Brazil merits investment grade ratings

Rudy Martin | 2008-05-05

This week's ratings upgrade for Brazil certifies that Brazil is the leading economy in Latin America. Next on the docket are more debt capital issuances - especially from the larger corporations. This may well have a positive spillover effect into other Latin issuers too.

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Latin American bourses recorded healthy intraday growth at close of trade on May 2, 2008—all major indices closing at higher level. Average weekly volume and turnover across major markets, such as Argentina, Brazil and Mexico, were higher relative to the previous day. Brazil's Bovespa index posted its second straight record, returning 2.2%. The growth was supported by the northward movement in retail and banking sector indices and speculation that the cost of borrowing would fall in reaction to S&P's decision to give Brazil an investment grade credit rating.

Company News

• Perdigao S.A. led the pack, gaining 5.4% percent for the day. Gerdau S.A., Companhia Vale do Rio Doce, Companhia Energetica de Minas Gerais, and Gafisa S.A. also figured in the top five list.

• Ericsson AB, the world's largest manufacturer of wireless networks, bagged an order to supply maintenance services for about 3,800 transmission networks owned by Telcel, America Movil S.A.B's subsidiary in Mexico.

• Petrobras Brasileiro S.A. exported a record 532,000 barrels/day (bpd) from Brazil, taking the total for April 2008 to 15.965 mn barrels. This exceeded the previous record (484,000 bpd in November 2006).

• The government has proposed to cancel the U.S. Bureau of Land Management’s mining contract with Cemex S.A.B. de C.V. in Los Angeles County. Cemex is likely to receive up to 8,000 acres of Federal land near Victorville against this contract. An additional 3,000 acres have been set aside in case the value of these mining contracts is higher-than-estimated.

General News

• Standard & Poor’s decision to give Brazil an investment grade was largely influenced by the higher-than-estimated hike in interest rate by the central bank. Brazil’s long-term foreign currency debt rating was raised to BBB- on April 30.

• Bolivian President Evo Morales nationalized Entel, the country’s leading Telecommunications Company. He also announced plans to return three companies – Gas Production Company Chaco, Pipeline Company Transredes, and German & Peruvian-owned distribution company CLBH – to state control.

• Venezuela’s Oil & Energy Ministry plans to invest US$3.7 bn in new power projects through 2011. The investments aim to add 5.075 GW of new capacity yearly until 2011 and 1.0 GW 2012 onwards. Investments in transmission projects would aggregate US$625 mn.