Brazil: Outlook and Corporate RatingsLuiz Tess , Diretor Geral – BrazilMarianna Waltz, Associate Managing Director – LATAM Corporate Finance

ABRIL 2014

ContentI. Moody’s Local Presence in Latin America and Brazil» Brazil’s sovereign rating history

1. A challenging environmentg g» Post QE and tighter funding conditions for LatAm

» Brazil: below-trend growth, high inflation and negative investor sentiment

2 Brazil: credit quality still holds2. Brazil: credit quality still holds» Sovereign considerations

» Adequate liquidity and debt profile, but expansion plans could be hurt

» Sector overview: mixed trends

2Abril 2014

IMoody’s Local Presence in Latin I America and BrazilI

3Abril 2014

Moody’s Presence in Latin America and Brazil» 3 Moody’s subsidiaries in the region, fully recognized by local regulators

» Mexico City, Mexico (covering Northern Latin America – Mexico, Central America, Venezuela & Colombia)

» Buenos Aires, Argentina (covering Southern Cone and Andean Countries ex-Colombia)

» São Paulo, Brazil

» Moody’s in Brazil: 55 full time employees in two legal entities» Moody’s Analytics: Software, Quantitative Advisory Services & Research in Financial Risk

Management;

» Moody’s América Latina Ltda: CVM registered Rating Agency established in 1997

» Analytical Staff of 25 Analysts and Associate Analysts

» > 260 rating relationships with Corporates, Banks, Insurance Companies, InfrastructureCompanies, Project Finance Issuers, Regional Governments and Issuers of Asset BackedSecurities.

4Abril 2014

» Leading Provider of Asset Management Quality Assessments

Latam Sovereign Credit Quality has Strengthened

LatAm 5 Ratings History

Government of Brazil: LT Issuer Rating (2000 – 2014)

5Abril 2014

Source: Moody’s

A Challenging Environment1 A Challenging Environment1

6Abril 2014

Fed’s QE led to abnormally positive conditions» Quantitative Easing evolved along 3 stages - QE1, QE2, and QE3 - over the last 5 years

» Under the latest, the Fed’s open-ended bond purchases reached $85 billion per month

» QE led to: (1) high global liquidity; (2) historically low interest rates; and (3) substantial inflows to LatAm( ) g g q y; ( ) y ; ( )

Net Capital Inflows to LatAm 5* – 2005 to 2012Global Interest Rate Benchmark - US 10-yr T-Bill (%)

Source: Bloomberg Source: Central Banks and IMF

*LatAm 5: Brazil Mexico Peru Chile and Colombia

7Abril 2014

LatAm 5: Brazil, Mexico, Peru, Chile and Colombia

Tighter funding conditions in a Post QE environment

» Fed started tapering in January and is expected to continue to cut stimulus during the

year

» New environment entails a re-pricing of credit risk and lower appetite for risk exposure:

- More selective investors

- Lower capital flows should be directed to emerging markets

- Higher funding costs

8Abril 2014

Brazil’s macro environment poses additional concerns

» 2014 will be the fourth consecutive year of

below-trend growth

Real GDP Growth (annual rate, %)

below-trend growth

» Inflation has limited pass through ability

» Higher consumer leverage

» Negative investors sentimentInflation ( IPCA, annual rate, %)

» Presidential election adds uncertainty

» Infrastructure projects are highly dependent on

external funding

9Abril 2014

Source: Banco Central do Brazil; IBGE; Moody’s

Credit quality still holds2 Credit quality still holds2

10Abril 2014

Sovereign Considerations

» Brazil´s Baa2/ stable rating already incorporates

2014 expectations of: Gen. Gov. Debt/GDP, 2004-2013

» GDP growth at around 2%

» Debt to GDP above 60%

» Limited fiscal flexibility» Limited fiscal flexibility

» Focus on 2015:

» Negative pressure on the rating in case of:

» Continued low GDP growth associated with annual

rates less than 3% beyond 2014; and/or

Source: Moody’s

» Government debt ratios that exceed 60% of GDP

maintain an upward trend

11Abril 2014

Sovereign Considerations

» Low visibility on government actions for 2015

» No clear direction before presidential elections

» Reversal of investors negative sentiment?

» Fiscal adjustments will be addressed?

» “Reference levels” are key considerations

» What are the reference levels for growth and inflation?g

12Abril 2014

Sovereign Considerations

External Vulnerability Indicator, 2013

13Abril 2014

Source: Moody’s; several domestic sources

Credit Quality still holds

Rated non-financial corporates

» 153 rated non-financial corporates in 17 countries

p

» Rated companies have low refinancing risk:

1) Adequate debt profile and liquidity) q p q y

2) FX exposure mitigated by USD revenues, hedging

instruments and covenants measured in USD

3) Higher exposure is at capital spending needs

Source: Moody’s

14Abril 2014

*LatAm 5: Brazil, Mexico, Peru, Chile and Colombia

1) Adequate Debt Profile and Liquidity» Companies took advantage of favorable capital markets to refinance debt earlier than usual

Debt Amortization Schedule – rated non-financial corporates (in BRL billion)

15Abril 2014

Source: Companies audited financials

1) Adequate Debt Profile and Liquidity» Liquidity risk remains stable

Liquidity – rated non-financial corporates

Source: Companies audited financials and Moody’s estimates

16Abril 2014

Note: Funding risk defined as "LOW" if liquidity available in the next 12/24 months cover more than 150% of debt maturing in the next 12/24 months; as "MEDIUM" if it covers below 150% but above 100%; and "HIGH" if it covers less than 100%.

1) Adequate Debt Profile and Liquidity» Cash decreased 5.4% while ST debt increased 7.8%, leading to still comfortable coverage of 2.2x

Cash coverage – rated non-financial corporates (figures in BRL billion)

17Abril 2014

Source: Companies audited financials

2) FX: exposure has mitigants» FX exposure is mitigated by revenues in USD, hedging and covenants measured in USD

Foreign currency debt as a % of total debt

Sectors most exposed to FX depreciation

18Abril 2014

Source: Companies audited financials

3) Growth capex can be affected

» Non-financial corporates have some dependence on capital markets funding

» Lower availability of funding can delay or even interrupt expansion plans

» In Brazil, BNDES accounts for about 15% of total debt for rated non-financial corporates

Debt Structure In Brazil

Source: Company filings

19Abril 2014

(*) Note: Bank debt in Brazil includes: BNDES, export facilities, CCB/CCI, SHF/Financing to homebuilders and others.

BRAZIL – Sector Overview» More negative actions are expected, although credit quality should remain relatively stable

– 8 positive and 8 negative rating actions in 2013

Rating Outlooks in BrazilRatings Drift 2013 - Actions by Country

20Abril 2014

Source: Moody’s

BRAZIL – Sector Overview» Trends are mixed, depending on the sector

» Main performance drivers:

– Brazil will grow less than LatAm peers average

– Negative investors sentiment and more selective capital markets

Hi h i fl ti li it th h bilit– High inflation limits pass through ability

– Weaker BRL helps exports, but pressures USD debt

– Commodity prices should remain at lower levels

» Outlook is positive for protein and heavy construction sectors, while homebuilders and steel companies should face more challenges

21Abril 2014

Source: Moody’s

Main contacts – LATAM Corporate FinanceSão Paulo +55 (11) 3043 7300São Paulo +55 (11) 3043-7300

Marianna Waltz Associate Managing Director - AMD +55 (11) 3043-7309 marianna.waltz@moodys.com

Soummo Mukherjee VP-Sr Credit Officer +55 (11) 3043-7341 soummo.mukherjee@moodys.com

Barbara Mattos VP-Senior Analyst +55 (11) 3043-7357 barbara.mattos@moodys.com

Cristiane Spercel AVP, Analyst +55 (11) 3043-7333 cristiane.spercel@moodys.com

Erick Rodrigues AVP, Analyst +55 (11) 3043-7345 erick.rodrigues@moodys.com

Carolina Chimenti Associate Analyst +55 (11) 3043-7318 carolina.chimenti@moodys.com

Fernando Simis Associate Analyst +55 (11) 3043-7332 fernando.simis@moodys.com

Vitor Martins Associate Analyst +55 (11) 3043-7348 vitor.martins@moodys.com

J ã M h d P h l A i t A l t +55 (11) 3043 6080 j h l@ dJoão Machado Paschoal Associate Analyst +55 (11) 3043-6080 joao.paschoal@moodys.com

Mexico City +52 (55) 1253-5700

Nymia Almeida VP-Sr Credit Officer +52 (55) 1253-5707 nymia.almeida@moodys.com

Alonso Sanchez AVP, Analyst +52 (55) 1253-5706 alonso.sanchezrosario@moodys.com

Gabriel Vigueras VP Senior Analyst +52 (55) 1253 5700 gabriel vigueras@moodys comGabriel Vigueras VP-Senior Analyst +52 (55) 1253-5700 gabriel.vigueras@moodys.com

Sandra Beltran Analyst +52 (55) 1253-5718 sandra.beltran@moodys.com

Kijana Mack Associate Analyst +52 (55) 1253-5700 kijana.mack@moodys.com

Rosa Morales Associate Analyst +52 (55) 1253-5746 rosa.morales@moodys.com

Whitney Leavens Associate Analyst +52 (55) 1253-5748 whitney.leavens@moodys.com

Diana Gonzalez Associate Analyst +52 (55) 1253-5700 diana.gonzalez@moodys.com

Buenos Aires +54 (11) 5129-2600

Veronica Amendola VP, Senior Analyst +54 (11) 5129-2610 veronica.amendola@moodys.com

Martina Gallardo Analyst +54 (11) 5129-2600 martina.gallardo@moodys.com

22Abril 2014

y ( ) g @ y

Alejandro Kalogiannidis Associate Analyst +54 (11) 5129-2600 alejandro. kalogiannidis @moodys.com

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24Abril 2014