Sovereign Risk Rating Downgrades Greatly Exceed Upgrades in Second Quarter, IHS Markit Says

Commodities-driven downgrades at record level; Brexit leads to downgrades for the U.K.

Sovereign risk rating downgrades exceeded upgrades by a ratio of more than three to one, according to a new study by IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions. Sovereign risk downgrades outpaced upgrades by 61 to 19, based on the latest analysis from IHS Sovereign Risk Review.

The quarterly IHS Sovereign Risk Review compares and assesses every sovereign nation worldwide across ratings agencies and fills in the industry’s long-neglected market space of short-term sovereign credit risk.

“The second quarter of 2016 saw commodity-related downgrades reach record levels,” said Jan Randolph, director of sovereign risk at IHS Global Insight. “Commodity-related rating downgrades increased, especially in Africa and the Middle East. In addition, the risk associated with the Brexit vote drove ratings downgrades for the United Kingdom.”

Commodities-related downgrades; Africa and Middle East on front line

These Higher Income Gulf Co-operation Council (GCC) energy exporters -- Saudi Arabia, the United Arab Emirates (UAE), Qatar, Kuwait, Bahrain and Oman -- all succumbed to “lower-oil-for-longer” rating downgrades in the second quarter. “For the first time many of these countries will start to issue domestic public debt in significant quantities to help finance these deeper fiscal deficits,” Randolph said.

Mozambique, Nigeria and Angola became the main focus of rating downgrades in the second quarter in sub-Saharan Africa, as commodity- related pressures continued to mount.

Geopolitical risks crystallise for U.K. after Brexit vote

“Apart from the policy uncertainty facing the U.K. as a result of the Referendum result, which itself triggered a swathe of rating downgrades, the United Kingdom faces specific credit risk in its regular dependence on foreign investment inflows to finance its record current-account deficit,” Randolph said.

Mixed rating developments in Brazil and Argentina

Brazil and Argentina's immediate rating outlooks have diverged in recent quarters, although the gap in their rating positions remains in Brazil's favour, despite its losing its investment grade status. The two economies, the largest in South America, have suffered, as they are both commodity-dependent exporters.

Brazil has also been engulfed in political corruption-related scandals, with the latest upheaval involving a change in president and government to replace that of impeached Dilma Rousseff.

Meanwhile, Argentina has a new government. It is slowly rehabilitating its external financial relations, first by drawing a line in the sand over the long-drawn-out debt default saga; and second, by raising initial finance of USD 16.5 billion, with demand at over USD 68 billion, as it successfully re-enters the international capital markets after a long absence. As a consequence of these developments, IHS Markit has lifted the Argentine sovereign credit risk rating.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

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IHS MarkitKate Smith, +1 781-301-9311katherine.smith@ihsmarkit.comorAmanda Russo, +44 208 276 4727Amanda.Russo@ihsmarkit.comorPress Team, +1 303-305-8021press@ihs.com

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