Citigroup Inc and Standard Chartered Plc are set to advise Myanmar on its first credit rating, according to people with direct knowledge of the matter, paving the way for the country to issue its maiden international bond.
After decades of isolation from international capital markets under military rule, Myanmar faces a widening current account deficit that could be bridged by borrowing once it has a credit rating from agencies such as Fitch, Moody’s or Standard & Poor’s.
None of the big three agencies have currently assigned Myanmar a rating, which professional investors use as a benchmark of a country’s ability to repay debt.
“Getting a credit rating is of the first importance for Myanmar, helping it to clean up its public finances,” said Sean Turnell, a professor at Macquarie University in Sydney who has advised the U.S. Congress on Myanmar’s economy.
“It’s also important symbolically, sending the signal the country is…not the land of caprice it was so often in the past.”
Citi and StanChart will this month be given a formal mandate to advise the Southeast Asian nation on the steps necessary to earn the credit rating, one of the sources said, declining to be identified because the matter was not yet public.
An official from the Central Bank of Myanmar said he was aware of the credit rating mandate, but could not elaborate further.
The process can take up to a year, the sources said, as the banks help a country with the technical steps necessary to meet the agencies’ criteria for a given rating. Once the rating is assigned, the country can then use the benchmark to market bonds to international investors.
Myanmar would, in common with other debut issuers, likely aim for a ‘benchmark’-sized bond of around $1 billion once it has a rating, one of the sources said.
BELOW INVESTMENT GRADE
One rating advisor with a rival bank said Myanmar was in a similar stage of development to Vietnam in the 1990s, when it first got a rating, although he added there was more investor interest in resource-rich Myanmar’s business potential than was the case with Vietnam at the time.
“I would place the country in the high single B, low BB category given its strengths compared with Vietnam,” he said. “But ratings agencies may take a conservative stance and put them in the B category.”
Myanmar had few companies or banks that were likely to use the sovereign rating as a benchmark for debt issuance, but the rating would provide guidance for FDI investors assessing their risk exposure, he said.
A rating of “B” would put the country at least four notches below “investment grade” – the level considered a safe, rather than speculative, investment – according to the scales used by S&P and Fitch. By comparison, both agencies now rank Vietnam three notches below investment grade, at “BB-“.
“We have no comment to make about Myanmar specifically. But in general, getting a sovereign rating can be a big step in opening up a country’s economy and financial markets to global business and investment,” said Sing Chan Ng, head of Asia-Pacific business origination at Fitch Ratings.
Myanmar’s financial sector is severely underdeveloped after decades of isolation from the global financial system due to international sanctions and economic mismanagement under the military junta that ruled for 49 years until 2011.
The credit rating mandate comes at a time when the country is preparing for a historic election on Nov. 8, seen as a test of its transition toward democracy after the junta’s reign ended.
There is no interbank market in Myanmar and lending is heavily restricted.
Growth has been rapid since the semi-civilian government of President Thein Sein took power in 2011 and began a series of economic, social and political reforms.
But getting a measure of the country’s economic health is tough – there are few official data sets compiled and released by the government.
Governance lags international standards and is another challenge for foreign investors.
Myanmar faces an infrastructure investment gap of up to $4.7 billion per year, according to an August 2014 study by the Asia Development Bank. The country faces widening current account deficits that need to be funded by foreign capital, the study said.
Myanmar in 2013 cleared its arrears to the World Bank and Asian Development Bank and secured a huge debt write-off by creditor countries grouped in the Paris Club, clearing the way for aid donors to step up work to support the government’s reforms.
Those debts had prevented international financial institutions from offering new loans.