Five-and-a-half years after categorising Portugal’s credit rating as ‘junk’, Standard & Poor’s has surprised the market and lifted the country off the bottom rung to an improved ‘BBB-‘ rating.
For the first time since January 2012, Portugal has two credit rating agencies that rate Portugal’s changes of survival and improvement as above 'lousy.'
The Canadian agency, DBRS, is the one that always has been slightly more positive about Portugal than its competitors which has enabled the treasury to access vital European Central bank finance to keep Portugal's public finances from collapsing.
The surprise announcement by Standard & Poor’s late on Friday shook analysts who were expecting no change from the BB+ rating but possibly with a change from ‘stable’ to ‘positive.’
Standard & Poor's decided to shift the rating without first changing the outlook from ‘stable’ to ‘positive’ as is traditional - this is what Moody’s and Fitch have done with analysts anticipating a rating rise in the not too distant future as Portugal’s economy improves, despite its borrowings rocketing.
In a note, Standard & Poor's justified its ratings upgrade decision on "improvements in the performance of the economy and a better perspective on the evolution of public finances."
The agency expects the economy to grow 2.8% this year and 2.3% by 2018.
For the government, this is excellent news just two weeks before the local council elections as the Socialist Party rightly can claim to be in command of a booming economy with record tourism receipts, stronger exports and lower unemployment.
Having one more agency assign a rating above "junk" should be the key to the door of international funding at competitive interest rates as institutional investors may again be allowed to buy Portuguese government bonds.
According to Diogo Teixeira, CEO of Optimize Investment Partners, commenting before today's S&P news was relased, "This rating upgrade would be really important amid the possible ending of quantitative easing. It would allow a larger group of investors to consider Portugal's debt in their portfolio selection. Otherwise, Portugal risks suffering a substantial increase in financing costs."
