MercoPress. South Atlantic News Agency

Credit ratings remain reluctant to award Uruguay ‘investment grade’

Minister Lorenzo complained rating agencies are ignoring markets

Credit rating agencies believe that in spite of the successful management of its sovereign debt Uruguay still has some issues to improve before investment grade is awarded. Moody’s has promised to visit Uruguay at the beginning of next year to assess those conditions.

“In late January or early February a delegation of top officials from Moody’s will be visiting Uruguay to see ‘in situ’ all the elements of the Uruguayan economy and decide if it merits a return to investment grade, which the country lost in 2002 when the major crisis”, said Mauro Leos, Moody’s senior analyst for Latin America.

“The crucial question is if there are enough elements to ensure Uruguay has the capacity even in tough times to emerge with minimum risks”, added Leos.

Leos underlined the “important result” of the latest operation with a new bond issue and swaps basically repurchasing sovereign bonds in dollars and Euros maturing between 2013 and 2022, valued at just over a billion dollars plus the swap of 724 million dollars in UI (Indexed Units) maturing in 2018 for another maturing in 2028.

“This is evidence of the Uruguayan government zeal in improving the profile of the country’s debt both in the mix and maturing dates”, said Leos

Of over 100 countries certified by Moody’s Uruguay is the one that has on average the longest debt maturing age, 12.2 years and is “an element which shows the degree of flexibility to manage financial obligations, particularly in volatile market conditions; there has been a fiscal commitment to complete the operation” added Moody’s analyst.

“What we need now to define is if all these elements give us a profile sufficiently robust in spite of the limitations in the Uruguayan case, to confront an adverse global financial scenario”, added Leos who recalled that Moody’s has the country’s debt rated with a “stable prospect”.

On Monday on announcing the results of the swap operation of almost 1.75 billion dollars Uruguayan Economy minister Fernando Lorenzo again complained that it was time for credit rating agencies to assess advances achieved as “markets acknowledge and any analyst can confirm”.

Besides Moody’s four other agencies rate Uruguayan debt: Fitch, Standard & Poor’s; DBRS and R&I. For the first three Uruguay’s credit rating is one step below investment grade while DBRS and R&I are two below.

Erich Arispe from Fitch said that contrary to Brazil and Peru that have investment grade, Uruguay still is not an international creditor because it does not have the level of international reserves of these two countries, “although growing and comparable”.

Another issue is inflation which remains “a bit too high”

Michael Heydt from DBRS said that Uruguay still needs a significant reduction of its public debt and relevant progress in consolidating monetary policy, which would help to mitigate external shocks”.

On Monday the Uruguayan government announced that the percentage of public debt in Pesos had increased from 40% to 46.6% as well as the maturing period from 11 to 12.2 years while at the same time reducing payment towers in 2016, 2017 and 2018.

Uruguay invested 1.004 billion dollars in re-purchasing A bonds dollar nominated maturing 2013, 2014, 2015, 2017 and in Euros corresponding to years 2012, 2016 and 2019; likewise with 2022 dollar-bonds coming up in 2025, 2027, 2033 and 2036. The whole operation is estimated to have had a cost of almost 21 million dollars.

However not everybody is convinced of the opportunity for the swap, since Uruguayan currency refers to the UI which adjust automatically every day for inflation with bonds yielding a 4.2% interest.

The Uruguayan peso as the Brazilian Real and the Chilean have appreciated strongly against the US dollar in the last few years, with prospects confirmed by the Fed of low rates for at least the next two years.

However the flattening or reimbursements and the average 12.2 year maturity period are a good framework for domestic politics.