Fitch Warns of Vietnam Ratings Cut

By LEIGH MURRAY
 

Fitch Ratings warned it may cut Vietnam's credit ratings deeper into junk territory, citing weakening domestic confidence in the dong, and said balance-of-payment support is needed before trust can be restored.

Fitch put Vietnam's long-term foreign and local currency ratings of double-B-minus on negative watch. It also put its short-term foreign currency rating and country ceiling of double-B-minus on negative watch.

The Fitch move is the latest sign of pressure on Vietnam's economy. Stronger economic growth is marred by surging inflation and a wide trade deficit. An interest rate hike on Dec. 1 and two currency devaluations since November have done little to fix those problems.

Vietnam also stands in contrast with Indonesia, whose double-B-minus long-term foreign-currency rating was raised Friday by rival ratings firm Standard & Poor's Ratings Services to double-B. S&P cited the country's improving debt situation and growing foreign reserves.

In Vietnam, official data show gross international reserves have fallen to $15.9 billion in October 2009 year from $23.6 billion in September 2008, Fitch said. It noted that more recent figures haven't been published.

The ratings firm also forecast that foreign-exchange reserves may decline to 2.6 months of imports and 1.6 months of current external payments this year—the lowest since 1994.

"The strength of Vietnam's external finance position, which has provided support to the sovereign's overall creditworthiness, has been sharply eroded as the economy displays signs of domestic overheating and residents lose confidence in the local currency," Ai Ling Ngiam, Director in Fitch's Asia Sovereign team, said in a statement released by the ratings agency.

An official at the State Bank of Vietnam said he wasn't aware of the Fitch announcement and had no comment.

Black market traders Friday were demanding a 4.2% premium for the U.S. dollar over the official dollar-dong exchange rate, underlining weak confidence in the Vietnamese currency. Fitch said the premium indicates ongoing depreciation pressures on the dong.

But Prakriti Sofat, an analyst at Barclays Capital, said in a note that the Fitch move wasn't justified. He said that while the dong remains weak, he doesn't believe domestic confidence in the currency has deteriorated. He added that Vietnam's trade deficit has improved this year, its external debt is relatively healthy and the central bank has been moving to tighten policy.

"Given this backdrop we believe that Fitch rating outlook change to negative is hasty and short-sighted. It does not take into account the fundamental strength of the Vietnamese economy and the country's long-term potential," he said.

S&P's upgrade of Indonesia, meanwhile, aligned its rating with that of rival Moody's Investors Service, which raised its rating by one notch to Ba2 in September . Fitch had upgraded its rating by one notch to double-B-plus in January. Both have stable outlooks on their ratings.

S&P kept the door open for a further upgrade to its rating. It said it expects the government to remain committed to cautious fiscal management and that gross domestic product of Southeast Asia's largest nation will continue growing by double digits.

Among Asian corporate borrowers, CLP Power Hong Kong Ltd., a wholly owned unit of Hong Kong power supplier CLP Holdings Ltd., priced its US$500 million, 10-year investment-grade bond to yield 4.8677%, people familiar with the deal said.

CLP Power, though its financing unit CLP Power Hong Kong Financing Ltd., paid a yield premium of 1.15 percentage point point over comparable U.S. Treasurys. That is smaller than initial guidance of around 1.25 percentage point over Treasurys.

—Ditas Lopez and I Made Sentana contributed to this article.