CENTRAIS ELETRICAS BRASILEIRAS S.A. Research Update:
Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
April 7, 2020
Rating Action Overview
- Brazil's GDP growth and fiscal performance will suffer in 2020 due to the COVID-19 pandemic and extraordinary government spending.
- As a result, on April 6, 2020, S&P Global Ratings revised the outlook on the sovereign rating on Brazil to stable from positive, and affirmed its 'BB-' global scale and 'brAAA' national scale ratings.
- In our view, many Brazilian corporate and infrastructure ratings would experience credit stress in a scenario of a sovereign default. Therefore, we cap many ratings at the sovereign level or at a maximum of up to four notches above this ceiling.
- Consequently, on April 7, 2020, we revised our outlook to stable from positive on 29 Brazilian companies and one Peruvian company.
Rating Action Rationale
On April 6, 2020, we revised our outlook on Brazil to stable from positive, which reflects diminishing prospects for an upgrade over the coming year due to the negative impact of the COVID-19 pandemic on the economy. We expect Brazil's GDP growth and fiscal performance to suffer in 2020 due to the pandemic and extraordinary government spending, before gradual economic recovery and fiscal consolidation resumes. We also assume slower-than-expected progress on the reform agenda to address structural fiscal vulnerabilities and to improve low medium-term GDP growth prospects.
The global scale 'BB-' rating on Brazil limits a large number of corporate and infrastructure ratings because of our belief that in an event of sovereign default, many of these entities would experience credit stress too.
Issuers capped at the sovereign level (BB-)
The sovereign rating limit adopts various forms for our rated portfolio of Brazilian corporations. We cap a large number of rated Brazilian entities at the 'BB-'long-term foreign currency sovereign
PRIMARY CREDIT ANALYSTS
Flavia M Bedran
Sao Paulo
+ 55 11 3039 9758
flavia.bedran
@spglobal.com
Luisa Vilhena
Sao Paulo
(55) 11-3039-9727
luisa.vilhena
@spglobal.com
Wendell Sacramoni, CFA
Sao Paulo
(55) 11-3039-4855
wendell.sacramoni
@spglobal.com
Marcelo Schwarz, CFA
Sao Paulo
(55) 11-3039-9782
marcelo.schwarz
@spglobal.com
SECONDARY CONTACTS
Diego H Ocampo
Buenos Aires
(54) 114-891-2116
diego.ocampo
@spglobal.com
Julyana Yokota
Sao Paulo
+ 55 11 3039 9731
julyana.yokota
@spglobal.com
See complete contact list at end of article.
www.spglobal.com/ratingsdirect | April 7, 2020 1 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
rating. These issuers have intrinsic credit qualities (or stand-alone credit profiles [SACPs]) stronger than 'bb-', but the final ratings on them are, by virtue of the sovereign limit, 'BB-'. Thus, the outlook revision to stable on the sovereign led us to revise the respective outlooks on these entities back to stable too.
This group includes all regulated utilities that we cap by the sovereign given their inherent exposure to the regulatory framework in the country. Also in this group are companies that don't pass our liquidity stress test in a hypothetical sovereign distress scenario:
- Camil Alimentos S.A.
- CESP-CompanhiaEnergetica de Sao Paulo
- Cosan S.A.
- Cosan Ltd.
- Cosan Lubrificantes e Especialidades S.A.
- Cyrela Brazil Realty S.A. Empreendimentos e Participacoes
- Rede D'Or Sao Luiz S.A.
- MRS Logistica S.A.
- EDP Espirito Santo Distribuicao de Energia S.A.
- Neoenergia S.A.
- Companhia de Eletricidade do Estado da Bahia
- Companhia Energetica de Pernambuco (CELPE)
- Companhia Energetica do Rio Grande do Norte
- Energisa S.A.
- Energisa Sergipe-Distribuidora de Energia S.A.
- Energisa Paraiba-Distribuidora de Energia S.A.
- Transmissora Alianca de Energia Eletrica S.A.
Issuers with ratings limited to one to four notches above the sovereign
These entities have a number of credit strengths that, in our opinion, would somewhat insulate them from a potential sovereign stress. In this group, we have a wide array of entities, from companies with assets and clients mostly in Brazil but that have very low leverage (generally the weaker SACPs in this group), to companies with a global footprint or that are export-oriented with demand that doesn't correlate to Brazil's economy (the strongest SACPs in this group).
We limit some ratings in this group--generally the highest--at one or two notches above Brazil's transfer and convertibility assessment (T&C, currently at 'bb+'), which is our assessment of the likelihood of the country imposing currency controls. Because the T&C assessment of a sovereign correlates with the sovereign rating, we assume that in a scenario of a sovereign upgrade, we would also upgrade the T&C assessment accordingly.
The lower chance of a rating change at the sovereign level is therefore mirrored in these entities' stable outlooks:
- Ache Laboratorios Farmaceuticos S.A.
www.spglobal.com/ratingsdirect | April 7, 2020 2 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
- Ambev S.A.
- Globo Comunicacao e Participacoes S.A.
- Ultrapar Participacoes S.A.
- Raizen Combustiveis S.A. and Raizen Energia S.A., jointly referred to as Raizen S.A.
- Votorantim S.A. and its subsidiaries (Votorantim Cimentos S.A.; Nexa Resources S.A. and Nexa Resources Peru S.A.A.)
The outlook change on Votorantim S.A. triggers the same action on Votorantim Cimentos S.A., Nexa Resources S.A., and its core Peruvian subsidiary, Nexa Resources Peru S.A.A., because of our view of group support in a stress scenario.
Government-owned entities
Finally, we revised the outlooks to stable on two government-owned entities we rate in Brazil:
- Eletrobras-CentraisEletricas Brasileiras S.A.
- Petroleo Brasileiro S.A. - Petrobras
National scale ratings
Finally, we have revised the outlook on the national scale rating on Ultrafertil S.A. to stable from positive.
We'll keep monitoring credit conditions and each sector's response to the coronavirus pandemic in the following weeks. Additionally, as information becomes available, we will test these entities' sensitivity to the updated economic conditions, which could potentially alter our conclusions on sovereign rating limits and the ratings.
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
www.spglobal.com/ratingsdirect | April 7, 2020 3 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related Research
- Brazil Outlook Revised To Positive On Prospects For Sustained Fiscal Improvements; 'BB-/B' Ratings Affirmed, Dec. 11, 2019
Ratings List
Ratings Affirmed; Outlook Action
To | From | |
Ache Laboratorios Farmaceuticos S.A. | ||
Issuer credit rating | BB+/Stable/-- | BB+/Positive/-- |
Ambev S.A. | ||
Issuer credit rating | BBB/Stable/-- | BBB/Positive/-- |
Camil Alimentos S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
CESP - Companhia Energetica de Sao Paulo | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Cosan Ltd. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Cosan Lubrificantes e Especialidades S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Cosan S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Cyrela Brazil Realty S.A. Empreendimentos e Participacoes | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
EDP Espirito Santo Distribuicao de Energia S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Eletrobras - Centrais Eletricas Brasileiras S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Energisa S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Energisa Paraiba - Distribuicao de Energia S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Energisa Sergipe - Distribuicao de Energia S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Globo Comunicacao e Participacoes S.A. | ||
www.spglobal.com/ratingsdirect | April 7, 2020 4 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
Ratings Affirmed; Outlook Action
To | From | |
Issuer credit rating | BB+/Stable/-- | BB+/Positive/-- |
MRS Logistica S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Neoenergia S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Companhia de Eletricidade do Estado da Bahia | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Companhia Energetica de Pernambuco (CELPE) | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Companhia Energetica do Rio Grande do Norte | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Petroleo Brasileiro S.A. - Petrobras | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Raizen Energia S.A. | ||
Issuer credit rating | BBB-/Stable/-- | BBB-/Positive/-- |
Raizen Combustiveis S.A. | ||
Issuer credit rating | BBB-/Stable/-- | BBB-/Positive/-- |
Rede D'Or Sao Luiz S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Transmissora Alianca de Energia Eletrica S.A. | ||
Issuer credit rating | BB-/Stable/-- | BB-/Positive/-- |
Ultrafertil S.A. | ||
Issuer credit rating | ||
National scale | brAA/Stable/-- | brAA/Positive/-- |
Ultrapar Participacoes S.A. | ||
Issuer credit rating | BB+/Stable/-- | BB+/Positive/-- |
Nexa Resources S.A. | ||
Issuer credit rating | BB+/Stable/B | BB+/Positive/B |
Nexa Resources Peru S.A.A. | ||
Issuer credit rating | BB+/Stable/-- | BB+/Positive/-- |
Votorantim Cimentos S.A. | ||
Issuer credit rating | BBB-/Stable/-- | BBB-/Positive/-- |
Votorantim S.A. | ||
Issuer credit rating | BBB-/Stable/-- | BBB-/Positive/-- |
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating
www.spglobal.com/ratingsdirect | April 7, 2020 5 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
www.spglobal.com/ratingsdirect | April 7, 2020 6 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
Contact List
PRIMARY CREDIT ANALYST | PRIMARY CREDIT ANALYST | PRIMARY CREDIT ANALYST |
Flavia M Bedran | Luisa Vilhena | Wendell Sacramoni, CFA |
Sao Paulo | Sao Paulo | Sao Paulo |
+ 55 11 3039 9758 | (55) 11-3039-9727 | (55) 11-3039-4855 |
flavia.bedran@spglobal.com | luisa.vilhena@spglobal.com | wendell.sacramoni@spglobal.com |
PRIMARY CREDIT ANALYST | SECONDARY CONTACT | SECONDARY CONTACT |
Marcelo Schwarz, CFA | Diego H Ocampo | Julyana Yokota |
Sao Paulo | Buenos Aires | Sao Paulo |
(55) 11-3039-9782 | (54) 114-891-2116 | + 55 11 3039 9731 |
marcelo.schwarz@spglobal.com | diego.ocampo@spglobal.com | julyana.yokota@spglobal.com |
SECONDARY CONTACT | SECONDARY CONTACT |
Luciano D Gremone | Candela Macchi |
Buenos Aires | Buenos Aires |
(54) 114-891-2143 | (54)-11-4891-2110 |
luciano.gremone@spglobal.com | candela.macchi@spglobal.com |
www.spglobal.com/ratingsdirect | April 7, 2020 7 |
Research Update: Outlook On 29 Brazilian Corporations Revised To Stable From Positive On Same Action On Sovereign
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