Rating Action: Moody's assigns Ba3 rating to Armenia's US dollar-denominated notes
Global Credit Research – 26 Jan 2021
Singapore, — Moody's Investors Service ("Moody's") has assigned a rating of Ba3 to the proposed senior unsecured, US dollar-denominated notes to be issued by the Government of Armenia. The notes will rank pari passu with all of the Government of Armenia's current and future senior unsecured external debt. The proceeds of the notes will be applied toward general governmental purposes.
The rating mirrors the Government of Armenia's long-term issuer rating of Ba3 with a stable outlook.
RATINGS RATIONALE
Armenia's Ba3 issuer rating is underpinned by its robust growth potential with increasingly diverse economic drivers and a lengthening track record of solid macroeconomic management, which raise the country's economic resiliency, and high debt affordability. Implementation of reforms has the potential to raise the quality and credibility of Armenia's institutions, although tangible effects will likely take time.
Balanced against these credit strengths are challenges stemming from the government's moderately high debt burden that is vulnerable to sharp currency depreciation, the small and low-income economy that is exposed to external developments, and latent geopolitical tensions with neighbouring Azerbaijan. These challenges have been amplified by the coronavirus pandemic, resulting in economic contraction in 2020. The high, albeit gradually declining, level of dollarisation in the economy also leaves Armenia and its banking sector exposed to external shocks, although the central bank has introduced measures that promote de-dollarisation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward pressure on Armenia's rating would stem from further reforms that were to raise economic competitiveness and institutional credibility and effectiveness beyond Moody's current expectations. This would in part materialise through greater levels of private investment and increased transparency of and trust in institutions, including in the judiciary. A structural narrowing of the current account deficit and improvement in Armenia's external position, including through higher competitiveness and foreign direct investment, would also contribute to upward pressure on the rating. An increase in government revenue arising from fiscal reforms beyond Moody's expectations, that would support the government's debt carrying capacity, would additionally put upward pressure on the rating.
Downward pressure on Armenia's rating would emerge if there was a loss of reform momentum, which would likely transpire through weaker confidence in institutions and fiscal slippage removing prospects that the government debt burden will decline over the medium term. An increase in external vulnerability risk, such as a sustained increase in current account deficits that resulted in declining foreign exchange reserve adequacy, would additionally contribute to downward pressure on the rating. A renewed escalation of the conflict with Azerbaijan over the Nagorno-Karabakh territory would also put negative pressure on the rating if it materially impacts economic or fiscal fundamentals.
This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. Please see the most recent credit rating announcement posted on the issuer's page on www.moodys.com, under the research tab, for related economic statistics included in rating announcements published after June 3, 2013.
This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. Please see the most recent credit rating announcement posted on the issuer's page on www.moodys.com, under the research tab, for related summary rating committee minutes included in rating announcements published after June 3, 2013.
The principal methodology used in this rating was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Nishad Harshit Majmudar AVP-Analyst Sovereign Risk Group Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Marie Diron MD - Sovereign Risk Sovereign Risk Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077