Standard & Poor's

Fit finances help HK net highest yet credit rating

PUBLISHED : Friday, 01 August, 2008, 12:00am
UPDATED : Friday, 01 August, 2008, 12:00am


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Hong Kong's creditworthiness achieved its highest level ever after Standard & Poor's Ratings Services raised its long-term sovereign rating to AA+ from AA.

The outlook was unchanged at stable.

The agency said the highest rating of AAA was possible if Hong Kong could demonstrate that adverse credit events on the mainland would not cause an abrupt and significant deterioration in the city's creditworthiness. The government would also need to maintain or show improvement in Hong Kong's fiscal report card.

'The rating action reflected a further improvement in the credit strength of the Chinese central government as well as the maintenance of the Hong Kong government's healthy fiscal performance,' Standard & Poor's credit analyst Kim Eng Tan said.

'Expectations of continued fiscal strength and stability in the ratings on China underpin the stable outlook on Hong Kong's long-term credit rating.'

Standard & Poor's raised the outlook for the city's AA long-term rating to positive from stable in July last year. It raised Hong Kong's rating to AA from AA-minus in July 2006.

A stable outlook means that a ratings change is unlikely while positive denotes that the rating may be raised over the medium to longer term. A AAA rating by Standard & Poor's denotes an extremely strong capacity to meet financial obligations. AA means a very strong capacity and represents only a small difference from AAA. A is used for a strong capacity, meaning somewhat more susceptible than higher-rated regimes to adverse changes in economic conditions.

The higher the rating, the cheaper the government can borrow funds.

Fitch Ratings and Moody's Investors Service said they would maintain their current long-term ratings for Hong Kong.

Financial Secretary John Tsang Chun-wah said the move reflected international recognition of the city's healthy economy and enabled Hong Kong to benefit from growth and developments in Asia and on the mainland.

'The upgrade is a manifestation of Hong Kong's economic resilience amid global uncertainty,' Mr Tsang said. 'On the fiscal front, the government will continue to strengthen Hong Kong's public finances with our usual prudence and discipline.'

For the first three months of the current fiscal year, which began on April 1, the government reported a deficit of HK$16.5 billion. A government spokesman attributed the deficit to the fact that some major sources of revenue, including salaries and profits taxes, were usually received at the end of a financial year. Fiscal reserves stood at HK$476.4 billion as at the end of June.

James McCormack, head of Asia sovereigns at Fitch, said he was comfortable with the ratings assigned to Hong Kong and the mainland, and would review them next year. Last year, Fitch upgraded Hong Kong to AA and the mainland to A+ with a stable outlook.

'We see China and Hong Kong as two sovereigns from a ratings perspective' without a direct correlation, Mr McCormack said.

Singapore-based Tom Burns, regional credit officer at Moody's, said the relatively high ratings assigned to Hong Kong and the mainland reflected economic resilience and ability to withstand a global growth slowdown. Moody's has an AA2 rating with a stable outlook for Hong Kong.

City's standing

Sovereign ratings history

Dec 1992 A+/Neg watch

Sept 1993 A+/Negative

Feb 1995 A+/Positive

May 1997 AA-/Stable

Jun 1998 AA-/Neg watch

Aug 1998 A+/Negative

Dec 1999 A+/Stable

Feb 2001 AA-/Stable

Oct 2002 AA-/Negative

Jun 2004 AA-/Stable

Jul 2006 AA/Stable

Jul 2008 AA+/Stable