Edgardo Tirona: Moody’s recent upgrading of the country’s risk-rating is not because agencies and investment banks are falling over each other excited that the Philippines is such a great place to invest. What the Bangko Sentral ng Pilipinas has not been telling the public is that risk-ratings are paid for. Moody’s, Standard and Poor’s and Fitch Ratings and such rating services don’t issue a rating because of its overflowing concern for investors. A corporation or a country isn’t just issued a credit-risk rating from out of the blue. It has to contract a rating agency to evaluate its credit-risk, and pay for the fee for such rating. As you can check out yourself in these agencies’ websites, the price for a credit rating isn’t at all cheap at all. These agencies charge from $1 million to $2 million for sovereign ratings, and the equivalent of five basis points of the value of a credit instrument (e.g., that now-cursed “derivative”), excluding the first-class travel and accommodation expenses of its analysts. The Aquino government has had an obsession for ratings, and has asked—including this most recent one—for 14 such evaluations. Several were asked for even within the span of six months, when the agencies had their previous ratings unchanged. Assuming it cost government an average of $1.5 million per rating, it has spent $21 million for the 14 ratings Finance Secretary Cesar Purisima and BSP Governor Amando Tetangco have contracted. That’s not cheap, the equivalent of P930 million. I can’t fathom how these two managed to incur such costs secretly, as these expenses do not appear in their published reports. You decide if credit raters maintain their objectivity despite their fat fees, especially with Aquino officials’ tactic of contracting all three agencies. Would an agency risk downgrading the Philippines, if it could be boycotted later, with its competitor with rosy glasses getting the business? Unbelievable? These agencies are now accused of being part of the problem that caused the 2007-2009 financial crisis, since they rated as investment-grade what turned out to be junk bonds, and were all praises for such investment firms as Bear Sterns, Lehman Brothers, Merril Lynch—which all went under. S&P and Moody’s in fact were sued in 2012 for $600 million in damages because they issued optimistic ratings for certain securities just before the global financial crisis. The two opted to settle for an undisclosed price, to avoid the adverse publicity. No matter, they may recover those losses at the rate this government has been asking them to do Philippine ratings so often.
Posted on: Mon, 04 Nov 2013 13:29:12 +0000
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