Brazil still has time to avert 2nd junk downgrade, seen as bigger threat

viernes 11 de septiembre de 2015 11:26 GYT

By Walter Brandimarte

RIO DE JANEIRO, Sept 11 (Reuters) - Standard & Poor's decision to strip Brazil of its investment-grade credit rating puts pressure on competing ratings firms to follow suit, but the government still has time to avert another downgrade to junk which would cost billions of dollars in foreign investment.

While many analysts consider it a matter of time before Fitch Ratings or Moody's Investors Service also cut Brazil to a "junk" or speculative rating, both agencies have signaled they are in no rush to make that move.

President Dilma Rousseff needs time to draw up and build a political consensus for unpopular budget cuts, especially as the economy is in its worst recession in a quarter century.

A second downgrade to junk would have greater market impact than the first one because many foreign pension funds and other large investors are required to unload bonds once two separate agencies rate them as speculative grade.

The move would also knock Brazilian assets out of benchmark high-grade indexes tracked by passive funds, whose goal is to merely match the performance of an index.

JP Morgan estimates passive investors would be forced to sell $1.5 billion worth of foreign debt issued by Brazilian companies and $800 million worth of sovereign debt. Overall, it estimates both active and passive investors yanking $20 billion out of sovereign and corporate debt.

Fitch Ratings, which currently rates Brazil two notches above junk level, said on Thursday that there are still "elements" supporting the country's investment grade even as the rating deteriorates.

Those include Brazil's economic diversity, per capita income levels and the government's net creditor position, "which remains the strongest in the triple-B category," Fitch analyst Shelly Shetty said at a conference in New York.   Continuación...