________________________________________________________________________
South Korea given worst credit rating yet
Copyright ) 1997 Nando.net
Copyright ) 1997 Reuters
LONDON (December 23, 1997 1:42 p.m. EST http://www.nando.net) - South
Korea was dealt another blow on Tuesday, receiving its worst credit
rating yet when international rating agency Fitch IBCA downgraded the
country's long-term foreign currency debt to B minus, six notches below
investment grade.
The downgrade from BBB minus followed moves by Moody's Investor Services
and Standard & Poor's to cut South Korea's rating to "junk bond" status
on Monday.
This week's savage downgrades mirror the growing crisis in Seoul, where
officials are scrambling to roll over short-term debts of up to $20
billion falling due this month.
But many analysts criticized the rating agencies for failing to detect
Korea's weaknesses earlier, reacting instead with abrupt changes.
"There seems to be a race for the lowest ratings notch," said Neil
Williams, emerging markets economist at Sumitomo in London.
"I think the rating agencies would do well now to sit and wait for new
developments rather than reacting to short-term noise."
Fitch IBCA said the downgrade, and its decision to leave the country on
negative credit watch, followed a further fall in foreign exchange
reserves, which may now be inadequate to meet public and private sector
debts.
Earlier this month the International Monetary Fund (IMF) arranged a
record $57 billion bail-out package for South Korea, but Fitch IBCA said
it was far from clear that this would solve the country's problems.
"There are severe uncertainties about whether the scale of the IMF's
support package is now adequate to its task," the agency said.
Seoul's debt downgrade to below investment grade forced the spread of
Korean bonds over U.S. Treasuries to new highs of 800-1,000 basis
points, depending on maturity.
The rating cuts and continued fears of foreign currency default also
took a further toll on the won, which hit a record low of 1,995 to the
dollar.
European dealers said the currency -- which Korean officials vowed only
last month would never breach 1,000 -- was likely to test 2,000 soon.
"If we do see a lot of loans rolled over, we may get some respite
tomorrow. But it will be temporary. I think the won will head below
2,000 in the coming days," said one treasury economist at a London bank.
The heads of foreign banks operating in South Korea had an emergency
meeting on Tuesday to decide whether they would roll over loans for the
country's financial institutions, struggling with dollar shortages.
Assistant central Bank of Korea governor Lee Kang-nam told Reuters in
Seoul that several Japanese banks had agreed on Monday to roll over
loans, but foreign investors remained wary in the absence of details.
By BEN HIRSCHLER, Reuters
This archive was generated by hypermail 2b30 : Fri Apr 13 2001 - 12:57:43 PDT