Impacts of Sovereign Rating on Sub-Sovereign Bond Ratings in Emerging and Developing Economies

44 Pages Posted: 20 Apr 2016 Last revised: 20 Jul 2017

See all articles by Sanket Mohapatra

Sanket Mohapatra

Indian Institute of Management, Ahmedabad

Manabu Nose

International Monetary Fund (IMF)

Dilip Ratha

World Bank

Date Written: March 30, 2016


This paper explores factors that affect the distance between sovereign credit ratings and the ratings assigned to new foreign-currency bonds issued by sub-sovereign entities (such as private non-financial corporations, financial firms, and public sector enterprises) in 47 emerging markets and developing economies. Censored and double-hurdle regression models are used to estimate the relative contributions of bond-level, issuer-level, and macroeconomic factors that determine this distance, separately for those rated at or below the sovereign rating and those rated above. For the three-quarters or more of sub-sovereign bond ratings that are constrained by the sovereign rating ceiling, a Tobit regression model shows a smaller distance?suggesting stronger sovereign-corporate linkages?for public sector enterprises and financial firms relative to other firms. Riskier global financial conditions are also associated with sub-sovereign bonds being rated closer to the sovereign rating. For the small number of sub-sovereign bonds rated higher than the sovereign rating, a double-hurdle model shows that certain debt features?such as bonds backed by future-flow receivables or other collateral, or structured as Special Purpose Vehicles (SPV)?significantly raise the likelihood of piercing the sovereign rating ceiling and also increase the distance above the sovereign ceiling.

Keywords: Currencies and Exchange Rates, Debt Markets, Economic Theory & Research, Emerging Markets, Bankruptcy and Resolution of Financial Distress

Suggested Citation

Mohapatra, Sanket and Nose, Manabu and Ratha, Dilip, Impacts of Sovereign Rating on Sub-Sovereign Bond Ratings in Emerging and Developing Economies (March 30, 2016). World Bank Policy Research Working Paper No. 7618, Available at SSRN:

Sanket Mohapatra (Contact Author)

Indian Institute of Management, Ahmedabad ( email )

IIM Old Campus
Ahmedabad, Gujarat 380015

Manabu Nose

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Dilip Ratha

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics