Brazil Makes Latin America Fallen Angels Hub, Moody’s SaysJulia Leite
Brazil’s stagnant economy and sinking currency are putting investment-grade ratings at risk, making Latin America the region with the biggest number of high-grade bonds that could end up as junk, Moody’s Investors Service said.
Power producer Centrais Eletricas Brasileiras SA and builder Construtora Norberto Odebrecht SA are among eight Brazilian companies at risk of being cut to speculative grade, Moody’s said in a research note Tuesday. The firm lowered the ratings of 10 Brazilian companies during the first quarter.
The worsening outlook for Latin America’s largest economy, a plunge in commodity prices and the 26 percent drop in Brazil’s real over the past year have increased debt loads while a corruption investigation at Petroleo Brasileiro SA has made it harder for all companies to get financing, according to the note. Nine Brazilian companies have negative outlooks on their credit grades, opening the door for more ratings reductions over the next year and a half.
“It’s very broad based; the pressure is coming from many different areas,” said Mark Stodden, an analyst at Moody’s in New York. “Companies could face refinancing risk, they could have difficulty tapping international capital pools because of all of the different macroeconomic uncertainties.”
Of the 12 Latin American companies on the verge of junk, two-thirds are in Brazil. The nation is tied with the U.S. for the highest number of issuers that may lose their investment grade ratings.
In February, Moody’s downgraded Petrobras to junk amid a corruption probe that has all but shut offshore debt markets for Brazilian issuers. The limited access to funding has prompted companies including Grupo Schahin, which owns building and oil rig companies, and builder OAS SA to seek protection from creditors.
Brazil economists expect the economy to contract 1.03 percent this year, according to a central bank survey published Monday. Analysts raised their 2015 inflation estimate to 8.23 percent -- the government targets annual inflation of 4.5 percent, plus or minus two percentage points. The last time inflation ended the year above the target was 2003.