SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)--
Fitch Ratings has affirmed the Brazilian State of Maranhao's ratings at
'BB+'. The agency has also affirmed the state's national long-term
rating at 'AA-(bra)'. The Rating Outlook is Stable.
KEY RATING DRIVERS
The State of Maranhao's ratings affirmation considers the stagnant
fiscal performance of the state through the cycle, as observed in other
Brazilian subnationals. The ratings are also based on the state's modest
economic base, counterbalanced by a high volume of federal transfers.
Despite growing relatively faster than Brazil, Maranhao's GDP
corresponds to less than 2% of Brazil's. Federal transfers accounted for
a high 51.1% of the state's operating revenues in 2013 (58% in 2012),
denoting a below average fiscal autonomy.
After peaking at 18.4% in 2011, Maranhao's operating margin was affected
negatively by a lower amount of federal transfers in 2013 and sank to
9.3%. This is moderately higher than other Brazilian subnationals. Fitch
believes operating margins should be above 10% in the years following
sustainable growth in proprietary tax collections and the state's
capability of managing expenditures, even considering the high social
Urbanization and sanitation rates compare very poorly with other states
in Brazil, demanding high and continued investments. With marginal
improvements since June 2013, education and law enforcement indicators
are still below Brazil's, pressuring personal expenditures. Fitch
expects some enhancements in the medium term when investment plans are
The 'Viva Maranhao' is the state's BRL3.8 billion (USD1.7 billion)
infrastructure investment program. Still, project execution is slow as
only 6% is under progress to date. The main projects in the program are
related to city road integration, healthcare and sewage. Total private
investments pipeline should gradually mature to reach BRL101.4 billion
(USD42.2 billion) by 2020, and as of May 2014, roughly 27% of this
amount has been completed.
Maranhao holds a moderate debt burden; in 2013, financial debt was 4.5
years of the current balance following an external credit operation with
a private foreign bank to refinance a major portion of the federal debt.
As a result, external debt was 61.1% of total debt and is fully
guaranteed by the Federal Government. As a prudent measure, the state
has constituted a reserve for principal payments.
Maranhao's pension plans are managed by Fundo Estadual de Pensao e
Aposentadoria (FEPA). The consolidated actuarial deficit totaled BRL19.7
billion in 2013, corresponding to 1.8 years of the state's operating
revenues. The relatively moderate deficit also is explained by the fact
the state contributes 15% of the consolidated payroll, which is higher
than other states in Brazil. In 2013, pension-related expenditures were
12% of operating expenditures and should marginally increase in 2014.
Fitch has affirmed the State of Maranhao's ratings as follows:
--Foreign Currency long-term Issuer Default Rating (IDR) at 'BB+';
--Foreign Currency short-term IDR at 'B';
--Local Currency long-term IDR at 'BB+'; Outlook Stable
--Local Currency short-term IDR at 'B';
--National long-term rating at 'AA-(bra)'; Outlook Stable
--National short-term rating at 'F1+(bra)'.
Upgrade Factors: Although not likely in the short term, Fitch would
consider a positive rating action should Maranhao increase its
importance nationwide and tax autonomy to levels comparable with the
south and southern states of Brazil.
Downgrade Factors: A downgrade would be warranted if operating margins
consistently fall below 10%.
Maranhao is located in the Northeast region of Brazil. With an estimated
Gross Domestic Product of BRL61.5 billion, the state is the 16th largest
state in Brazil with a privileged geographic position for exports.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'International Local and Regional Governments Rating Criteria (Outside
the United States)' (April 2014).
Applicable Criteria and Related Research:
International Local and Regional Governments Rating Criteria - Outside
the United States
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Source: Fitch Ratings