Borrowers: Borrowers start to play a strategic game
Over the past few weeks emerging markets have been digesting a controversial move from one of the market's least controversial entities, US credit-rating agency Standard and Poor's. Global markets have largely welcomed S&P's upgrading of Argentina's $62.2 billion of foreign currency debt to BB from BB minus. But its subsequent decision to give some private companies in Argentina, Panama and Uruguay ratings higher than the BB sovereign debt ceiling has prompted a fundamental rethink of how buyers and sellers view risk in Latin America and throughout the emerging markets.
An emerging market official with the New York office of Deutsche Morgan Grenfell says the move was unexpected - welcomed by some and rejected by others, as investors, traders, and analysts pondered over the soundness of S&P's judgement.
The decision, which pushed three banks and 11 corporates through Argentina's sovereign ceiling to investment grade, springs from the belief that Argentina's strong link to the US dollar has pushed it well past the point where it could easily break that link. In other words, S&P believes there is now little risk that the Argentine authorities would force creditworthy companies into default were the government to default on its own sovereign debt.