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Considering Cambodia's rating

Considering Cambodia's rating

The interior of ACLEDA Bank in Phnom Penh. Moody's officials are in Phnom Penh this week considering the bank's rating.

Cambodia's sovereign credit ratings have remained unchanged and unleveraged since the Kingdom first received them in 2007, officials have said.

Credit ratings from ratings agencies such as Standard and Poor’s and Moody’s are necessary in order to tap international bond markets, a move officials said Cambodia was considering four years ago.

However, the government has never issued sovereign bonds, and officials say it has no immediate intention of doing so.

“The government does not have a plan to issue any kind of debt instrument,” said Nguon Sokha, director general and spokeswoman at the National Bank of Cambodia, this week.

Debt ratings on countries across the globe have garnered renewed attention after Standard and Poor’s on Friday cut its rating on the US to AA-plus from AAA. The move sparked concern about the potential effects on the United States’ trading partners and those countries such as Cambodia that use the dollar as their main currency.

Christian DeGuzman, an analyst with Moody’s Investors Service’s sovereign risk group, downplayed the effect of the United States’ woes on the Kingdom.

“One sovereign credit in and of itself does not engender a review of the rest of the rating system,” he said, adding that Moody’s was in Phnom Penh this week to research ACLEDA Bank and Cambodia Public Bank in order to issue updated ratings on the two companies.

That review would come only if the links between two countries were especially strong, he continued. While the US and Cambodia maintain a strong economic partnership, “it’s not enough to materially change the economic condition that we see for Cambodia”.

Moody’s presently rates the Kingdom’s long-term debt at B2, while Standard and Poor’s rating is B+. Both ratings indicate Cambodia is a speculative investment.

Standard and Poor’s defines a country with such a grade as “more vulnerable to adverse business, financial and economic conditions, but currently has the capacity to meet financial commitments”.

Moody’s views long-term obligations with a B grade as “subject to high credit risk”.

The NBC’s Nguon Sokha claimed the ratings are “not 100 percent perfect”, and said she is positive on Cambodia’s outlook. Also, the ratings lend confidence to investors eyeing opportunities in the Kingdom.

“Ratings give some indication of the strength of the economy, but we should not 100 percent rely on that. We need to continue to strengthen ourselves,” she said.

At the same time, she expected the Cambodian government to continue its focus on international donor money and long-term loans from governments or agencies rather than raising funds by issuing bonds.

A number of insiders and analysts said Cambodia now has access to better lines of credit than those found in international bond markets.

ANZ Royal Bank CEO Stephen Higgins pointed to China as one such source of revenue, saying the Kingdom’s bonds wouldn’t fetch better lending terms than those offered by the world’s second-largest economy.

As a result, bond issuance in these circumstances is less of a concern for the Cambodian government.

“At some stage it makes sense for them to do so. But they really want to get the rating up a bit before they do,” he said.

He listed improved tax collection and government finances, as well as a reduction in the current account deficit, as paths to a better rating.

Standard and Poor’s associate director of sovereign ratings Agost Benard said it is more likely that Cambodian companies will issue debt before the government does.

Companies that eventually list on the Cambodia Securities Exchange will also seek funding from abroad, and he said they will need a rating to do so. Company ratings will then be taken into account along with the Kingdom’s rating before investors make a decision to buy those bonds.

“Nevertheless, a [sovereign] rating is always useful for investors as a benchmark,” he said, echoing sentiments from Nguon Sokha.

ACLEDA Bank has been rated by both Standard and Poor’s and Moody’s. While the bank has yet to issue debt of any kind, CEO In Channy said it has used the rating to take advantage of lower interest rates that unrated companies would not receive.

Also, the ratings lend all-important transparency of the bank’s operations to the market, he said. “The ratings allow us to reveal our financial position to all our stakeholders, and it gives people who might want to invest with us in the future an accurate look at the company.”


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