Fitch Positive on Sabesp Rating

Fitch has raised the outlook on Brazil’s Sabesp’ BB rating to positive from stable, including $140m in notes and BRL900m in debentures. “The positive outlook reflects Sabesp’s improvements in its credit protection measures and the expectation of a more stable regulatory environment in the coming years with the consolidation of the requests introduced by the new sector legislation,” says the agency. Upgrade would depend on Sabesp maintaining its credit protection at levels compatible with a better risk classification, notwithstanding a more aggressive investment program beginning in 2008, says Fitch. It is also monitoring advances in signing service contracts with important municipalities and greater clarity regarding future rate adjustments. “Fitch also would like to see the company resolve its probable need for increased resources, especially in 2009, and the definition of the possible acquisition of EMAE – Empresa Metropolitana de Aguas e Energia – including price and payment conditions, if it is concluded,” it adds. Fitch also notes an increase in investment and need to roll over part of the maturities next year. Some BRL500m may be needed from capital markets next year. “Debt in foreign currency totaled BRL1.4bn and the company does not have protection against this exposure,” adds Fitch.