[IWAR] S KOREA rating cut fallout

From: Michael Wilson (MWILSON/0005514706at_private)
Date: Tue Dec 23 1997 - 14:05:57 PST

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                        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
       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
       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

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