S&P Raises Grenada’s Foreign Currency Rating After Coupon Payment

Above: Grenada (CJ Photo)

By the Caribbean Journal staff

Standard & Poor’s has raised Grenada’s foreign currency sovereign credit ratings on Grenada Tuesday after the country made a coupon payment it had earlier missed.

The country’s rating has been raised to “CCC+/C” from “SD/SD.” It also affirmed its “CCC+/C” local currency ratings on Grenada.

The outlook on Grenada’s long-term ratings is negative, the firm said.

“The large and persistent fiscal and external deficits, debt management difficulties as a result of weak liquidity and dim near-term growth prospects limit our ratings on Grenada,” said Kelli Bissett, credit analyst at S&P. “The government’s access to the Caribbean Regional Government Securities Market, as well as funding and aid from multilateral and government sources, support the ratings.”

S&P confirmed that Grenada had paid funds that were “sufficient” to the holders of its $193 million bond in full for the interest owed to them since Sept. 15.

The bond is due in 2025.

“This, in our opinion, cured the default on the foreign currency debt,” she said. “The payment was made within the 30-day grace period indicated in the issue documentation, but we view a missed payment as a default if it is not paid within five days of the due date, according to our criteria. The government of Grenada remains current on its local currency obligations.”

Grenada’s government had called S&P’s decision earlier this month to lower the country’s currency rating “premature,” citing the aforementioned grace period.

Bissett said that, in S&P’s opinion, there remain “acute” liquidity pressures on Grenada’s overall finances, and that the firm predicts lower than 1 percent growth this year, as foreign direct investment remains low, and the tourism industry “continues to struggle.”

The firm pointed to the recent announcement that the La Source hotel would be shuttering as an example.

Grenada’s government plans to reduce capital expenditure “drastically” for the second half of 2012, and likely into next year, something Bissett said would be accompanied by “lower foreign grants and multilateral loan disbursements.”

“Although the government has remained current on its local currency obligations, and was able to issue EC $12 million ($4 million USD) of Treasury bills on the Caribbean Regional Government Securities Market recently, liquidity pressures have caused the government to delay public-sector wage payments twice in recent months.”

She said the negative outlook reflected the potential for a downgrade if liquidity pressures remain acute and funding options “become more limited” over the next year.

If the government were to delay another interest payment or to seek a debt rescheduling, or if political risk were to increase, S&P said it would likely lower the ratings.

But if Grenada’s funding profile improves, it could see a revision to “stable.”