KBRA Assigns BBB/K2 Ratings to Portuguese Republic

DUBLIN--()--Kroll Bond Rating Agency Europe Limited (KBRA Europe) assigns a BBB issuer rating to the Portuguese Republic. KBRA also assigns K2 short-term issuer ratings to the sovereign. The ratings carry a Stable Outlook. The sovereign credit report is available here.

 
Ratings
        Rating       Outlook       Action
Foreign Currency Sovereign Rating - Long Term       BBB**1       Stable       Assigned
Local Currency Sovereign Rating – Long Term       BBB**1       Stable       Assigned
Foreign Currency Sovereign Rating – Short Term       K2**1               Assigned
Local Currency Sovereign Rating – Short Term       K2**1               Assigned
                 

Main credit support factors:

  • EU and Euro Area membership underpins institutional strengths.
  • Improved economic structure as characterized by the growing importance of exports, efficiency and competitiveness gains, and increased participation in global value-added chains.
  • Government commitment to fiscal discipline is strong.
  • Active debt management has reduced refinancing risks and substantially strengthened the government debt profile.
  • Structural improvements in the external accounts.

Main credit concerns:

  • The elevated government debt burden limits fiscal flexibility and renders the country vulnerable to shocks.
  • Economic and income convergence to the EU average has stalled post-crisis, although is now accelerating.
  • Potential growth is constrained by structural rigidities, regulatory burdens and demographic pressures.
  • Portugal’s sizeable net international investment position imbalance of over 100% of GDP leaves the economy vulnerable to financing risks.
  • Remaining weaknesses in the banking sector mean further fiscal support (limited by the EU regulatory and competition framework) cannot be fully ruled out.

The sovereign ratings on the Portuguese Republic are supported by the country’s high degree of economic development, institutional strengths which have been further underpinned by EU and Euro area membership and the government’s strong post-crisis economic management. The primary rating constraints relate to the elevated government debt burden which limits fiscal flexibility, the moderate rate of potential growth, a high level of economy-wide debt as reflected in the large negative net international investment position and banking sector weaknesses.

The ratings are based on KBRA’s Sovereigns Rating Methodology published on 10 May 2017. Weights used for assigning these ratings are described in the methodology used for this credit rating action.

Disclosures

Further disclosures relating to this rating action are available in the EU Information Disclosure Form. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

This is an unsolicited rating. The rated entity or related third party did participate in the rating process and KBRA did not have access to the accounts and other relevant internal documents.

Related Publications: (available at www.kbra.com)

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

KBRA
Analytical:
Alan Madden, Director (Lead Analyst)
+353 (1) 669-2683
amadden@kbra.com
or
Joan Feldbaum-Vidra, Managing Director (Rating Committee Chair)
+1 (646) 731-2362
jfeldbaumvidra@kbra.com
or
Van Hesser, Senior Managing Director
+1 (646) 731-2305
vhesser@kbra.com

Contacts

KBRA
Analytical:
Alan Madden, Director (Lead Analyst)
+353 (1) 669-2683
amadden@kbra.com
or
Joan Feldbaum-Vidra, Managing Director (Rating Committee Chair)
+1 (646) 731-2362
jfeldbaumvidra@kbra.com
or
Van Hesser, Senior Managing Director
+1 (646) 731-2305
vhesser@kbra.com