S&P loses contract to cover Turkish sovereign

By bne IntelliNews January 15, 2013

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Following months of complaints from Turkey that the rating agencies are in the vanguard of a conspiracy of international bankers, Standard & Poor's - the only major agency not to hint that an upgrade could be in the works - announced on January 14 that it has failed to agree a new contract with Ankara to rate the sovereign.

S&P said in a statement that it has converted its issuer credit and issue ratings on the Republic of Turkey to "unsolicited," but added it will still offer assessments on the fast-growing economy to meet market interest. The Turkish treasury played down the move, according to Reuters, noting that it has reached deals with Fitch Ratings and Moody's Investors Service and that it doesn't expect the failure to agree a deal with S&P to affect the markets.

"We are converting our issuer credit ratings on Turkey to 'unsolicited' as we no longer have a rating agreement with this sovereign," the S&P statement reads. "We will nonetheless continue to rate Turkey on an unsolicited basis because we believe that we have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance, and because we believe there is significant market interest in this unsolicited rating."

Investor sentiment toward Turkey received a huge lift in late 2012 as an upgrade from Fitch offered the country its first investment grade status in close to 20 years. Although Moody's declined to join the party in December, the agency has openly suggested an upgrade is on the cards should the economy's soft landing persist this year. Fitch raised its rating to investment grade at 'BBB-' in November, while Moody's rating sits just below investment grade at 'Ba1'.

However, S&P, whose Turkey rating is already the lowest of the three agencies at two rungs below investment grade, has not indicated that it intends to revise its standing on Turkish government debt anytime soon.

Although S&P made no reference to the reasons behind the end of its contracted coverage, it's no secret that Ankara is furious with the agency since it revised its outlook on the sovereign from "positive" to "stable" in May. Resurrecting his complaints of an international money market conspiracy to keep the country down, Turkish Prime Minister Recep Tayyip Erdogan responded by threatening that Ankara would dispense with S&P's services to set up its own ratings agency, insisting the move did not reflect Turkey's rapid 8.5% growth in 2011.

However, that growth only provoked the concerns of the agencies over a double-digit current account deficit at the start of 2012 which heavily exposed the country to potential shocks in the Eurozone banking sector. Helped by the sluggish global economy through the year, Ankara saw growth slow to around 3% last year, with the hole in the current account dropping to around 7.5%. That persuaded Fitch, but Moody's has refused to move until the trend is cemented further.

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