The fact that Moody’s Investment Service maintained Barbados’ credit rating is “irrelevant” since, in light of the downgrade by Standard & Poor’s, prudent investors will focus on the “worst case” scenario.
This is the view of Barbados Economics Society president Ryan Straughn following S&P’s announcement last week that it had lowered its long-term foreign and local currency sovereign credit ratings on Barbados from BBB-/A-3 to BB+/B.
“I think the fact that Moody’s didn’t downgrade us is irrelevant because we are now for all intents and purposes non-investment grade or junk bond . . . which is a very serious matter.
“The facts are that when anybody now looks at Barbados, they’re going to see non-investment grade.
“If you have two different ratings for the same thing, as a prudent investor you’re going to look at, I suppose, the worst case and you’re going to price for the worse case,” he told BARBADOS BUSINESS AUTHORITY.
Responding to Central Bank of Barbados Governor Dr DeLisle Worrell who said he had communicated directly with international lending agencies and the investment community on Barbados’ situation, Straughn suggested that there was a limit to how successful this move could be.
“I think that it is still important to communicate to the people you’ve been in business with for a number of years – but the point is, these people still have to go and sell the debt to other people.
“So as much as you might want to talk to Merrill Lynch and City and whoever else might be arranging some of the debt for you, the debt has to be sold and when people look at the debt and the origin of the debt, they’re going to say ‘but wait, this is no longer investment-grade so therefore I have to take my business elsewhere’,” he said.
The economist noted that 90 per cent of institutional investors were pension funds, most of which were not allowed to invest in non-investment-grade debt.
“It doesn’t matter whether or not the person [who] is arranging the debt for you understands your circumstances,” he said.
“The point is, you have trustees who are responsible for managing pension funds who will say ‘no, we will not put our money in that because our mandate says we can only invest in investment grade’.”
Straughn said Barbados would have to find investors who are less risk-averse and have an appetite for bigger returns. (NB)
