All major ratings agencies expected to agree on critical upgrade
After 13 years, Portugal should once again be rated at ‘A’ level by all the financial rating agencies. Analysts are expecting Standard&Poor’s rating increase as early as tomorrow.
Standard&Poor’s (S&P) is scheduled to assess Portugal’s sovereign debt on Friday, after maintaining the country’s rating at ‘BBB+’ in its last assessment in September last year but upgrading the outlook from ‘stable’ to ‘positive’.
Analysts consulted by Lusa believe that Portugal’s rating will rise, considering that the legislative elections in just over a week’s time should not harm the assessment.
If the upgrade materialises, S&P will bring the assessment into line with the other three main international rating agencies, which last year took the country out of the ‘B’ levels and put it back into the ‘A’ levels (within the ‘A’ level, the scales vary between A-/A/A+ and A1/A2/A3).
Before the Troika’s intervention in Portugal in 2011, the four agencies all rated Portugal’s sovereign debt at ‘A’ level. They cut their ratings drastically after the request for a €79 billion bailout.
It then took seven years for the country to move out of “junk” ratings, and now, after 13 years, the trajectory of debt reduction is the main justification for agencies returning the country’s risk to ‘A’ level.
This is a crucial rating, as it allows Portugal to finance at lower costs.
“Portugal has managed to reduce its debt load while maintaining a trajectory of economic growth, factors that could positively influence a possible rating review” by S&P on Friday, Banco Carregosa’s Investment Director, Filipe Silva, told Lusa.
For Filipe Garcia, president of IMF – Informação de Mercados Financeiros – “the agency should emphasise the very good evolution of public accounts, with a significant reduction in the weight of debt/Gross Domestic Product (GDP) and better economic activity compared to the eurozone average, leading to an improvement in the fiscal position”.
Garcia emphasised that “in addition, country risk has been falling consistently“, giving the example that “taking the spread against Germany for a 10-year maturity as a reference, Portugal ‘pays’ 65 basis points more than Germany, the lowest level in more than two years”.
“It’s also a spread that compares very favourably with other eurozone issuers”.
Analysts consulted have also downplayed the impact of S&P’s planned assessment in the midst of an election campaign.
“The approach of the parliamentary elections has not had an impact on Portuguese debt,” said Garcia, arguing that “the market’s perception is that all possible government solutions will continue to aim to follow the path of having at least balanced budgets and trying to reduce the debt/GDP weight.”
“This could be a factor, but it shouldn’t prevent the rating from going up,” he added.
DBRS currently rates Portuguese debt at ‘A’, with a stable outlook; Fitch at ‘A-‘, with a stable outlook; and Moody’s at ‘A3’, with a stable outlook.
The rating is an assessment given by financial rating agencies, with a major impact on the financing of countries and companies as it evaluates credit risk.
The rating agencies’ timetables are merely indicative, and they may choose not to give an opinion on the scheduled dates or to go ahead with an unscheduled assessment.
Lusa
