On 8 March 2013, Fitch upgraded Thailand's long term foreign denominated currency debt one level to BBB+ from BBB. According to a statement from Bloomberg: "That is three levels above junk and brings it line with Standard and Poor's and Moody's Investor Services ranking of the nation." The Fitch report went on to say:
“The investment rate has accelerated in recent years. The government led by Yingluck Shinawatra has consolidated its position and has faced no serious extra-legal challenges since its election in July 2011.”
A credit rating is a credit indicator to potential investors of debt securities such as bonds. Credit rating below BBB-/Baa are not considered investment quality and are colloquially called junk bonds.
Creditors demand higher returns from countries with lower ratings since they are considered higher risks. And credit ratings are not the only factors that are considered when determining the level of return required when making an investment or loan. Other factors considered are the level of corruption and, of particular importance to countries such as Thailand, the availability of international arbitration to resolve disputes over such loans or investments.
Indeed, these two factors reinforce each other, particularly when large infrastructure projects are involved. There has been a quantum leap in the enforcement of foreign anti-corruption laws over the last several years (and not just on U.S. companies), and this has caused visible and obvious changes in the practices of legitimate and qualified suppliers, bidders and contractors in infrastructure projects. Legitimate suppliers, bidders and contractors parties now not only press for an open and transparent bidding process, but also legal assurances that they will be paid and a clear and transparent framework for resolving the inevitable disputes that arise any large construction projects.
If international arbitration is not available or a country does not readily comply with international awards, the risk is deemed higher and the return on loans and investments will therefore need to be higher to attract qualified investors, bidders and lenders. This increases the costs of lending and, among other things, makes new infrastructure projects more expensive. For more information on the Thai government's attitude towards international arbitration to resolve investor-state disputes, click here.
Last updated: 11 March 2013