Moody's Investors Service ("Moody's") has assigned a B1 rating to the Government of Suriname's $550 million global bond offering. The senior unsecured issuance ranks pari passu with the government of Suriname's existing debt obligations and as such is rated in line with the government of Suriname's B1 issuer rating.

 

RATINGS RATIONALE

 

The 10-year 9.25% bond in the amount of $550 million will mature on 26 October 2026, and is rated B1, in line with the sovereign's issuer rating given that the bond is a general, direct, unconditional, unsubordinated and unsecured obligation of the government of Suriname and will rank equally with all other unsubordinated external indebtedness. Moody's understands that the government intends to use the net proceeds (approximately $541 after paying commissions and fees) for the repayment of 8.75% Senior Notes due 30 September 2017 in the ($88 million), the payment of an equity investment in Suriname Gold Project CV ($27 million), the repayment of notes issued to Petroleos de Venezuela under the Petrocaribe oil scheme ($54 million), lending to state-owned oil company Staatsolie ($300 million) and general budgetary purposes ($72 million). The funds being channeled to Staatsolie are expected to be a subordinated unsecured loan with substantially the same payment terms as those of the bond being issued. Staatsolie will use the proceeds to repay part of a syndicated loan used for construction and expansion of its refinery. Although these funds are being onlent to Staatsolie they ultimately constitute an obligation of the government of Suriname under the terms of this bond offering.

 

Suriname's B1 sovereign rating balances a favorable growth outlook and relatively moderate government debt and interest burdens against elevated economic and fiscal vulnerability to commodity price volatility and a weak policy framework. Macroeconomic conditions in Suriname weakened considerably in 2015.

 

Moody's 'Low (+)' assessment of Suriname's economic strength reflects the economy's small size and limited diversification, offset by relatively strong GDP growth in recent years and higher national income compared to rating peers. A key factor supporting Suriname's economic strength are potentially favorable medium-term growth prospects, which Moody's believes are closely tied to the country's ability to attract large foreign investments to develop Suriname's abundant natural resources in its extractive industries. Economic and export concentration owing to commodity dependence remains significant and makes the country more vulnerable to commodity price fluctuations.

 

Suriname's institutional strength score of ' Very Low (+)' reflects the country's relatively unfavorable scores on the World Bank's governance indicators, which place government effectiveness, rule of law, and other dimensions of institutional quality in the bottom half among Moody's-rated sovereigns, according to 2015 data. Suriname outperforms similarly-rated countries on the political stability indicator, but ranks lower in terms of regulatory quality. Moody's believes that official data reporting standards and practices are weak, a shortcoming that limits the country's institutional capacity.

 

Suriname's fiscal strength score of 'Moderate (-)' reflects the sovereign's moderate and affordable debt burden which is in line with corresponding 'B' medians. Moderate debt ratios combined with access to concessional financing are credit strengths that mitigate relatively high fiscal dependence on the commodities sector.

 

Moody's also considers Suriname's susceptibility to event risk as 'Moderate (+)', on account of moderate political risk, low government liquidity concerns, weakened external finances, and lingering vulnerabilities in the banking sector due to relatively high dollarization.

 

GDP per capita (PPP basis, US$): 16,261 (2014 Actual) (also known as Per Capita Income)

 

Real GDP growth (% change): 0.1% (2015 Actual) (also known as GDP Growth)

 

Inflation Rate (CPI, % change Dec/Dec): 25% (2015 Actual)

 

Gen. Gov. Financial Balance/GDP: -9.7% (2015 Actual) (also known as Fiscal Balance)

 

Current Account Balance/GDP: -15.4% (2015 Actual) (also known as External Balance)

 

Level of economic development: Low level of economic resilience

 

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

 

On 20 October 2016, a rating committee was called to discuss the rating of the Suriname, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutional strength/ framework, have not materially changed. The issuer's governance and/or management, have not materially changed.