Thai violence worries credit rating agencies

   

xRTR> UPDATE 2-Thai violence worries credit rating agencies

    * Credit rating agencies concerned by deadly Thai clashes

    * Thai c.bank worried prolonged turmoil could hurt ratings

    * Further deterioration in stability would harm govt finances

    * Share prices fall, credit default costs climb

   

    HONG KONG, April 12 (Reuters) - Violent protests in Bangkok

which killed 21 people at the weekend could fuel further

political instability in Thailand and does not augur well for its

credit rating, a Standard & Poor's (S&P) analyst said on Monday.

    Rival Fitch Ratings and Thailand's central bank governor also

expressed concerns that the country's sovereign credit rating

could be at risk from the growing political turmoil.

    Thousands of anti-government protesters are still on the

streets of Bangkok and in a defiant mood after the army failed to

move them on Saturday from an area where they have camped out for

a month.

    The clashes between security forces and protesters, the worst

political violence in the country since 1992, drove Thai stocks

<.SETI> down 5 percent to a four-week low on Monday while the

cost of insuring Thai debt jumped.

    "The current negative outlook captures the underlying

political tensions, although the latest clashes in Bangkok

suggest there could be further deterioration in political

stability," said Kim Eng Tan, sovereign analyst at S&P.

    "The latest developments do not appear to argue for

restoration of a stable outlook," he told Reuters.

    Last April, S&P lowered Thailand's domestic currency rating

to A-minus from A and kept its outlook on negative. The agency

also has a negative outlook on Thailand's BBB-plus foreign

currency rating.

    Tan said the street protests of the recent past were often

diffused by a change in government, but this time the government

appeared likely to retain power in the near term, resisting

protesters' demands to step down.

    Thailand's government is expecting to post a budget deficit

of 3.8 percent of gross domestic product this year, more than

double that of Indonesia, after posting a deficit of over 5

percent of GDP in its fiscal year to October 2009.

    A sharp drop in tourism revenues as a result of the clashes,

or a sudden exodus of foreign investors would add to the fiscal

pressures facing the government even as the economy tries to

shake off the lingering impact of the global financial crisis.

    Thailand, along with other Southeast Asian economies, has

seen foreign capital surge into its markets in recent months on

the region's strong economic growth prospects.

 Fitch said it was "particularly concerned" about Thailand's

local currency rating.

    "We expect a deterioration in public finances of Thailand,

given the escalated political uncertainty ...," Vincent Ho,

associate director of Fitch's Asia Sovereign ratings, told

Reuters.

    Fitch rates Thailand's foreign currency debt as "BBB" with a

stable outlook while the local currency is rated "A-minus" with a

stable outlook.

    Ho said it was too early to say if Fitch would change is

outlook or ratings on Thailand as the current political situation

was "fluid", but he doubted a snap election would end the

political deadlock.

    Financial markets have turned jittery after weeks of largely

peaceful protests turned violent.

    Thailand's five-year credit default swaps (CDS)

, which reflect the cost of insuring its debt from

default or severe deterioration, moved out to trade at its widest

in 7 weeks.

    Asked if Thai ratings faced the possibility of being

downgraded, Bank of Thailand Governor Tarisa Watanagase told

reporters: "Yes, there is a risk and if that happens, it will

affect borrowing costs in the private sector."

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 For a graphic showing Thai CDS underperformance click on:

 http://r.reuters.com/gab47j

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    "So far we have not seen a serious decline in foreign direct

investments but increasingly people will be worried about

political tensions spilling over into areas of affecting their

long term investments," said S&P's Tan.

    Foreign investors were net sellers of 1.76 billion baht

($54.6 million) of stock on Friday, their second straight day of

net selling, reducing their purchases since Feb. 22 to 55.73

billion baht ($1.73 billion).

    Foreigners had bought $1.8 billion in Thai stocks from Feb.

22 until Thursday. The recent foreign buying of Thai stocks was

spurred by cheap valuations and a recovery in the economy.

 End.