Thailand Credit Ratings May Be Cut on Weaker Economy, S&P Says

By Shanthy Nambiar

June 22 (Bloomberg) -- Thailand’s BBB+ credit rating may be lowered if the Southeast Asian nation’s economy slows and government finances degenerate, Standard & Poor’s Ratings Services said.

“Recent events have damaged medium-term economic growth prospects,” S&P said in an emailed statement today. “Heightened political tensions continue to undermine support for the Thai sovereign ratings,” which may be cut if the “economic performance weakens sharply, causing government finance to deteriorate seriously or banks’ asset quality to worsen markedly,” the ratings company said.

S&P revised the rating outlook on Thailand to negative from stable in December as political protests aimed at ousting the previous government led to a week-long shutdown of Bangkok’s international airport. A Thai political party linked to former leader Thaksin Shinawatra won a by-election in the rural Northeast yesterday, signaling his support base remains strong in the first test since he helped lead violent protests in April.

Thailand’s economy shrank 7.1 percent in the first quarter after a collapse in exports. Prime Minister Abhisit Vejjajiva said on June 9 “the worst is behind us” and he expects gross domestic product will return to annual growth in 2010.

“We may revise the negative outlook to stable if political divisions in the country are resolved peacefully and in a sustained manner, which eases perceptions of country risks and allows a rebound in investment,” S&P said today.

S&P’s rating on the country’s long-term foreign currency debt is the eighth-best investment rating, while Moody’s Investors Service rates Thailand’s overseas debt Baa1, five levels higher than Indonesia.

The nation’s $2 billion euro commercial notes program was rated A2 by Standard & Poor’s, a similar level to its short-term foreign currency debt rating. Moody’s assigned a P-2 rating to the short-term program, which will be used to refinance debt and support development projects, it said in a separate statement.

To contact the reporter on this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net