S&P rates Thailand floaters BBB

Standard & Poor's said it assigned its BBB debt rating to the Kingdom of Thailand's (foreign currency BBB/positive/A-2; local currency A/positive/A-1) proposed $1 billion floating-rate notes due May 2007.

Proceeds from the issuance will be used to redeem a portion of Thailand's outstanding borrowings from the World Bank and the Asian Development Bank.

S&P said the investment-grade sovereign credit ratings on Thailand are supported by its significant fiscal strength and strong balance of payment flexibility. The Thai Rak Thai government has been able to implement its social agenda, without damaging the government's fiscal stance.

The general government deficit, which peaked at 2.9% of GDP in fiscal 1999, has improved substantially and is estimated at less than 1% in fiscal 2004.

"The government will be able to achieve a balanced budget well ahead of the ongoing target of fiscal 2008," said S&P credit analyst Chih Wai Liew.

Gross general government debt to GDP has peaked and is expected to fall below 30% of GDP this year.

Thailand's credit standing is, however, constrained by its fragile, though recovering, banking sector. While corporate leverage has declined, systemwide gross nonperforming assets remain at about 25% of total loans (according to definitions used by S&P), based on internationally comparable standards, excluding nonperforming assets that were transferred to the Thai Asset Management Co. Loan-loss provisions cover only a third of nonperforming loans in the banking sector, and the country does not have a reliable legal framework for bankruptcy and foreclosure.

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