Brazil upgrade sparks LatAm investment-grade frenzy

By Walter Brandimarte - Analysis

NEW YORK (Reuters) - The recent upgrade of Brazil's credit ratings by Standard & Poor's has stoked expectations that ratings agencies are about to hand out a handful of tickets to the coveted investment-grade club of low-cost borrowing in Latin America.

Investment-grade passes are in the pipeline for Peru, Brazil, Colombia and Panama, analysts and government officials of those countries say, feeding an investor frenzy that has helped support prices of sovereign bonds and currencies in the region.

Peru and Brazil were the latest to be promoted to investment-grade territory -- the former by Fitch in the beginning of April and the latter by S&P last week -- and investors expect both countries to get more upgrades from other rating agencies soon.

"There is talk in the market that Fitch is about to upgrade Brazil to investment-grade status," said Andrew Brenner, senior vice president at MF Global in New York.

With investment-grade classification by two ratings agencies, Brazil's bonds would be added to the benchmark Lehman Aggregate Bond index, creating an additional demand of $10 billion to $20 billion for the securities, Brenner estimates.

While Moody's has said Brazil's high public debt is the main constraint for an upgrade, Fitch advised last week that the country's ratings are currently under "active review."

Fitch still has a stable outlook on Brazil's ratings, but that would not stop it from upgrading the country right away, the same way it lifted India to "BBB-" from a stable "BB+" rating in August, 2006.

Peru is also about to get its second investment-grade credit rating, this time from S&P, Prime Minister Jorge del Castillo told congress this week, adding that he had a meeting with S&P representatives on Thursday.