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Fitch drops Lesotho’s currency rating

by Lesotho Times
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Fitch-RatingsBereng Mpaki

GLOBAL rating agency, Fitch Ratings, has downgraded Lesotho’s long-term local currency (LTLC) Issuer Default Rating (IDR) from ‘‘BB-’ to ‘B+’ after the agency adjusted its ranking criteria.

In a report issued last week, Fitch also states Lesotho’s outlook was stable. Fitch’s international credit ratings relate to either foreign currency or local currency commitments and in both cases, assess the capacity to meet these commitments using a globally applicable scale.

The local currency rating measures the likelihood of repayment in the currency of the jurisdiction of the country. On the other hand, the foreign currency ratings consider the profile of the issuer or note after taking into account transfer and convertibility risk.

‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.

The modifiers ‘+’ or ‘-’ may be appended to a rating to denote relative status within major rating categories.

‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. It means that financial commitments are currently being met but the capacity for continued payment is vulnerable to deterioration in the business and economic environment.

The rating agency changed its sovereign rating criteria on the assessment of LTLC ratings to be in line with the long-term foreign currency (LTFC) ratings.

The short-term local currency (STLC) IDR was affirmed at ‘B’ status with a new short-term foreign currency (STFC) IDR rating of ‘B’ being assigned to Lesotho.

“The downgrade of Lesotho’s LTLC IDR to ‘B+’ reflects the following key rating driver and its weight: HIGH – In line with the updated guidance contained in Fitch’s revised Sovereign Rating Criteria dated 18 July 2016, Lesotho’s credit profile does not support a notching up of the LTLC IDR above the LTFC IDR,” notes the agency.

“This reflects Fitch’s view that neither of the two key factors cited in the criteria that support upward notching of the LTLC IDR are present for Lesotho.

“Those two key factors are; strong public finance fundamentals relative to external finance fundamentals; and previous preferential treatment of LC creditors relative to FC creditors.”

On the short-term foreign currency rating, the report said: “The affirmation of Lesotho’s STFC IDR at ‘B’ reflects the following key rating driver: – In line with the updated guidance contained in Fitch’s revised Sovereign Rating Criteria dated 18 July 2016, Lesotho’s STFC IDR is derived from the mapping to the sovereign’s LTFC IDR of ‘B+’.

“The assignment of a STLC IDR of ‘B’ to Lesotho reflects the following key rating driver and its weight: HIGH The assignment of the STLC IDR is consistent with Fitch’s approach to assigning ST ratings by using its Long-Term/Short-Term Rating Correspondence table to map the STLC IDR from the LTLC rating scale.”

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