Latvia looks to harness Eurozone roll

By bne IntelliNews June 5, 2013

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Moody's Investors Service on June 4 became the second rating agency this week to suggest it will review Latvia's sovereign rating with a view to an upgrade on the back of the country's expected approval to join the Eurozone. Looking to tap the improved sentiment, Riga is set to launch a series of meetings with investors over issuing new debt.

Following Fitch Rating's announcement that it would look at upgrading Latvia should the European Commission - as widely expected - gives Riga the green light to join the single currency at its meeting on June 5, Moody's said in an emailed comment that it would follow suit. Specifically, the ratings agency said approval would reduce susceptibility to event risks and support the agency's positive outlook on its rating, which currently sits at the second lowest investment grade of 'Baa2'.

Moody's said the upgrade would be based on the country's strong GDP growth - the highest in the EU at over 5% in 2012 - and the strict fiscal discipline that has reigned over the budget since the crisis in 2008.

The announcement extends the rise in sentiment over the small Baltic state as it approaches the single currency, and is a far cry from 2009 when it hit rock bottom alongside its regional peers as the economies crumbled. Estonia joined the single currency in 2012, and Lithuania has said it is looking to adopt the euro by 2015.

Latvia has said that it hopes to see borrowing costs sink and investment rise thanks to joining the Eurozone. The growing positivity also offers a response to those suggesting the country is mad to be joining the problem-riddled European currency.

"Latvia doesn't have another choice," Roberts Zile, a former Latvian finance minister who is now in the European Parliament, told Bloomberg. "It's a signal that we are going to the West. It's also important for the Eurozone to say: 'look, small countries which are coming out of the crisis are going to join the euro, even if the euro is in trouble'."

Illustrating its intention to leverage the healthy sentiment, Riga is arranging a roadshow to discuss funding opportunities for the year ahead, Reuters reported on June 4, citing a statement from one of the lead arrangers - a group which includes Citigroup, JP Morgan and SG CIB. The meetings in London, Frankfurt, Paris and Vienna will start on June 10, the statement said, and provide Latvia with an opportunity to give an update on the economy - including economic and fiscal outlooks - and explore capital markets issuance opportunities in 2013.

"On a roll," sums up Tim Ash at Standard Bank. "Green light from the [European Commission] on Eurozone membership, ratings upgrades and talk of a 'non deal roadshow'. Moody's has Lithuania rated Baa1, [but] there is not much justification for Latvia to be rated below Lithuania on fundamentals - actually it's probably a more improving credit these days."

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