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Turkey and other emerging markets face coronavirus rating pressure - S&P Global

Kitco News

* S&P sees B-grade country ratings vulnerable to coronavirus

* Turkey has various pressures: tourism, high dollar debts

* Pressures on Italy’s growth should not impact rating

By Marc Jones

LONDON, March 6 (Reuters) - Turkey, other lower-rated emerging markets and some oil producers will face the biggest pressure on credit ratings from the coronavirus, one of S&P Global’s top sovereign analysts said on Friday.

The number of global infections has surpassed 100,000, while widespread shutdowns and travel restrictions are raising concerns of a potential global recession.

Credit rating agency S&P has been among those cutting growth forecasts in recent days and Frank Gill, its senior director of Europe, Middle East and Africa sovereign ratings, said certain countries’ ratings could also be vulnerable.

“It is not good news for anyone, least of all emerging markets,” he told Reuters. “Where this could cause most distress is the speculative grade countries in the single B space.”

The main issue is whether countries will be able to cope with a major increase in cases, especially if they have less advanced healthcare systems, or if they depend heavily on tourism or plunging commodities like oil.

Another worry is if domestic currencies tumble, making it more costly to pay debt borrowed in major currencies like dollars.

“We are looking at Turkey very closely,” Gill said.

S&P currently has the country on a B+ rating with a stable outlook, but Turkey’s large tourism sector which accounts for around 13% of its economy, was one of the bright spots last year and “this coronavirus epidemic is clearly going to weigh on any tourism economy in 2020”.

The country’s banks also have a lot of refinancing to do over the next 12 months. At $61.5 billion, that is roughly 8% of Turkey’s GDP. “That is a lot,” Gill said.

Turkish companies have around $74 billion in external debt including trade credits and though the government itself only has around $5 billion to refinance this year, there are three large state-owned banks which would need support in a crisis.

“When you see pressure on the lira, that immediately weighs on creditworthiness of the private sector. So that is not great news.”

Oil-producing countries with higher extractions costs, like Oman, are also at risk because of the near 30% plunge in crude prices this year.

However, Italy, which has Europe’s biggest outbreak of the virus and the heaviest debt load of the region’s heavyweight economies, should be able to ride it out, he said.

S&P expects it to see an economic contraction of 0.3% this year but also to recover in 2021. Its borrowing costs have also been coming down rapidly.

“We don’t see this (virus) as really changing the story on Italy’s debt profile or their ability to refinance themselves.”

“So there is no immediate read-across right now to the rating ... But there is enormous uncertainty unfortunately.” (Reporting by Marc Jones; Editing by Andrew Cawthorne)

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