ArmInfo. For the first time, the "Big Three" international rating agencies Moody's Investors Service, Standard & Poor's and Fitch Ratings simultaneously published a report on Armenia. RA Minister of Finance Tigran Khachatryan stated this at a government session on October 14.
Yesterday, the Central Bank of Armenia reported that for the first time the Standard & Poor's rating agency assigned Armenia a sovereign rating - "B +" on the issue of long-term obligations in foreign and national currencies with a "Positive" forecast. The assignment of the rating is dated October 12, 2021. In early September 2021, Moody's confirmed Armenia's sovereign rating at Ba3, leaving the forecast stable, expecting real GDP growth in 2021 by 4.5%. At the end of September this year, Fitch Ratings has affirmed Armenia's long-term foreign currency issuer default rating (IDR) at 'B +' with a stable outlook, improving expectations for 2021 on GDP growth to 5.5% (from the previous 3.2%).
The head of the Ministry of Finance noted that the sovereign rating from Standard & Poor's in the future will allow, in cooperation with this agency, to develop a national rating scale for Armenia, taking into account the rich experience of Standard & Poor's in developing such scales. This can become a new incentive for increasing the level of transparency and business management in Armenia.
"Standard & Poors, in addition to the rating of the issue of long-term obligations, also assigned a "B" rating to the issue of short-term bonds in foreign and national currencies, and also determined the country's assessment at "BB-" in terms of transfers and convertibility", Khachatryan said. The latter exceeds the country's sovereign rating by one level, due to which private sector companies and financial institutions of Armenia, when rated by Standard & Poor's, can receive a rating higher than the country's sovereign rating (BB-) by one level.
The "positive" outlook for Armenia's sovereign rating reflects the opinion of Standard & Poor's analysts that the risks aimed at improving the state of the country's economy dominate and within the next 12 months may lead to an increase in Armenia's sovereign rating. Standard & Poor's analysts note that if their expectations of economic growth in Armenia are justified over the next 2-3 years, external vulnerability will decrease and the implementation of the state budget will be more positive than expected, this will lead to an improvement in the country's sovereign rating. Standard & Poors expects the government's five-year program to lead to faster economic growth and a reduction in external leverage.
The entry of the largest international Standard & Poor's rating agency into Armenia means that the macroeconomic situation and risks in the country are improving, the flexibility of existing institutions is increasing, and another international body is emerging that objectively evaluates the effectiveness of their policies. This will definitely help to gain the confidence of institutional investors and will have a positive impact on the yield of Eurobonds placed in the future.
In addition, as the Minister explained, Armenia's cooperation with Standard & Poor's will contribute to the development of the capital market in the country and accelerate the reform process in this direction, given that the sovereign rating was also obtained for private sector companies in order to ensure the possibility of assigning a rating to them and accessing local and international capital markets. Obtaining Standard & Poor's sovereign rating will reduce the costs of obtaining a rating for companies in the private sector of Armenia, since in the absence of a sovereign rating; the price for obtaining a rating by private companies also includes an assessment of sovereign risk. This will allow private sector organizations, including financial ones, both in Armenia and abroad, to attract financial resources on the most favorable terms, he said.
The head of the RA Ministry of Finance stressed that Armenia's "B +" sovereign rating is based on the assessments of Standard & Poor's experts that, despite significant external pressure, the country overcame the consequences of confrontation and military conflict without endangering the country's economic stability. Standard & Poors attributes this flexibility (confrontation) of the economy, at least in part, to the concept of sound fiscal and monetary policies. With the funds accumulated as a result of sound fiscal policy, the authorities have provided significant assistance to the economy affected by the coronavirus pandemic, while maintaining financial stability in the country. In 2020, the Central Bank of Armenia also helped to counter serious and synchronized shocks with its flexible monetary policy. RA Prime Minister Nikol Pashinyan recalled that over the past three years, his government twice entered the international capital market by issuing Eurobonds and "twice fixed the historical minimum on interest rates." "At the same time, the last time we carried out the tranche was in January of this year, when we were going through a very difficult period, and nevertheless, international investors trusted the potential of the RA government to maintain macroeconomic stability and overcome the crisis. And in the end they turned out to be right," he said. To recall, on January 26, 2021, Armenia placed among international investors the 4th issue of 10-year debt securities in the amount of $ 750 million. The established annual yield of the bonds of the 4th issue was lower than the yield of the 3rd issue in the amount of $ 500 million - 3.875% (the coupon rate was 3.6%) against 4.2% in 2019, 7.5% in 2015 the amount of $ 500 million and 6.25% in 2013 (in the amount of $ 700 million with a maturity of 7 years. The securities were repaid by September 30, 2020). According to the Bloomberg information system, investor demand for Armenian debt securities in 2021 exceeded $ 2.5 billion. The initial target for the yield of Eurobonds to maturity in February 2031 was 4.375-4.5% per annum. The main underwriters of the 4th tranche securities were: City Bank, J.P. Morgan Securities plc. and HSBC Bank Plc.
According to the prime minister, the assessment of the rating agencies is very important, since potential investors are guided by them when making investment decisions.
Minister of Economy of the Republic of Armenia Vahan Kerobyan, in turn, said that at present the government is in the process of assigning a rating to the state "Export Insurance Agency of Armenia" CJSC. The assignment of the credit rating will most likely be dealt with by Standard & Poors, he noted.