S&P puts Dominican Republic on watch

Standard & Poor's said it placed its B+ long- and B short-term sovereign credit ratings on the Dominican Republic on CreditWatch with negative implications due to uncertainty surrounding promissory notes due within the next six months, including the possibility that they will not be paid because they were issued illegally.

The outstanding promissory notes are part of a series totaling $130 million issued over the course of 2006 to SunLand Corp. and sold to other investors. The agency explained that according to Dominican law, all financial obligations must be approved by Congress and signed by the Minister of Finance, and these procedures appear to have been skipped in the SunLand deal.

Arrears arose in September, and while these notes have now been brought current, S&P said there is a substantial risk that the four remaining notes in the amount of nearly $6.8 million each and due in March, April, June and July might not be paid on time.

The Dominican Republic has a history of poor debt management and lack of transparency, in S&P's view, and the agency said this incident calls into question the integrity of the fiscal accounts and highlights institutional weakness, which is the key rating constraint on the Dominican Republic.

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