FITCH DOWNGRADES SURINAME’S LONG-TERM FOREIGN CURRENCY IDR TO ‘RD’
Fitch Ratings – New York – 01 Apr 2021: Fitch Ratings has downgraded Suriname’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘RD’ from ‘C’. Suriname’s Short-Term Foreign Currency IDR is affirmed at ‘C’.
The two issue ratings on Suriname’s USD550 million notes due 2026 and USD125 million notes due 2023 on which the government has defaulted were downgraded to ‘D’ from ‘C’ and then withdrawn for the following reason: Bankruptcy of the rated entity, debt restructuring or issue/tranche default.
KEY RATING DRIVERS
The downgrade of Suriname’s IDR to ‘RD’ reflects the non-payment of USD49.8 million of rescheduled external debt service on Suriname’s 2023 and 2026 notes due March 31. This marks an event of default under Fitch’s criteria with respect to the sovereign’s IDR as well as the issue ratings of the affected securities (Global 2023 and 2026 notes).
Another USD25.4 million semi-annual interest payment is due April 26 on the Suriname 2026 notes. Altogether USD75.3 million total debt service is due on Suriname’s global bonds within the next 30 days.
The government of Suriname continues to negotiate with creditors for a comprehensive restructuring of its external bonds, which has been a protracted process. The national authorities are concurrently pursuing a funded IMF program, but did not reach an agreement in time to trigger an extension of the debt service payment date by one month, as set out in the second consent solicitation terms agreed in December 2020. In response to the government of Suriname’s consent solicitation issued March 17, the third since June 2020, noteholders highlighted concerns that have limited negotiation progress, and on March 31, the government of Suriname extended the consent solicitation response deadline to April 8.
As a consent solicitation would result in a further standstill of debt service amid the broader debt restructuring process rather than normalize payments to bondholders, Fitch expects the Long-Term Foreign Currency IDR to remain at ‘RD’ even if creditors agree to it. Should Suriname reach an agreement with noteholders resulting in a comprehensive bond restructuring that supports Suriname’s near-term payment capacity, this would constitute a “distressed debt exchange” (DDE) under Fitch’s Sovereign Rating Criteria, and would result in the upgrade of the sovereign’s ratings out of ‘RD’ to a level consistent with its credit fundamentals on a forward-looking basis.
ESG – Governance: Suriname has an ESG Relevance Score of ‘5’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s proprietary Sovereign Rating Model. Suriname has a medium WBGI ranking at the 43rd percentile, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law but a high level of corruption.
ESG – Creditor Rights: Suriname has an ESG Relevance Score of ‘5’ for Creditor Rights as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight, as evident in Suriname’s protracted debt default and restructuring process during 2020-2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
–Completion of a commercial debt restructuring that Fitch judges to have normalized relations with the international financial community.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
–Due to the rating being in Restricted Default, negative actions are not applicable.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
In accordance with its rating criteria, Fitch’s sovereign rating committee has not utilized the SRM and QO to explain the ratings in this instance. Ratings of ‘CCC’ and below are instead guided by the rating definitions.
Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579].
KEY ASSUMPTIONS
Fitch expects the global economy to evolve in line with Fitch’s Global Economic Outlook forecasts.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
DATA LIMITATIONS
–The government of Suriname has exhibited recent material lags in the publication of the central government operational, finance accounts, and debt statistics after September 2020. Fitch collects available, but incomplete, financial and debt information from periodic government presentations. The data used was deemed sufficient for Fitch’s rating purposes.
ESG CONSIDERATIONS
Suriname has an ESG Relevance Score of ‘5’ for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch’s SRM and are highly relevant to the rating and a key rating driver with a high weight.
Suriname has an ESG Relevance Score of ‘5’ for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGI have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight.
Suriname has an ESG Relevance Score of ‘5’ for Creditor Rights as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight, as evident in Suriname’s protracted debt default and restructuring process during 2020-2021.
Suriname has an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms as the Voice and Accountability pillar of the WBGI is relevant to the rating and a rating driver.
Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure: Suriname
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
- Country Ceiling Model, v1.7.1 (1)
- Macro-Prudential Indicator Model, v1.5.0 (1)
- Sovereign Rating Model, v3.12.1 (1)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Suriname | EU Endorsed, UK Endorsed |
UNSOLICITED ISSUERS
Suriname (Unsolicited)
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