Brazilian Companies Face Risk of Being Downgraded to a Negative Outlook

04/22/2015 - 09h02

The number of Brazilian companies with risk of being downgraded to junk - according to the investment grade issued by credit rating agency Moody's - more than doubled in the first quarter, compared with the last three months of 2014.

The ratings given by risk assessment agencies are used to guide the decisions of investors.

The five companies that joined the list of "potential fallen angels", name given by the agency to Baa3 companies (last rating before the speculative-grade) with negative outlooks or on review for downgrade are: AES Tietê, Bandeirante Energia, Espírito Santo Centrais Elétricas, Energest (electric power industry) and builder Odebrecht.

In December, Braskem, Eletrobras and Sabesp had their ratings lowered (the list considers only non-financial companies).  

Now, Brazil leads the rank alongside U.S., a country that also has eight companies at risk of being cut to speculative grade.

"The main factors for the increase in the number of companies in Brazil were macroeconomic pressures and regulatory changes, which have resulted in a more challenging business environment", says the report.

Moody's says that Odebrecht was adversely affected by the deterioration in the industry fundamentals of engineering and construction in the country on the back of corruption scandals at Petrobras.

The worsening in the risk scenario made Latin America the region with the largest number of companies on the list of "potential fallen angels", with 34% of the total. North America follows with 31%.

"It's quite significant that Latin America is first on the list, because the market of issuers in the region is much smaller than in North America", said Moody's Vice President Mark Stodden.

"This can reduce the access to capital in the region, especially foreign capital, and the lack of investment could harm economic growth."

DOWNGRADED

In the first quarter, the credit rating agency downgraded ten Brazilian companies. Not all of them lost their investment grades, though.

On the list are Petrobras, Mega Energia and builders Andrade Gutierrez and Mendes Júnior.

Translated by JULIANA CALDERARI

Read the article in the original language

	Paulo Whitaker/Reuters
	Headquarters of Odebrecht, one of the companies with risk of being downgraded, in Sao Paulo