RATINGS AGENCY Standard & Poor’s has not changed its pessimistic outlook on Ireland’s economic prospects in response to the sale of the first long-term Government bonds since 2010.
The agency left the outlook for Ireland unchanged at “negative”, meaning that the country’s rating may be downgraded, as access to the markets remained “restricted” based on the 5.9 per cent cost of borrowing on new five-year bonds sold by the State last week.
Ireland’s access to the markets could still be restricted and the cost of borrowing could remain at this level by the time the EU-IMF bailout programme ends in December 2013, the agency said.
The bond sale was “an indication of progress with regard to Ireland regaining full market access priced at rates that will stabilise the Government’s debt-to-GDP ratio,” Standard & Poor’s said.
The Government raised €5.2 billion last week selling five- and eight-year bonds comprising €4.2 billion of new money and an exchange of €1 billion of existing debt due to be repaid in 2013 and 2014 for the longer-term bonds.
Ireland’s “BBB+” credit rating was affirmed by the ratings agency. Moody’s is the only one of the main ratings agencies to have downgraded the country to non-investment grade or “junk” status.
Standard & Poor’s assumes Ireland would receive “no further external assistance” on cutting the cost of the €31 billion promissory notes used to bail out Anglo Irish Bank and Irish Nationwide, sharing the €64 billion bank bailout costs with other governments or on removing €68 billion of tracker rate mortgages from Irish banks.
Ireland’s “BBB+” rating was supported by the fact that it can access the €500 billion European Stability Mechanism, “given the possibility that the Irish Government could require additional financial assistance when the current EU-IMF programme ends”.
Standard & Poor’s also affirmed Allied Irish Bank’s “BB” rating after it reported a first-half pretax loss of €1.3 billion last week. The agency downgraded the lender’s “stand-alone credit profile” on the basis that it expects the bank to remain loss-making into 2013.
The “many pressures” on AIB’s earnings before impairments for bad loans arising from the high cost of deposits, the high level of impaired loans and the high fees for the State guarantee “will only gradually abate”, the agency said.
It expects AIB’s loan impairments will remain elevated for the remainder of this year and next.
