TRIS Rating Co., Ltd., a Thai credit rating agency, issued an article about the
ratings of state enterprises mentioning that despite increasing evidences that government
has allowed a number of state-owned enterprises to operate more freely and expose to greater
market risks, the levels of government supports are still considered one of the most crucial
factors in determining the credit ratings of global state-owned enterprises.
TRIS Rating said, a number of state-owned enterprises, or government related entities
(GRE), are rated above their stand-alone ratings because credit rating agencies believe that
governments will provide supports to GREs during their financial stress times. “A GRE rating
could be uplifted by as much as one notch-to-four categories, e.g., from “B” to “AA”,
according to the publication of Standard and Poor’s in 2009”.
TRIS Rating also said that to rate a GRE, rating agencies will analyze three major
risk categories. First, rating agencies will assess the stand-alone credit risks of the GRE.
During this step, business risk factors, such as competitive position, management
competency, and financial strength, will be analyzed based on GRE’s stand-alone entity
without taking into considerations of government’s extraordinary interventions or supports.
Second, credit strength of the government will be analyzed to measure the government’s
ability to provide support to the GRE domiciled in the country. In this step, sovereign
rating could be used as an indicator of the government’s credit risks. The final step
involves the measurement of the degree of government support to the GRE. This reflects the
likelihood that the government will step in to help GRE facing financial difficulties.
The supports that government could provide to GRE under financial stress can be, but not limited to, debt guarantees, budget allocations for debt repayments, or soft loan provisions. These forms of extraordinary supports help lower GRE’s credit risks and determine its level of credit ratings uplifted. Examples of important factors that reflect the degree of government supports include the ownership of the government in the GRE, strategic importance of the GRE to facilitate government policies, GRE’s number of employees, and GRE’s roles in export sectors or power industry. The statements in specific laws and regulations about government obligations to support GRE are also factors that rating agencies consider when determining the degree of government supports.
The final rating assigned to GRE will incorporate all of the three risk categories mentioned above. The final rating will be between the GRE’s stand-alone rating and the rating of the government.
Owing to this fact, some GRE ratings could be lowered by multiple notches (based on given degree of rating enhancement) within a short period if rating agencies have reasons to believe that the degree of government supports has deteriorated. The decrease in the government’s ability and willingness to support GRE might be owing to several factors, including a decline in the government’s own credit worthiness (as crisis spreads nationwide), changes in government policies, reductions of government’s holding stakes in the GRE, and political issues, etc.
TRIS Rating said about one example of sudden rating downgrades (so-called rating cliff) as the degree of government supports dropped was in 2009 when financial difficulties forced DP World Ltd. to enter debt negotiations with lenders. The reactions from the Dubai government on many of the Dubai’s GREs led to several notches of downgrades on the ratings of the Dubai’s GREs. Examples of Dubai’s GRE downgraded by Standard and Poor’s included DIFC Investment LLC. (from “A/Negative” to “BBB-/Watch Negative”), Dubai Holding Commercial Operations Group (from “A/Watch Negative” to “BBB+/Watch Negative”), and DP World Ltd. (from “BBB+/Negative” to “BBB-/Watch Negative”).
Currently, TRIS Rating assigns ratings for four state enterprises: Aeronautical Radio of Thailand Ltd. (AA/Stable), PTT Exploration and Production PLC (AAA/Stable), Secondary Mortgage Corporation (A+/Stable), and Thai Airways International PLC (A/Stable). -- End
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