizing notes, which Lehman Brothers privately placed in August 2007.
The government has asserted that it did not pay debt service on the notes because of irregularities in the issuance approval process and a lack of transparency in the note documentation, which Standard & Poor’s has not yet reviewed. “A failure to service valid commercial debt due or to restructure commercial debt on unfavorable terms would constitute a default under Standard & Poor’s methodology,” noted Standard & Poor’s credit analyst Farouk Soussa. “The government’s actions also raise broader questions about its debt-management policies and heighten our concerns about its capacity to service $230 million of rated global bonds.”
Standard & Poor’s expects to resolve the Credit Watch status of the ratings within the next few weeks following a review of the documentation on the unrated notes and discussions with the government about its debt-servicing plans, we could revise the long-term and short-term foreign currency credit ratings to ‘SD’ if we conclude that a payment default has occurred or that the notes will eventually be restructured. We could lower the long-term local currency rating ‘B’ from ‘B+’ if the government’s foreign exchange difficulties significantly increase its reliance on domestic markets to finance its budget deficit. Conversely, Standard & Poor’s could affirm the ‘CCC/C’ foreign currency rating and ‘B+’ long-term local currency rating if we conclude that the controversy over the unrated notes constitutes a commercial dispute that the government is willing and able to resolve expeditiously.