Consider it a kiss to the bond investors who are expected to oversubscribe the upcoming latest “triumphal” Greek return to the bond markets, as soon as next week. Moments ago, rather unexpectedly, S&P raised its outlook on Greece from Stable to Positive, but reaffirmed the Greek rating at B-. The rating agency, said it believes that “recovering economic growth, alongside legislated fiscal reforms and further debt relief, should enable Greece to reduce its general government debt-to-GDP ratio and debt servicing costs through 2020.”
We have therefore revised the outlook on Greece to positive from stable while affirming our ‘B-‘ long-term foreign and local currency sovereign credit ratings.
The positive outlook indicates our view that, over the next 12 months, there is at least a one-in-three probability that we could raise the ratings.
In other words, buy the Greek bonds, but beware a repeat of what happened in 2014.
Full S&P note below (link):
Outlook On Greece Ratings Revised To Positive; ‘B-‘ Long-Term Ratings Affirmed
RATING ACTION
On July 21, 2017, S&P Global Ratings revised the outlook on the Hellenic Republic (Greece) to positive from stable. We affirmed the ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings.
RATIONALE
The outlook revision reflects our expectation that Greece’s general government debt and debt servicing costs will gradually decline, supported by economic recovery, legislated fiscal measures through 2020, and a commitment from Greece’s creditors, specifically from the Eurogroup, to further improve the sustainability of its sovereign debt burden.
The Eurogroup, in its statement on June 15, 2017, has agreed to facilitate market access for Greece through the creation of a cash buffer via disbursements over and above the amount needed for the Greek government to meet debt servicing obligations and pay down domestic arrears. In our opinion, this support is likely to pave the way for Greece to successfully reenter sovereign bond markets this year.
We also understand that the Eurogroup has reiterated its intention to provide Greece with further extensions on loans from the European Financial Stability Facility, as well as deferrals on debt service at the conclusion of the European Stability Mechanism (ESM) program in August of next year. These loans, contracted during Greece’s second program, constitute the largest chunk of Greek government debt. Such additional measures, once put into effect, will further lengthen Greece’s debt maturity profile–from more than 18 years presently–and reduce its annual gross financing needs. The amortization of Greek debt will peak in 2019 at about €13.5 billion, an estimated 7% of GDP; however, we expect the government to issue market debt to smooth upcoming redemptions, including the 2019 maturities. In every other year from 2018 until 2023, we estimate that repayment obligations will be less than 4% of GDP.
