RP gets ‘country ceiling’ upgrade from Fitch Ratings

Credit ratings agency Fitch Ratings raised the ‘country ceiling’ for the Philippines from "BB" to "BB+" as part of its regular and on-going review of its criteria and methodologies.

Fitch said it revised the ‘country ceilings’ of 40 countries out of 99, updating its 2004 ratings. The overall increase in the "notching" is 50 basis points, which is half of one notch on the rating scale.

Country ceilings are not ratings, but are "key analytical inputs" on the foreign currency ratings of sovereigns. Country ceilings, as explained by Fitch, measure the risk of exchange controls that "impede the private sector’s ability to convert local into foreign currency and transfer to non-resident creditors, or the transfer and convertibility (T&C) risk."

The credit ratings firm said the upgrades of country ceilings mirror the liberalization of capital and exchange controls in many emerging market economies, the strengthening of monetary and exchange rate regimes and the deepening integration of emerging markets in the global economy.

It noted that the country ceiling approach is an offshoot of global liberalization.

"Because of the close correlation between ‘sovereign and country’ risk, a direct link between the country ceilings and the sovereign long-term foreign currency (LTFC) issuer rating is retained." In the meantime an outlook is not formally assigned a country ceiling because it is not a rating.

Fitch said the methodology for assigning country ceilings was recently updated as part of Fitch’s regular and on-going review of its criteria and methodologies.

As a result of the review, the country ceilings on 40 countries have been revised upwards.

The average "notch" uplift has been increased to a little over one notch above the sovereign foreign currency issuer rating.

Corporations, financial institutions and structured transactions can only be rated above the sovereign foreign currency issuer rating and up to the country ceiling if their stand-alone credit quality is judged to be sufficiently strong to withstand a sovereign debt crisis.

The ratings of financial institutions and corporations are affected by the revision to the country ceilings and will be detailed in subsequent announcements.

Following the country ceiling upgrade, Fitch also upgraded its ratings for blue chip companies Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc.

Fitch upgraded the long-term foreign currency Issuer Default Rating ("IDR") of PLDT and Globe to ‘BB+’ from ‘BB’, with a stable outlook.