Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Action:

Moody's changes outlook on Brazil's Ba2 issuer rating to stable from negative

 The document has been translated in other languages

Global Credit Research - 15 Mar 2017

New York, March 15, 2017 -- Moody's Investors Service has today changed the outlook on Brazil's rating to stable from negative and affirmed its issuer rating, senior unsecured at Ba2 and shelf ratings at (P) Ba2.

Moody's decision to change Brazil's outlook to stable was driven by the following factors:

1. Moody's expectation that the downside risks reflected in the negative outlook are abating and macroeconomic conditions stabilizing, with the economy showing signs of recovery, inflation falling and the fiscal outlook clearer.

2. Indications that the functioning of Brazil's policy framework is improving and the strength of its institutions recovering, supporting planned implementation of structural fiscal reforms

3. Risk of contingent liabilities from government-related entities, captured in the negative outlook, has been significantly reduced

Over the past six months, downside risks to the Ba2 rating have abated and macroeconomic conditions have stabilized in Brazil, with an incipient recovery in economic growth expected in 2017 and faster-than-anticipated fall in inflation. A positive reform momentum emerged last year, indicating improved functioning of institutions that would support implementation of fiscal reforms and passage of the social security reform this year. Contingent liability risks related to financial support to Petrobras have diminished, reducing downside risks, while the fiscal cost of debt relief provided to state governments remains contained. Overall, the government debt trajectory remains in line with our earlier expectations for 2017-19 and consistent with the Ba2 rating.

RATINGS RATIONALE

RATIONALE FOR CHANGE IN BRAZIL'S RATING OUTLOOK TO STABLE

First Driver: Moody's expectation that the downside risks reflected in the negative outlook are abating and macroeconomic conditions stabilizing

A more benign outlook for growth and inflations underpin our expectation of broad macroeconomic stabilization. Although growth may still disappoint to the downside, we expect an end to the very severe economic contraction that persisted for the past two years, reducing downside risks. We expect GDP growth between 0.5-1.0% this year and 1.5% in 2018, and inflation to drop to 4.5% in 2017, which is the central bank target. After 2018, we expect growth to stabilize around 2-3%. The drop in inflation has allowed the central bank to begin an easing cycle, cutting the policy rate from 14.25% to 12.25%, with further easing expected in 2017 in line with still weak economic activity. Although the fall in interest rates will likely have only a limited impact on economic activity in 2017 due to ongoing deleveraging cycle and weak household demand, we expect a positive impact on the government's interest bill, arresting the deterioration in Brazil's fiscal profile.

Despite an improved macroeconomic outlook, fiscal results will remain weak in the near term. In 2016, the primary deficit reached 2.7% of GDP and we expect a similar result this year. We expect Brazil's debt-to-GDP ratio will rise from 70% of GDP at end 2016, to around 80% by 2019 as tepid and gradual economic recovery weighs on government revenues, contributing to high deficits. However, Brazil's debt structure has several features that mitigate the risks of a relatively large stock of public debt, including limited exposure to exchange rate depreciation and a diverse and large domestic investor base. In addition, a significant portion of government debt is issued to the central bank as monetary policy instrument, and does not represent a financing need for the government. In this context, Brazil's debt trajectory remains consistent with the Ba2 rating.

Second Driver: Indications that the functioning of Brazil's policy framework is improving, supporting planned implementation of structural fiscal reforms

The political uncertainty that weighed on Brazil's outlook has subsided relative to a year ago, supporting improved effectiveness in passing fiscal reforms, and suggesting that Brazil's institutions are beginning to function more effectively. A sustained improvement in the functioning of the country's legislative and executive institutions will support achievement of a range of credit positive economic and fiscal reforms that have been identified as needed to support recovery. The government has already passed an important constitutional amendment to cap primary government spending growth at the rate of last year's inflation for the next twenty years, and Congress is discussing an equally important reform of social security, which we expect will pass in the second half of 2017. The government also plans to present structural reforms to boost potential growth, including simplifying the tax code and introducing labor reforms. Consistent compliance with the cap on primary (non-interest) spending, and curtailing the growth of social security spending, are both necessary to protect fiscal sustainability by curbing the increase in government spending, which has grown in real terms from 14% of GDP in 1995 to just under 20% of GDP last year.

Third Driver: Risk of contingent liabilities from government related entities, captured in the negative outlook, has been significantly reduced

The contingent liability risk related to Petrobras, which was another driver behind the negative outlook on Brazil's rating, has been materially reduced with the steps taken to address the company's problems and to support its liquidity and market access through progress on asset sales and improved management practices. Set against that, another source of contingent liability has emerged in the state government sector, the fiscal position of which continued to deteriorate. A number of state governments have called for support from the federal government in the form of debt rescheduling. However, the fiscal impact of this support remains contained at R$20 billion (0.3% of GDP) in 2016 with similar magnitude expected in 2017-18.

RATIONALE FOR AFFIRMATION OF BRAZIL'S Ba2 RATING

Brazil's issuer rating at Ba2 reflects the strengths and weaknesses of Brazil's credit profile. Below-potential economic growth and weak fiscal position, which will result in continued rise in government debt over the next 2-3 years, are important constraints on the rating. This is balanced against Brazil's large and diversified economy, limited external vulnerability and susceptibility to event risk, and improved reform momentum to address the structural weaknesses in Brazil's fiscal profile. The stable outlook on the Ba2 rating also incorporates our expectation of sustained reform momentum over the next 12-18 months to preserve fiscal sustainability. This expectation is balanced against the risk of stalled reform momentum, delays in passing social security reform, or renewed political uncertainty.

WHAT COULD MOVE THE RATINGS UP

Positive pressure on the rating could emerge if structural reforms restore higher growth rates and/or lead to faster pace of fiscal consolidation to stabilize government debt. Demonstrated policy continuity and consistent implementation of fiscal reforms, including compliance with the spending cap in 2019 and beyond could also lead to a rating upgrade.

WHAT COULD MOVE THE RATINGS DOWN

A re-emergence of the downside economic and fiscal risks, founded in the performance of Brazil's institutions, that drove the negative outlook assigned in 2016 would similarly impose downward pressure on the rating. In particular, a re-emergence of political dysfunction and, relatedly, stalled reform momentum that would threaten implementation of fiscal reforms and compliance with the spending cap -- particularly delays in passing social security reform -- would put negative pressure on the rating.

COUNTRY CEILINGS

The long-term foreign currency bond ceiling remains unchanged at Ba1/NP. The long-term foreign currency deposit ceiling is unchanged at Ba3/NP. The long-term local currency bond and deposit ceilings are unchanged at A3.

GDP per capita (PPP basis, US$): 15,647 (2015 Actual) (also known as Per Capita Income)

Real GDP growth (% change): -3.6% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 6.3% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -8.9% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -1.4% (2016 Actual) (also known as External Balance)

External debt/GDP (2016 Estimate): 38.4%

Level of economic development: Moderate level of economic resilience

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 13 March 2017, a rating committee was called to discuss the rating of the Government of Brazil. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have increased. The issuer's institutional strength/framework, has improved. The issuer's governance and/or management, have materially improved.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Samar Maziad
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.