Wednesday, September 17, 2008

LONDON, Aug 7 (Reuters)

Standard & Poor's (S&P) on Thursday cut its credit rating on the Republic of Seychelles after the country failed to service a note and warned that the tiny African nation may also default on its global bond. S&P downgraded Seychelles' foreign currency sovereign rating to "selective default" or "SD" from "CCC/C", citing the country's failure to pay the principal due on July 1 of a privately placed 54.75 million euros amortising note due 2011.

The ratings agency also lowered its rating on Seychelles' $230 million global bond due 2011 to "CCC-" from "CCC".

"Since the private placement note is already in default, there is high risk they will default on the global bond," David Beers, S&P head of global sovereign ratings group told Reuters.

"There's a growing risk that when the next coupon for the global bond is due in October, they won't pay up."

Seychelles' 85,000 population has one of the highest incomes in Africa but also a heavy debt burden.

S&P, which also lowered the country's local currency rating to "B", said the government's partial debt default raises questions about its debt-management policies and would lead to an increased reliance on the domestic markets to finance its budget deficit.

"Seychelles' international liquidity is low; we estimate gross financing needs at 164 percent of current account receipts in 2008, and the June 2008 central bank figures show reserves of just $40.2 million, equivalent to 1.5 weeks of this year," S&P said.