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May-01-2008Brazilian Debt Raised to Investment Grade by S&P; (Update4)(topic overview)
CONTENTS:
- NEW YORK, April 30 (Reuters) - A Standard & Poor's upgrade of Brazil's credit ratings to investment grade and another interest-rate cut by the Federal Reserve boosted emerging debt prices on Wednesday. (More...)
- "The upgrades reflect the maturation of Brazil's institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects," Lisa Schineller, S&P; sovereign analyst said in a statement. (More...)
- The agency concluded Brazil deserved a "stable" outlook on the long-term ratings, which means for the next three to five years, Jane Eddy, another S&P; analyst, told AFP. Eddy said the agency expected the Brazilian government would further reduce debt and weather inflationary pressures from both higher food prices and economic growth. (More...)
- April 30 (Bloomberg) -- Brazil's benchmark dollar bonds rose to a record after Standard & Poor's raised the credit rating on Latin America's biggest economy to investment grade. (More...)
- Overall emerging debt spreads widened 3 basis points to 267 basis points on the EMBI+, as emerging debt prices rose in general but were not able to keep up with a U.S. Treasuries rally. (More...)
- Brazil's benchmark Ibovespa stock market index jumped 6.3 percent after the upgrade was announced, hitting a new intraday record of 67,768. (More...)
- SAO PAULO, Brazil (AP) - Brazil celebrated a landmark improvement in its debt rating Wednesday, as Standard & Poor's Ratings Services issued a long awaited-upgrade that sent Brazilian stocks soaring. (More...)
- U.S. stocks closed lower after the Federal Reserve trimmed interest rates as expected but left the outlook for further cuts unclear, prompting investors to lock in profits. (More...)
- "Investment grade should be seen as a starting point, not a final destination,'' said Marcelo Carvalho, Morgan Stanley's chief economist for Brazil in Sao Paulo. (More...)
- "The Fed's statement seems to have more of a balance in terms of the positive and the negatives,'' said Dario Pedrajo, who manages $100 million in emerging-market debt at Kapax Investment Advisers LLC in Miami. (More...)
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NEW YORK, April 30 (Reuters) - A Standard & Poor's upgrade of Brazil's credit ratings to investment grade and another interest-rate cut by the Federal Reserve boosted emerging debt prices on Wednesday. Spreads between Brazil's debt and U.S. Treasuries, a key gauge of risk aversion, narrowed 8 basis points to 217 basis points, their tightest level so far in the year, according to the JP Morgan EMBI+ index 11EMJ. Alberto Ramos, senior economist with Goldman Sachs, said he was expecting Brazil to be upgraded by S&P; later this year, although the move "was deserved." "In a very material way Brazil showed since August that it could navigate this international turbulence quite well," he said. Prices of Brazil's bonds were modestly higher before the news, following an expected decision by the Federal Reserve to cut its benchmark interest rate by a quarter basis point. [1] NEW YORK (AFP) — Standard & Poor's Wednesday raised its rating on Brazil to investment grade for the first time, providing a major boost to the Latin American giant's ability to raise capital in global markets. The U.S. ratings agency said it lifted Brazil's ranking from so-called junk bond status thanks to the "maturation" of its economic policy management. The rise will help Brazil's ability to sell its debt to institutional portfolio managers, many of whom may not invest in high-risk securities. The sovereign debt of the Latin American powerhouse is now rated BBB-, the lowest level in its investment grade, up from BB+, S&P; said in a statement.[2]
In Latin America, Mexico and Chile, whose economies are smaller than Brazil's, have a higher rating. "The investment grade rating rewards the country and their choice of economic policies,'' said Claudia Calich, who manages $1 billion in emerging-market debt for Invesco Inc. in New York.[3]
Brazil, whose economy grew last year at the fastest pace since 2004, should be able to maintain annual growth of as much as 4.5 percent, S&P; said in a statement today while raising the country's long-term foreign currency debt rating to BBB-from BB+. Foreign direct investment, which reached a record of $34.6 billion last year, is likely to cover the country's current account deficit this year, the ratings company said.[3] Brazil now appears on track for sustained economic growth of between 4 percent and 4.5 percent, following gains of 5.7 percent last year, Schineller said. Despite a global credit crunch, this 'maturing growth outlook' makes Brazil an attractive investment option, S&P; said, noting that direct foreign investment is on track to match last year's US$34.6 billion record.[4] GDP is the measure of all goods and services produced in Brazil. Despite a global credit crunch, SP said that Brazils "maturing growth outlook" makes it an attractive investment option, noting that direct foreign investment is on track this year to match last years US$34.6 billion record.[5]
"The upgrades reflect the maturation of Brazil's institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects," Lisa Schineller, S&P; sovereign analyst said in a statement. "While net general government debt remains higher than that in many "BBB" peers, a fairly predictable track record of pragmatic fiscal and debt management policies mitigates this risk," she said. Fitch rates Brazil rate "BB+" while Moody's Investors Service rates it "Ba1", both one notch below investment grade. [6] "The upgrades reflect the maturation of Brazil's institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects," said Lisa Schineller at S&P.; It is a far cry from the Brazil of the 1980s, which defaulted on its debt and declared a moratorium on further payments.[7] "The upgrades reflect the maturation of Brazils institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects," said SP Lisa credit analyst Lisa Schineller in a statement announcing the rating boost.[5]
The agency concluded Brazil deserved a "stable" outlook on the long-term ratings, which means for the next three to five years, Jane Eddy, another S&P; analyst, told AFP. Eddy said the agency expected the Brazilian government would further reduce debt and weather inflationary pressures from both higher food prices and economic growth. "We see the central bank as being able to manage it," she said in a phone interview, adding that the central bank's inflation target is 4.5 percent. In the last decade, the Brazilian economy, the largest in South America, grew at a "fairly disappointing" pace below three percent, she said. [2] Central Bank president Henrique Meirelles said it illustrates the newfound stability of Brazil's once notoriously volatile economy. Brazil defaulted on its debt and declared a moratorium on debt payments in the 1980s, but predictable monetary policy and steady growth in recent years have most experts calling the boom-and-bust economic cycles a thing of the past.[4]
"The investment-grade rating puts us in a very favorable position to continue to grow,'' Brazil's Finance Minister Guido Mantega told reporters in Brasilia. The acceleration in growth prompted Brazil's central bank on April 16 to raise its benchmark lending rate for the first time in three years as inflation accelerated above their 4.5 percent target.[3]
Five-year credit default swaps based on the country's debt declined 12 basis points to 108 basis points. That means it costs $108,000 to protect $10 million of the country's debt from default. Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Emerging-market bonds, led by Argentine debt, extended gains after the Federal Reserve lowered its benchmark lending rate by a quarter-percentage point to spur growth in the U.S. economy, the biggest buyer of developing nations' exports. The Fed cut the main interest rate to 2 percent and said its reductions since September should shore up growth in the world's largest economy.[8] Harbor holds $3.5 billion of stocks in Brazilian companies. "It lowers the funding costs and the risk premium and makes Brazil a more attractive place to invest.'' The Bovespa climbed 6.3 percent to 67,868.46 in Sao Paulo trading, making the index this year's best performer among the world's 20 biggest stock markets. The real strengthened 2.6 percent to 1.6623 versus the U.S. dollar, the biggest one-day gain in the currency since Aug. 17, when the Federal Reserve unexpectedly cuts its discount rate.[3] The extra yield investors demanded to hold Brazilian debt denominated in dollars reached 24 percentage points in September 2002, the month before Lula's victory. "The upgrade is a measure of external solvency of Brazil, which not only reduced significantly its external debt, but also accumulated vast reserves, which makes solvency a secondary issue now for investors,'' said Clecius Peixoto, who helps manage $19 billion in emerging-market stocks at Emerging Markets Management LLC in Arlington, Virginia.[3] "While some deterioration is likely as the current account slips back into deficit, we expect the rise in the external debt burden to be modest," the ratings agency said. In late February, Brazil's central bank announced its currency reserves were more than four billion dollars above the country's public and private debt.[2] The long-awaited upgrade came two months after Brazils Central Bank declared that the nations debt crisis was over because Latin Americas largest country had emerged as a net foreign creditor for the first time.[5] S&P;'s announcement comes just two months after Latin America's largest country emerged as a net foreign creditor, prompting the Central Bank to declare Brazil's debt crisis over.[4]
S&P; said that Brazil is the 14th country whose foreign currency debt has been rated investment grade.[2] While Moody's Investors Service and Fitch Ratings still rate Brazilian debt at one notch below investment grade, the S&P; upgrade is a huge victory for Silva. When he was elected in 2002, some investors predicted the once-radical union leader would wreck the economy. Silva surprised financial players and angered his leftist base by sticking to an orthodox monetary policy. This brought bigger corporate profits, but also has helped the poor by reducing inflation and creating more jobs in the nation of nearly 190 million.[4] The upgrade is a huge victory for President Luiz Inacio Lula da Silva, elected in 2002 amid predictions by investors that the former radical union leader would wreck the economy. Silva surprised financial players and angered members of his leftist base by sticking to orthodox monetary policy that has translated into bigger corporate profits but has also helped the poor by reducing inflation and creating more jobs in the nation of nearly 190 million.[5]
April 30 (Bloomberg) -- Brazil's benchmark dollar bonds rose to a record after Standard & Poor's raised the credit rating on Latin America's biggest economy to investment grade. [8] April 30 (Bloomberg) -- Brazil received an investment grade credit rating for the first time from Standard & Poor's, sending the benchmark stock market index to a record and yields on dollar bonds to an all-time low.[3]
NEW YORK, April 30 (Reuters) - Standard & Poor's lifted Brazil's sovereign credit rating one notch to "BBB-" on Wednesday, giving it coveted investment grade status, citing a maturing of institutions and improved growth prospects.[6] NEW YORK, April 30 (Reuters) -U.S.-listed shares of overseas companies rose on Wednesday, led by Brazilian companies after Standard & Poor's lifted the country's credit rating to investment grade.[9] NEW YORK, April 30 (Reuters) - Fitch Ratings said on Wednesday Brazil's sovereign rating is under "active review," following Standard & Poor's decision to upgrade the country to investment grade.[10]
The ratings agency Standard & Poor's raised Brazilian debt to BBB-, which is the lowest investment grade. The upgrade is an important benchmark in the country's economic development, showing that its debt crisis is over.[7] SAO PAULO, Brazil (AP) - Standard & Poor's Ratings Services on Wednesday raised Brazil's debt rating to investment grade, a key benchmark in the nation's economic transformation that sent domestic stocks soaring.[11]
Brazil's benchmark stock market index closed at an all-time high on Wednesday after the government's debt was upgraded to investment grade.[7]
The issue traded up 1.25 points in price to bid 135.875, yielding 5.049 percent. "In terms of price action today we are seeing the pricing in of future buying by non-dedicated emerging market investors who will eventually include Brazil's external or domestic debt in their portfolios once a second investment grade rating comes," said Benito Berber, Latin America strategist at RBS in Stamford, Connecticut.[6] The upgrade is overdue if only because Brazil is now a net creditor nation, with reserves of more than $170 billion, and net creditors simply don't default. Ratings are sticky things, and ratings agencies are generally reluctant to issue both upgrades to investment grade and downgrades from investment grade. Now Brazil has its triple-B credit rating, it's extremely unlikely to lose it at any point in the foreseeable future.[12] S&P; upped Brazil's rating by one notch to "BBB-", making it the first of the major credit ratings agencies to award Brazil coveted investment grade status.[9]
The ratings agency did not change, however, the stable outlook on Brazil's "BB+" rating, which currently stands one notch below investment grade.[10]
Brazil is rated Ba1, or one level below investment grade, by Moody's Investors Service.[3]
The extra yield investors demand to own Brazil's dollar bonds rather than U.S. Treasuries narrowed 8 basis points to 2.17 percentage points, according to JPMorgan Chase & Co.' s EMBI Plus index.[8] The yield to the 2015 call date on Brazil's 11 percent bonds due in 2040 fell by 21 basis points to 5 percent in New York, according to JPMorgan Chase & Co. The price rose 1.602 cents on the dollar to 136.301 cents, the highest since the country issued the securities in 2000.[3]
The spread on Argentina dollar bonds shrank 24 basis points to 5.6 percentage points, according to JPMorgan. Argentina's government and farm groups neared an agreement in their dispute over limits to wheat exports, a farm spokesman said. "The announcement they had a positive discussion helped,'' Pedrajo said.[8]
Overall emerging debt spreads widened 3 basis points to 267 basis points on the EMBI+, as emerging debt prices rose in general but were not able to keep up with a U.S. Treasuries rally. [1] Developing nation debt gained earlier after the Commerce Department reported that the U.S. economy expanded at a better-than-forecast 0.6 percent annual pace in the first quarter.[8] The Brazilian real also rose sharply against the U.S. dollar. The nation, which defaulted on its debt in the 1980s and declared a moratorium on debt payments, is riding a boom in demand for key exports such as beef, iron ore and soy.[11] Predictable government monetary policy along with steady Brazilian growth has prompted most experts to predict that the countrys traditional boom-and-bust economic cycles are a thing of the past. The nation, which defaulted on its debt in the 1980s and declared a moratorium on debt payments, is riding a boom in demand for key exports such as beef, iron ore and soy.[5]
S&P; lifted Brazil's long-term foreign currency debt rating to BBB- from BB+, citing the country's economic expansion and declining foreign debt.[8] S&P; explained that Brazil's foreign currency debt had fallen dramatically, with net debt amounting to a projected three percent of current account receipts in 2008 from in excess of 100 percent as recently as 2004.[2]
Coupled with rising foreign investment and fueled by Brazil's high domestic interest rates, net currency inflows reached a record US$87.5 billion ('58.8 billion) in 2007.[11] Brazil, once the world's largest emerging-market debtor, became a net foreign creditor for the first time in January as international reserves swelled to a record $171.6 billion from $37.6 billion at the start of Lula's first term.[3]
Foreign direct investment as of April stood at $12.4 billion and may match last year's record of $34.6 billion, according to S&P.;[8]
Brazil's trade surplus came in at US$40 billion ('26.9 billion) last year, and international reserves nearly tripled from US$64 billion in 2003 to US$188.2 billion ('120.6 billion) in February, the Central Bank said.[4] Central Bank president Henrique Meirelles told reporters that the upgrade illustrates the newfound stability of Brazils once notoriously volatile economy.[5] Brazilian central bank chief Henrique Meirelles said the upgrade showed Brazil could withstand global market turmoil.[9] "Inflation has trended higher in Brazil, to 4.7 percent in March 2008, owing not only to global food and energy price pressures but also to robust domestic demand," said Schineller. "In contrast with unchecked inflationary pressures in other lower-rated sovereigns, Brazil's central bank initiated a forward-looking tightening cycle on April 16, 2008, to ensure that the hard-won benefits associated with low inflation will be maintained," she added.[2] Rising food costs and consumer demand pushed inflation to a two-year high of 4.73 percent in March from an eight-year low of 3 percent in the prior year's period. Economists now expect policy makers to raise their target rate to 13 percent by year- end, with annual inflation estimated to reach 4.79 percent this year, a central bank survey published April 28 showed.[3] Latin America's largest economy expanded 5.4 percent in 2007 and is expected to grow 4.6 percent in 2008, according to estimates of about 100 economists in a central bank survey.[3]
Brazil's benchmark Ibovespa stock market index jumped 6.3 percent after the upgrade was announced, hitting a new intraday record of 67,768. [11] Brazil's benchmark Ibovespa stock market index jumped 6.3 percentage points on the news, closing at a new record of 67,869.[4]
SAO PAULO, Brazil (AP) - Brazil celebrated a landmark improvement in its debt rating Wednesday, as Standard & Poor's Ratings Services issued a long awaited-upgrade that sent Brazilian stocks soaring. [4] Net government debt reached 47 percent of the country's gross domestic product in 2007, "higher than in similarly rated credits and above 20 percent for the BBB median,'' the ratings company said.[3] High government spending and public debt remains Brazil's "foremost credit weaknesses,'' S&P; said.[3] Brazil's federal debt was 1.36 trillion reais ($813.8 billion) in March, the Treasury said April 24.[3] "Reducing external debt and financing themselves in local markets has been a major positive,'' said Jonathan Binder, who manages $1.7 billion of emerging-market assets at INTL Consilium LLC in Fort Lauderdale, Florida. "They are a major commodity exporter and that has been very good for them.''[8]
One company that was for sale, Maguire Properties (MPG), a company with A type assets in some of the best office markets in the country, could not find a buyer, which is a sign of the times. In this environment without cheap and easy debt, buyers cannot pay the exorbitant prices that we were seeing a few years back.[13] More highly leveraged private developers could run into problems servicing debt if commercial rents continue to drop. We are projecting about 3-5% overall FFO growth for the full year 2008, so this is the range that we are looking for in the 1st quarter.[13] Schineller said Brazil appears on track for sustained economic growth of between 4 percent and 4.5 percent following gross domestic product growth of 5.7 percent last year.[5] Brazilian gross domestic product last year grew by 5.4 percent in a broad expansion that affected all sectors, after a 3.7 percent pace in 2006, according to Brazil's official statistics agency.[2]
U.S. stocks closed lower after the Federal Reserve trimmed interest rates as expected but left the outlook for further cuts unclear, prompting investors to lock in profits. [9] Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[1]
The Bank of New York Mellon's index of leading American Depositary Receipts (ADRs) was up 0.9 percent while the 30-share Dow Jones industrial average.DJI ended down 0.09 percent.[9] Argentina's bonds also posted hefty gains, jumping more than 2.5 percent on the EMBI+, on hopes farmers and government will get into an agreement on export taxes, averting a new strike in the agriculture sector.[1]
The upgrade is important because many funds, especially pension funds, are only allowed to buy investment grade bonds.[7] "Lula's government took office with bonds trading at 40 cents on the dollar and the real at almost 4 and is now entering the big leagues of the investment grade world.''[3]
"Investment grade should be seen as a starting point, not a final destination,'' said Marcelo Carvalho, Morgan Stanley's chief economist for Brazil in Sao Paulo. [3] "After the investment-grade rating, Brazil will be forced to make advances in the needed reforms,'' said Octavio de Barros, chief economist at Banco Bradesco SA, the country's largest non-government bank by assets. "It's not possible to move backward now.''[3]
"The Fed's statement seems to have more of a balance in terms of the positive and the negatives,'' said Dario Pedrajo, who manages $100 million in emerging-market debt at Kapax Investment Advisers LLC in Miami. [8]
SOURCES
1. Emerging debt-Brazil investment grade, Fed boost prices | Markets | Markets News | Reuters
2. AFP: Brazil moves up a notch to investment grade: S&P;
3. Bloomberg.com: Worldwide
4. Brazil celebrates S&P;'s raise of debt rating to investment grade
5. SP raises Brazil debt rating to investment grade, key in nations economic transformation - International Herald Tribune
6. UPDATE 1-S&P; upgrades Brazil to investment grade BBB- | Markets | Markets News | Reuters
7. BBC NEWS | Business | Brazil's shares at all-time high
8. Bloomberg.com: Latin America
9. UPDATE 1-ADR Report-Brazil ADRS jump on ratings upgrade | Markets | Markets News | Reuters
10. Fitch says Brazil's rating under active review | Markets | Bonds News | Reuters
11. S&P; raises Brazil debt rating to investment grade, key in nation's economic transformation
12. Brazil Finally Gets its Investment-Grade Credit Rating - Finance Blog - Felix Salmon - Market Movers - Portfolio.com
13. Zacks.com - Zacks Commentary: Zacks Analyst Interviews
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