The non-sovereign companies whose ratings have been raised based on these revised criteria are: Globe Telecom (from BB-/Negative to BB+/stable), Universal Robina Corp. (from BB-/negative to BB/stable), Philippine Long Distance Telephone Co. (from BB-/negative to BB+/stable), and San Miguel Corp. (from BB-/negative to BB/negative).
"The evidence shows that sovereigns under political and economic stress are less likely to restrict non-sovereign entities‚ access to the foreign exchange needed to service debt," S&P managing director Laura Feinland Katz said.
This means that certain non-sovereign entities that are considered well insulated from direct and indirect sovereign risks may achieve a foreign currency rating that exceeds the sovereign foreign currency rating, it explained.
S&P based its estimate on the likelihood of a sovereign restricting non-sovereign access to foreign exchange needed for debt service on a review of the sovereign’s foreign exchange regime and economic policy orientation, as well as its external management flexibility.
The Philippine government’s foreign currency rating is BB minus while its T and C assessment is BB plus. For countries with a one notch distinction between sovereign foreign currency rating and T&C assessment, S&P views the probability of the sovereign restricting access to foreign exchange needed for non-sovereign debt service as being only slightly less than the probability of the sovereign defaulting on its foreign currency obligations.
"In effect, the reassessment of the cross-border transfer and convertibility risk means that certain issuers that are deemed to be well insulated from direct and indirect sovereign risk may achieve a foreign currency rating that exceeds the sovereign foreign currency rating," she added.
S&P said these entities will tend to be those that demonstrate modern leverage, strong free cash flow generation, and competitive business profiles. Other factors taken into consideration include strong offshore parent support, geographical diversity of operations, and structural support features.