India First Edition

Fitch Takes Sovereign Rating Actions on Emerging Markets

Fitch Ratings-London/New York/HK/Singapore-10 November 2008: Fitch Ratings has today concluded its global review of the sovereign ratings of 17 major investment-grade emerging market economies (EMEs). The ratings of 13 sovereigns are affirmed, four downgraded and the rating Outlooks on 7 revised.

A full list of rating actions and associated rationales are detailed in accompanying separate announcements for the Asian, EMEA and LatAm regions, and a special report, ‘Rating Review of Emerging Markets’, now available at www.fitchratings.com.

The Long-term foreign currency Issuer Default Ratings (IDR) of Bulgaria and Kazakhstan are downgraded to ‘BBB-’ (BBB minus) from ‘BBB’, with Stable and Negative Outlooks respectively. Hungary’s Long-term foreign currency IDR is downgraded to ‘BBB’ from ‘BBB+’ and the Outlook revised to Stable from Negative given the IMF-led rescue package. Romania’s Long-term foreign currency IDR is downgraded to ‘BB+’ from ‘BBB’ with Negative Outlook, as the risk of a severe economic and financial crisis increases.

The rating Outlooks on four – Korea (’A+’), Mexico (’BBB+’), Russia (’BBB+’) and South Africa (’BBB+’) – are revised to Negative from Stable; while the rating Outlooks on Chile (’A') and Malaysia (’A-’ (A minus)) have also been revised to Stable from Positive.

Fitch’s sovereign rating review of the major investment-grade EMEs focused on the vulnerability and capacity to absorb the shock of recession in the world’s largest economies, which Fitch now believes will be as long and as deep as the recessions of the early 1980s and 1990s, lower commodity prices and reduced capital and financial market flows. As and when international financial markets stabilise, many emerging market economies (EMEs) will still have to adjust to lower real incomes and investment as well as increase domestic savings.

David Riley, Head of Fitch’s Global Sovereign Ratings Group, said, “The profound shift in the global economic and financial outlook pose significant real economy and policy challenges for emerging markets. Policymakers in emerging economies have even less scope for policy errors than their counterparts in so-called ‘advanced’ countries, but they are better placed to navigate these challenges than ever before. Nonetheless, the risks of economic and financial stress that could undermine sovereign creditworthiness have risen and that is reflected in the prospective rating actions taken today.”

Contagion from the global financial crisis in the advanced economies triggered extreme volatility in emerging market asset prices and liquidity strains. In large part due to the impressive speed and scale of the response of the international financial community, notably the US Federal Reserve, ECB and EU as well as the IMF, the risk that the financial market crisis would spiral into a broader economic and sovereign credit crisis has significantly eased.

Moreover, robust sovereign balance sheets and liquidity positions leave EMEs better placed to navigate extreme volatility in international financial markets and the reversal of capital flows than has been the case in previous episodes of crisis and global recession. Nonetheless, while sovereigns have been reducing their recourse to foreign-currency and external borrowing, record international bank and investor inflows into many EMEs have fuelled large current account deficits, notably in central and eastern Europe, and left banks and corporations domiciled in EMEs with substantial foreign-currency mismatches and refinancing needs.

Today’s teleconference will be chaired by David Riley, Global Head of Fitch’s Sovereign Ratings Group, who will be joined by Brian Coulton, Head of EMEA Sovereign Ratings, James McCormack, Head of Asia-Pacific Sovereign Ratings, Ed Parker, Head of Emerging Europe Sovereign Ratings and Shelly Shetty, Senior Director, LatAm Sovereign Ratings. A question and answer session with follow an introductory presentation of around 15 minutes.