Rating downgrade for four Portuguese utilities

Portuguese utilities relegated to junk status

Standard & Poor’s has cut the ratings of four Portuguese state-owned utilities to junk status, saying government support for the companies could be limited by the country’s sovereign debt difficulties.

The decision highlights the spread to state-owned companies of Portugal’s government debt problems, which have already frozen the country’s banks out of international capital markets.

S&P cut the ratings of Rede Ferroviária Nacional, the railway infrastructure utility, Comboios de Portugal, the national train operator, Metropolitano de Lisboa, which run the Lisbon Metro, and Parpública, a state holding company.

The agency downgraded the long-term ratings of Refer, CP and Metro from BBB to BB and Parpública from BBB to BB+, placing them all below the lowest investment grade rating.

The high reliance of Refer, CP and Metro on government support “increases the risk of them not finding a rapid solution to their short-term debt burdens”, S&P said

The cuts were triggered by a reassessment of the “likelihood of timely and sufficient extraordinary support” from the government from “extremely high” to “very high”, the agency added.

Government support for distressed state-owned companies was “increasingly constrained by difficult financial conditions”. This was also reflected in the “weak access” of Portuguese banks to external funding, S&P said.

According to the central bank, Portuguese banks have not succeeded in making any international debt issues since April 2010.

S&P said it also believed the Lisbon government had “in some instances, prioritised its own access to the market before” state companies.

According to bankers, Refer decided in recent weeks not to go ahead with a €500m syndicated bond after a five-year Portuguese government bond syndication traded poorly in the secondary markets.

S&P also placed the four companies on negative ratings watch, implying they could be further downgraded in the coming months.

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