Skip to main content

Advertisement

Advertisement

Singapore firms with Brazil exposure hit after S&P downgrade

SINGAPORE — Singapore companies with revenue exposure or investment plans in Brazil fell after ratings agency Standard & Poor’s downgraded the country to junk rating, citing mounting political problems that have muddled economic policy. Moody’s Investors Service also downgraded Brazil less than a month ago to the brink of junk.

SINGAPORE — Singapore companies with revenue exposure or investment plans in Brazil fell after ratings agency Standard & Poor’s downgraded the country to junk rating, citing mounting political problems that have muddled economic policy. Moody’s Investors Service also downgraded Brazil less than a month ago to the brink of junk.

About 55 Singapore companies operate in Brazil, spanning across various sectors including education services, food products, oil and gas, logistics, commodities trading, infrastructure and environmental services and info-communications technology, according to IE Singapore’s website. Singapore’s direct investment in Brazil amounted to US$625 million (S$885 million) as of end-2013.

Sembcorp Industries plunged 3.4 per cent at the end of trading yesterday, Global Logistic Properties fell 2.4 per cent, Noble Group lost 3.8 per cent while Wilmar fell 3.4 per cent and Sembcorp Marine lost 1.2 per cent. The Straits Times Index ended 1.4 per cent lower.

S&P downgraded Brazil’s credit rating one step to BB-plus, from BBB-minus, it said in a statement late Wednesday. That means that it will be far more expensive for Brazil to tap international credit markets and much investor money will be pulled from the nation.

Latin America’s biggest economy now stands at the same rating level as Russia, Hungary and Indonesia, according to S&P.

S&P warned less than two months ago that a downgrade was possible, but the unusually fast move underscores how quickly Brazil’s economy and public finances have deteriorated since then. The outlook on the new rating remains negative, which means additional downgrades are possible in the near term.

Brazil first won its investment-grade credit rating in 2008 and the S&P downgrade is a major setback for President Dilma Rousseff, who is trying to regain investors’ trust and pull Latin America’s largest economy out of recession.

When Brazil first got the coveted investment-grade stamp from S&P, after decades of financial volatility, it was considered a star among developing nations.

Leveraging soaring export and tax revenues at the time, the ruling Workers’ Party broadened generous social welfare programs and encouraged lending by public banks, fuelling a prolonged consumer boom. Combined, the measures lifted 40 million people out of poverty.

Once Ms Rousseff took office in 2011, however, the economy began to slow down sharply, and last quarter it officially entered a recession, shrinking 2.6 per cent.

The economy has also been weighed down by a massive corruption scandal at state-run oil firm Petroleo Brasileiro, freezing many infrastructure investments.

Brazil’s currency, the real, has lost a third of its value this year and the inflation rate has jumped to almost 10 per cent.

S&P said on Wednesday its decision was based on the mounting political problems that have muddled economic policy.

These problems, S&P said, have been weighing on the government’s “ability and willingness” to submit a 2016 budget consistent with the significant policy fixes Ms Rousseff promised after she won re-election last year.

Finance Minister Joaquim Levy responded by saying the government would in the coming weeks send to Congress proposed savings measures to guarantee a primary budget surplus in 2016 — a reversal from late last month in which Ms Rousseff proposed a budget that forecast a deficit. With agencies

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.