(Adds comments from Fitch analysts, background)
By Walter Brandimarte
RIO DE JANEIRO, April 10 Fitch Ratings on
Thursday said it expects Brazil's next government to support the
country's credit rating by making policy adjustments to improve
its fiscal performance and boost investor confidence.
In a conference call with investors, Fitch analyst Shelly
Shetty said low growth rates and a deterioration in fiscal
accounts are the firm's main concern about Brazil, which remains
rated at BBB with a stable outlook.
Her remarks suggest Fitch is willing to give the benefit of
the doubt to the next Brazilian president, to be elected in
October. They also may help to allay fears Brazil would soon
suffer another sovereign downgrade, following Standard & Poor's
decision to cut the country's rating to near junk level last
"We believe that the deterioration in credit fundamentals
that we've seen so far in Brazil is broadly within the tolerance
level of the BBB rating," Shetty said.
In coming years, however, Fitch wants to see adjustments to
"attract private investment and boost confidence, which has been
affected due to policy uncertainty."
Without improving the rate of investment, it will be "very
hard" for Brazil to grow at a pace of around 4 percent a year,
The Brazilian economy has been unable to grow above 3
percent since President Dilma Rousseff took office in 2011. This
year, it is forecast to expand less than 2 percent even as
Brazil hosts the World Cup, which Fitch believes will have
"insignificant" impact on activity.
Fitch expects Brazilian companies to suffer more downgrades
than upgrades this year as declining global liquidity makes
financing conditions more difficult for lower-rated firms.
It said, however, that the ratings for government-run oil
company Petroleo Brasileiro SA, or Petrobras, are
likely to remain in line with Brazil's sovereign rating despite
challenges to finance the company's massive expansion plan.
Fitch said it has already incorporated into Petrobras' BBB
rating the impact of possible delays in the planned expansion of
its refining capacity, mainly due to local-content requirements.
Major expansion delays that consistently boost Petrobras'
leverage ratios to above five times its total debt to EBITDA
could hurt its rating, said Mauro Storino, Fitch's analyst for
That is not Fitch's base-case scenario, however.
"Even though there are some scenarios in which we may
separate the rating (of Petrobras) from the rating of the
sovereign, it still remains highly linked to the rating of the
government," Storino said.
Petrobras "still has a manageable leverage, despite the fact
that the downstream segment continues to report losses and the
company is under an aggressive capex program of $220 billion
until 2018," he added.
(Reporting by Walter Brandimarte; Editing by James Dalgleish)