The Canadian ratings agency DBRS on whose benign rating Portugal’s government relies to keep the treasury from a hike in bond rates, has looked at the Caixa Geral refinancing deal is not overwhelmed with confidence.
Part of the refinancing agreed with the European commission is for €1 billion to be raised from individual investors in a debt issue that given the creditors zero rights if the bank goes bust. This sum is but part of the €4.6 billion Caixa Geral requires to keep going.
To attract this unsecured money from the public, Caixa Geral is looking at offering interest rates of between 4% and 8% - a reflection of the risk to investors with base rates barely above zero and the bank's current savings plan offering just 0.8%.
DBRS sovereign ratings chief Fergus McCormick commented that he needs to see how much of the billion is subscribed to before reassessing Portugal’s rating.
McCormick is well aware that until the parliamentary commission of inquiry has reported its findings, Caixa's past corrupt activities will depress the bank's image while the markets remain keen to know what the status of Caixa's loan book really looks like.
The rating agency is the only one of the big four that continues to give Portugal an investment grade rating which is essential for international confidence an access to the ECB’s ‘asset purchase’ programme which keeps borrowing rates low.
In an interview with Reuters, McCormick commented, "The proposal from the Ministry of Finance to recapitalise Caixa Geral do Depósitos is an important demonstration of its efforts to clean up the banking system. However it is important to assess the level of investor appetite for the issue of €1 billion of debt that Caixa plans to launch. Until we know, it will be difficult to assess the impact on the level of debt of the public sector."
All comments from DBRS are being scrutinised at the moment as DBRS is reassessing the country’s credit rating on 21 October.
In a statement published late last Thursday, analyst David Schnautz from Commerzbank said "it will be very interesting to see how the recapitalisation agreement compares with the assumptions of the rating agencies."
The analyst points out that "there are fears that this may not be the last chapter with regard to bank recapitalisation in Portugal."
Therefore, the German bank recommends investors take a cautious attitude towards investing in Portuguese debt.
