Moody’s
Brazil Rating Raised to Investment Grade by Moody’s
Sept. 22, 2009 (Bloomberg) — Brazil’s credit rating was raised to investment grade by Moody’s Investors Service after Latin America’s largest economy built record foreign reserves and averted a prolonged recession amid the global financial crisis.
Moody’s cited Brazil’s “strong economic and financial resilience” during the worldwide slowdown as it raised the rating one level to Baa3, the lowest investment grade. The upgrade came a year after Standard & Poor’s and Fitch Ratings increased their ratings for Brazil above junk. Moody’s assigned a positive outlook, signaling it may lift the rating again.
The country’s foreign reserves climbed to $223 billion from a low during the crisis of $199 billion on Feb. 26 as prices for its commodity exports rebounded and investors poured money into the stock and bond markets, encouraged by President Luiz Inacio Lula da Silva’s stimulus measures. Reserves were $74 billion three years ago.
“The world is pulling out of the crisis and the country came through it displaying a strong resilience,” said Roberto Padovani, chief strategist at Banco WestLB do Brasil in Sao Paulo. The upgrade “consolidates a scenario of low risk for Brazil and it comes at a very important moment,” he said.
Brazil’s ability to pull through the global financial crisis “points to a material improvement in Brazil’s sovereign credit profile,” Mauro Leos, Moody’s regional credit officer for Latin America, said in a statement.
Moody’s “was waiting to see how Brazil was going to come out from this crisis, whether the crisis was going to be more profound and in the end it wasn’t,” said Pablo Goldberg, head of Latin American fixed-income strategy at HSBC Securities in New York. “The data shows that Brazil has turned the corner.”
Finance Minister Guido Mantega, speaking to reporters outside of the Moody’s office in New York today, said it was “much more significant” that the rating company took the action one year after credit markets seized up than if it had upgraded while the global economy was growing.
The decision “is a recognition of the efficiency with which” Brazil’s economy is being managed, Mantega said. With three investment grade ratings, Brazil will be able to attract more pension fund money to its bond market, he said.
Brazil is the second country in South America after Chile to have an investment grade rating from Moody’s.
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Brazil Ratings Put on Review for Increase by Moody’s
July 6, 2009 (Bloomberg) — Brazil’s credit ratings were put on review for an increase to investment grade by Moody’s Investors Service, which cited the country’s “demonstrated resilience to shocks” in the global economy. Bonds gained and stocks and the currency pared losses.
Moody’s placed both the country’s foreign and local ratings of Ba1, or one level below investment grade, on review for upgrade. Moody’s is the only one of the three major rating companies that has Brazil below investment grade. Both Standard & Poor’s and Fitch Ratings raised Brazil to BBB-, the lowest investment grade rating, last year.
“It’s warranted for Brazil to be viewed as an investment- grade credit by all three agencies,” Michael Gomez, who oversees $45 billion as co-head of emerging markets at Pacific Investment Management Co., said in a telephone interview from Newport Beach, California. “I would say it’s a long time coming.”
Moody’s decision to signal it may raise Brazil to investment grade amid the global recession underscores President Luiz Inacio Lula da Silva’s success in stockpiling foreign reserves and extending debt maturities since taking office in 2003. Brazil had record reserves of more than $200 billion when the financial crisis deepened in September, allowing the central bank to sell dollars and contain the real’s decline while it cut interest rates to shore up a slumping economy.
‘Underlying’ Strengths
The global credit crisis and recession have uncovered “underlying structural strengths” in Latin America’s biggest economy, Moody’s said.
“The Brazilian authorities’ policy response has been effective in containing the impact of the global crisis, thus providing evidence of increased resilience to shocks, a characteristic integral to an investment-grade credit profile,” Moody’s said.
Moody’s will likely make a decision as to whether to raise the rating by Oct. 6, Mauro Leos, a New York-based Moody’s analyst, said in a telephone interview. He said the strength of the country’s banks and the government’s decision to shift away from dollar-linked debt are supporting the credit rating.
The yield to the 2015 call date on Brazil’s 11 percent bond due in 2040, one of the most widely traded emerging-market securities, dropped 9 basis points, or 0.09 percentage point, to 5.14 percent at 4:22 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price rose 0.50 cent on the dollar to 130.35 cents, the highest in a week.
Currency, Stocks
An upgrade by Moody’s would allow more investors to buy the country’s bonds because some investors are restricted to buying securities with investment-grade ratings from both S&P and Moody’s, Gomez said.
“Undoubtedly it’s positive,” Gomez said.
The real was little changed at 1.9525 per U.S. dollar after earlier losing as much as 1.6 percent to 1.9840, the weakest since June 24. The real is up 18.5 percent against the dollar this year, the second-most among the 16 major currencies after the South African rand.
The Bovespa stock index ended the day down 0.6 percent, after slumping as much as 2.4 percent earlier.
Brazil’s foreign reserves have climbed to $209 billion from $38 billion when Lula took office in 2003 as a surge in the price of the country’s commodity exports swelled dollar inflows. The country became a net creditor for the first time in January 2008.
Moody’s said in the statement that it will analyze the country’s ability to “further reduce debt ratios” in years ahead as part of the review process.
This “will be particularly critical given that the debt metrics of the Brazilian government are expected to continue to exceed the corresponding mean for Baa-rated countries,” Mauro Leos, an analyst at Moody’s, said in the statement.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net
Last Updated: July 6, 2009 18:21 EDT