Portugal Looks to Attract New Investors After S&P Rating Upgrade

  • Boost to investment grade should lower borrowing costs: FinMin
  • DBRS investment grade rating already let nation qualify for QE

Mario Centeno

Photographer: Paulo Duarte/Bloomberg

Portuguese Finance Minister Mario Centeno expects greater demand for his nation’s debt from a broader array of investors to spur lower borrowing costs both for the government and corporations, after the country’s credit rating was restored to investment grade status by S&P Global Ratings.

“This has a very significant impact,” Centeno said in a telephone interview. “It allows a much vaster array of investors to have Portuguese debt in their portfolios. It also allows private debt to benefit from these better financing conditions, and this is very relevant for Portuguese banks.”

S&P raised its forecast for Portugal’s economic growth and revised the country’s rating to BBB- from BB+, which was one level below investment grade, according to a statement released on Friday. The outlook is stable. Portugal had been rated junk by S&P since January 2012, when the country was going through a bailout program provided by the European Union and the International Monetary Fund.

Tourism and exports have been driving a rebound in the economy, with the Bank of Portugal forecasting growth will accelerate to 2.5 percent this year. The faster growth is helping the country’s minority Socialist government manage the budget deficit, which last year was the narrowest as a percentage of gross domestic product in four decades of Portuguese democracy.

Prime Minister Antonio Costa took office at the end of 2015 and has increased indirect taxes while reducing the work week for state employees as he aims to reverse some measures introduced during the bailout program. While Portugal exited the three-year international aid program in 2014, it’s still dealing with pending issues including bad loans at banks.

The government aims to cut its deficit to 1.5 percent of GDP in 2017 from 2 percent last year, and sees debt falling to 127.7 percent of GDP this year from 130.4 percent in 2016. The debt ratio increased last year as Portugal raised funds for the 2.5 billion-euro capital injection in state-owned bank Caixa Geral de Depositos SA that was carried out this year.

ECB Policy

The country’s debt is rated below investment grade by Fitch Ratings and Moody’s Investors Service. Moody’s on Sept. 1 followed Fitch in raising the outlook on Portugal to positive from stable. Portugal already had an investment grade rating from DBRS Ltd., which secures the nation’s eligibility for the European Central Bank’s bond purchase program.

“We believe that risks of a marked deterioration in external financing conditions have receded, and that the ECB will ensure a smooth transition toward a less accommodative monetary stance,” S&P said.

Portugal’s 10-year bond yield was at 2.8 percent on Friday, down from 4 percent six months ago. It peaked at 18 percent in 2012 at the height of the euro region’s debt crisis.

“It’s very important to get this rating now because Portugal has to prepare for the changes in monetary policy that are to be expected during the coming months and years in Europe,” Centeno said.

The minister said previously announced plans to issue bonds in China will be concluded soon.

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