CREDIT RATING BY STANDARDS & POOR's

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE

Oct 13 - 19, 2008

Standard & Poor's operates as a financial services company. Its products and services include Credit Ratings, Equity Research, S&P indices, Funds Ratings, Risk Solutions, Governance Services, Evaluations and data services. The company's division Capital IQ, provides information and workflow solutions to Financial Institutions, Advisory Firms and Corporations. Capital IQ provides integrated financial information and technology solutions, including auditable company financials, a screener combining financial and nonfinancial items, an integrated public and private capital market database and various relationship development tools.

S&P's LONG TERM CREDIT RATINGS

S&P rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (i.e., BBB+, BBB and BBB-). For some borrowers, S&P may also offer guidance (termed a "credit watch") as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral).

S&P's SHORT TERM CREDIT RATINGS

S&P rates specific issues on a scale from A-1 to D. Within the A-1 category it can be designated with a plus sign. This indicates that the issuer's commitment to meet its obligation is extremely strong. Country risk and currency of repayment of the obligor to meet the issue obligation are factored into the credit analysis and reflected in the issue rating.

STOCK MARKET INDICES

Standard & Poor's publishes a large number of stock market indices, covering every region of the world, market capitalization level and type of investment (e.g. indices for REITs and preferred stocks)

STANDARD & POOR's

LONG - TERM ISSUE CREDIT

SHORT-TERM ISSUE CREDIT

LONG-TERM INSURER FINANCIAL STRENGTH

AAA

BB-

A-1 PLUS

AAA

BB-

AA+

B+

A-1

AA+

B+

AA

B

A-2

AA

B

AA-

B-

A-3

AA-

B-

A+

CCC+

B

A +

CCC+

A

CCC

B-1

A

CCC

A-

CCC-

B-2

A-

CCC-

BBB+

CC

B-3

BBB+

CC

BBB

C

C

BBB

R

BBB-

D

D

BBB-

NR

BB+

   

BB+

 

BB

   

BB

 

Various Sources

STANDARD & POOR's IN PAKISTAN

S&P's lowered Pakistan's sovereign rating further into junk territory, because of the country's worsening external liquidity may imperil its ability to meet about $3 bn in upcoming debt obligations. The widely expected action comes after Pakistan's foreign reserves fell $690 mn to $8.1 bn. According to SBP the country's reserves fell to $4.7 bn from $5.4 bn previously, representing a little over two months of import cover. S&P's downgrade of Pakistan was its second this year, as the country faces the prospect of default on its debt due to dwindling foreign currency reserves. Foreign investor confidence in the country has also been shaken amid worries urgently-needed economic reforms will be delayed in a year plagued by political and security concerns. Recently, S&P's action has lowered its foreign currency debt rating on the country to CCC-plus from B, just several notches above a level that would indicate default. Pakistan's local currency debt rating was lowered to B-minus from BB-minus.

NEW S&P FRONTIER BMI

FLOAT ADJ MARKET CAP EXCLUDING FOR FOREIGN INVESTMENT LIMIT, USD, IN MILLIONS

WEIGHT

# OF ISSUES

Bahrain

7,761

2.0%

11

Bangladesh

1,022

0.3%

25

Colombia

22,386

5.8%

22

Croatia

4,597

1.2%

15

Jamaica

2,215

0.6%

16

Jordan

15,438

4.0%

25

Kazakhstan

15,630

4.1%

13

Kenya

3,115

0.8%

19

Kuwait

109,497

28.5%

82

Lebanon

5,667

1.5%

5

Mauritius

3,865

1.0%

9

Nigeria

59,291

15.4%

34

Oman

9,041

2.4%

28

Pakistan

15,416

4.0%

45

Panama

2,331

0.6%

11

Qatar

25,783

6.7%

22

Romania

5,928

1.5%

15

Sri Lanka

1,823

0.5%

24

U.A.E.

40,609

10.6%

36

Ukraine

4,739

1.2%

18

Vietnam

2,128

0.6%

24

Zimbabwe

1,037

0.3%

19

Source: S&P

CONCLUSION

No doubt Pakistan faces many problems and one main problem is political instability as it is directly affecting Pakistan's economy and because of this the foreign reserves are declining. Pakistan's foreign reserves fell $690 mn to $8.1 bn. This is an alarming situation for the Pakistani government. Our government must take an immediate action in order to divert this present economic crisis. State Bank of Pakistan said its reserves fell to $4.7 bn from $5.4 bn previously, representing a little over two months of import cover. S&P's downgrade of Pakistan was its second this year, as the country faces the prospect it will default on its debt due to dwindling foreign currency reserves. The S&P has noted that Pakistan will require external assistance in meeting its debt obligations which includes $500 mn in dollar bonds maturing in February but expressed concern about whether it could count on the help in time. S&P also noted the uncertain political situation and social tension cast doubt about whether the government would have the ability to adopt the appropriate policy measures. The rating on Pakistan could be lowered further if the foreign exchange reserve cushion continues to shrink and meaningful economic stabilization measures remain wanting.

A rating downgrade may further reduce country's ability to tap money through remittance securitization bonds, slowing down the rate of foreign investment and privatization. This S&P step could further raise concerns over external liability and prompt dollarization and speculation in the forex market.