Moody’s Downgrades Brazil’s Credit Rating

Planning Minister Nelson Barbosa said he thought Brazil would not lose the investment grade rating, calling the country’s fiscal trajectory “sustainable”.

However, it was widely expected that Moody’s would make such a move following Standard & Poor’s announcement that it had downgraded the outlook on its ‘BBB-‘ rating for Brazil to negative from positive at the end of July.

The large deficits have contributed to South Africa’s credit rating downgrades and to the weakness of the local currency.

Moody’s cut Brazil’s credit rating to near-junk status yesterday, the second rating downgrade the country has sustained since President Dilma Rousseff came to power in 2011. The downgrade was broadly expected to take place this month, nearly a year after the change in outlook last September and following a recent field trip from the agency’s analysts team.

Finance Minister, Joaquim Levy, told reporters Tuesday afternoon that the downgrade by Moody’s indicated the direction the country must head to improve its debt administration. It added that Barrick’s financial strength was underpinned by its large scale, diverse and low-cost gold assets, sizeable copper operations, favourable geopolitical risks and excellent liquidity.

South Africa’s government debt will stabilize at 48 percent this year as the government undertook to keep to its spending targets, according to Moody’s Investors Service.

The world’s biggest gold producer has raised almost $3 billion in funds from mine sales in order to reduce its $13 billion debt load.

It further comments that an upgrade back to Baa2 status could occur should Barrick’s operating cash flows be able to fund the necessary investments to achieve at least stable production over time as well as sustain debt/ EBITDA below 2.5x and cash from operations less dividends/debt at around 30%. The junk rating would have caused a premium on the debt.