Business Governance Politics

Moody’s says Government of Maldives proposed tap issuance has no ratings impact


Moody’s says the Maldives’ (B2 stable) announcement of a tap bond offering on its existing $200m 7.0% notes due 2022 will carry the B2 rating of the senior unsecured US dollar-denominated notes issued in June 2017, based on the preliminary prospectus.

The senior unsecured notes will rank pari passu with all of the Government of Maldives’ current and future senior unsecured debt. The proceeds of the notes are intended to fund ongoing and/or new development projects of the government.

The ratings agency notes that over the past year, Maldives’ economy has sustained robust growth, supported by the tourism and construction sector; “however, this has been accompanied by twin budget and current account deficits and a ramp-up in debt.”

The Maldives has a nominal GDP of just $3.8bn (2016 figures), one of the smallest B-rated sovereigns. By contrast, the Maldives’ GDP per capita of $18,332 in purchasing power parity terms in 2016 has nearly tripled since 2000 and positions the country around the middle of the group of Moody’s-rated sovereigns. While a recent revision to national accounts statistics changes some of these metrics, the overall implications for Maldives’ economic strength and credit profile are limited explains Moody’s. “Reliance on tourism makes GDP growth volatile. For example, between 2006 and 2015, the standard deviation of GDP growth was in the top decile of all countries rated by Moody’s,” says the ratings agency.

Even so, GDP growth remains healthy relative to the median for B-rated sovereigns says Moody’s. Real GDP expanded by 3.9% year on year in 2016, according to early November 2017 estimates, following a 2.8% increase in 2015. A step-up in GDP growth over the medium term will rest primarily on the successful implementation of the government’s planned infrastructure projects while containing political tensions. Along with foreign investment in the sector, this could pave the way for a continued expansion in tourism capacity.

While the country’s current account deficits are wide, foreign reserves have been supported by foreign direct investment inflows. Moody’s External Vulnerability Indicator — which measures the adequacy of foreign reserves relative to maturing long- and short-term debt — will rise to 69.4% in 2018, says the ratings agency. “Meanwhile, the banking system is fairly large, but it is also liquid and well-capitalised — we therefore assess the Maldives’ banking sector risk as “Very Low (+)”, it adds.

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