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Ibovespa Declines as Oi Tumbles After Credit-Rating Downgrade

The Ibovespa fell a second day as phone company Oi SA tumbled after its credit grade was cut to junk by Fitch Ratings.

The MSCI Brazil/Telecommunication Services Index slumped 2.3 percent, as all 10 industry groups declined. Hypermarcas SA (HYPE3), the maker of consumer products from diapers to generic drugs, slid as Credit Suisse Group AG downgraded the stock to the equivalent of hold.

The Ibovespa fell 0.1 percent to 55,637.51 at the close of trading in Sao Paulo, as 40 stocks declined while 29 gained. Fitch cut Oi’s ratings after a unit of Espirito Santo International defaulted on debt payments to Portugal Telecom SGPS SA, which plans to merge with the Brazilian company. Investors are also awaiting opinion polls to gauge whether President Dilma Rousseff’s popularity dropped further.

“Oi’s downgrade to junk is causing the company’s stock to fall,” Rogerio Freitas, a partner at hedge fund Teorica Investimentos, said by phone from Rio de Janeiro. “The market is also waiting for new election polls. These are the first surveys after the World Cup.”

The Ibovespa entered a bull market on May 7, surging 20 percent from this year’s low, as oil producer Petroleo Brasileiro SA (PETR3) rallied on speculation a change in government will reduce intervention in state-owned companies.

Stocks also dropped globally today after Israel began a ground operation in the Gaza Strip. The crisis in Ukraine escalated after a passenger jet crashed in the country, killing all 295 people on board. The government in Kiev blamed pro-Russian rebels for shooting down the Malaysian Airlines jet, while the separatists deny the accusation.

Russia-Ukraine

The U.S. and the European Union imposed the most aggressive sanctions to date on Russian businesses yesterday and said more may follow, acting after threats to squeeze the $2 trillion economy over the conflict in Ukraine.

“The Russia-Ukraine situation is driving global markets down, and Brazil is following the trend,” Sandro Fernandes, a trader at brokerage firm Geraldo Correa, said in a phone interview from Belo Horizonte, Brazil. “Sanctions on Russia will affect emerging markets.”

Oi tumbled 6.3 percent to 1.65 reais. Long-term debt ratings for the biggest Brazilian phone company and Portugal Telecom were cut to BB+ from BBB-, Fitch said in a statement yesterday. Rioforte Investments, a subsidiary of Espirito Santo, failed to repay 847 million euros ($1.1 billion) of short-term debt this week.

Hypermarcas slid 1.8 percent to 18.69 reais, the lowest in a month. Credit Suisse cut the stock from the equivalent of buy, citing high valuations. The shares trade at 22.9 times estimated earnings, compared with a five-year average of 21.5, according to data compiled by Bloomberg.

Trading volume of stocks in Sao Paulo was 7.62 billion reais today, according to data compiled by Bloomberg. That compared with a daily average of 6.48 billion reais this year, according to data from the exchange.

To contact the reporter on this story: Victor Aguiar in Sao Paulo at vaguiar1@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Rita Nazareth

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