Brazil’s ‘junk’ status may hit India, but not much

DILMA’S DILEMMA S&P downgrades country’s rating over inability to control debt, could affect payments of Indian cos

Brazil’s ratings downgrade by US-based Standard & Poor’s ( S& P) may not have a major impact on Indian companies which have exposure in the country, although subsequent developments could affect payments from there.

S&P’s ratings downgrade to ‘junk’ investment status comes seven years after Brazil earned its investment grade status in 2008. The agency lowered longterm foreign and local currency ratings on Brazil to ‘BB+’ and ‘BBB-’ respectively. “The political challenges Brazil face have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to the Congress, consistent with significant policy correction signalled during the first part of President Dilma Rousseff ’s second term,” it said.

Several Indian companies, especially in pharma, energy and sugar sectors, are present in the South American country. While pharma companies having sizable exposure to Brazil, includ- ing Cadila Pharma, Glenmark Pharma and Torrent Pharma, others such as Lupin Pharma and Sun Pharma generate 2-3% of their revenues from the south American nation.

Almost 13% of Torrent’s revenues and 5% of Glenmark’s in 2014-15 came from Brazil. These companies typically operate in the generic medicine space.

Analysts said for Indian firms, although a ratings downgrade would hit further loan offtake and realisation of payments from local Brazilian vendors, the impact would be “very limited.”

“Junk rating doesn’t mean that Brazil would default on international obligations. Only, few isolated vendors could delay payments, so Indian companies need to ensure to whom they are supplying their goods,” said Sujay Shetty, head, pharmaceuticals and lifesciences, Price water house Coopers India.

Indian energy companies with substantial investments in Brazil include ONGC Videsh Ltd (OVL), Videocon Industries and Bharat Petroleum.