Eastern European credit ratings outperform, says Moody's

By Reshmi Basu

New York, June 22 - Eastern European credit ratings have outperformed those in the west of the continent so far this year, continuing the trend of 2003, according to a daily report by Alice Keegan, statistical economist for Moody's.

Boosting the countries in the east are their joining of the European Union and signs that foreign investment is returning.

From January to May, there were nine upgrades and one downgrade for Eastern European issuers, Moody's said.

Financial sector issuers dominated the upgrades, making up six of the nine. Of the remaining three, one was a sovereign and the other two were a telecommunications company and a utility company.

Two of the nine upgrades resulted from increased support from foreign parent companies. Only one of the upgrades in 2004 is related to foreign currency ceiling upgrade of a European Union accession country.

By comparison, there were 10 sovereign upgrades in 2003 and a further 17 upgrades partially in the banking and non-financial sectors.

"Progress towards European Union accession not only had a favorable impact on the balance sheets of governments across much of the region, but more stable macroeconomic frameworks have also helped to encourage a greater inflow of capital and generally stronger economic performance than in other emerging markets," said Keegan in the report.

Russian oil company Yukos is the only Eastern European issuer to be downgraded so far this year. The beleaguered company's woes were caused by a $3.4 billion tax bill and the arrest of its main shareholder Mikhail Khodorkovsky for alleged tax evasion.

While the margin between Eastern Europe and Latin America's projected growth rates is expected to narrow in 2004 from 2003, according to the latest consensus forecasts, Eastern Europe's rate still sits above Latin America at 5.5% compared to 4.3%.

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