Fitch Affirms State of Maranhao's IDR at 'BB-', Outlook Stable.

Sao Paulo: Fitch Rating has affirmed the Long-Term Issuer Default Rating of the Brazilian state of Maranhao (IDR) at 'BB-'. The Rating Outlook is Stable. Fitch has also affirmed Maranhao's national long-term rating at 'AA-(bra)' with a Stable Outlook.

A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Finances: Fitch considers Maranhao's finances to be a neutral rating factor with a stable trend. Average yearly operating margins of 9.7% over the last five years have been higher than the state's larger local peers. However, the state relies heavily on federal transfers. According to Fitch's projections, operating margins should be higher than 5% until 2019. Maranhao has registered overall fiscal surpluses during the last five years, and the small deficit registered in 2017 reflects higher than expected capex.

Debt and Other Long-term Liabilities: Fitch considers Maranhao's debt profile a neutral rating factor with a stable Trend. Maranhao's consolidated debt of BRL5.3 billion represented 32% of the entity's operating revenues in 2017 in declining trend. The state is moderately exposed to currency risk with 31% of total risk denominated in USD, which makes it vulnerable to the recent Real depreciation. Maranhao does not have revenues linked directly or indirectly to the USD.

Economy: Fitch considers Maranhao's economy to be a weak rating factor with a stable trend. With a GDP of around BRL89 billion in 2017, Maranhao contributes less than 2% to the Brazilian GDP and less than 10% of the Northeast region's GDP. Its economy, which is fairly concentrated and relatively less dynamic compared to its peers, is mostly propelled by the services and primary sectors. In terms of socioeconomic indicators, Maranhao presents the second highest infant mortality rates in Brazil, according to the Brazilian Institute of Geography and Statistics (IBGE). The illiteracy rate is the second highest in the country, at around 20% of the population. This partially explains its above average unemployment rate of 13.3% compared to 11.8% for Brazil as of December 2017.

Management and Administration: Management is a neutral rating factor with a stable trend. Maranhao's governor was elected in October 2014 with an overall policy consensus to improve social economic indicators in the state. The governor has been able to deliver sustained fiscal performance with some improvements in transparency.

RATING SENSITIVITIES

Any rating changes for the Federative Republic of Brazil could exert a direct effect over Maranhao. An upgrade of the state's national scale would be possible if it increased proprietary revenues to levels above 70% of operating revenues (46.5% in 2017) coupled with a significant increase in its economic share in relation to the national economy.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to these assumptions:

--Fitch assumes that Maranhao would receive a similar level of sovereign support as the larger Brazilian states. Despite the weak institutional framework, the federal government is Maranhao's most relevant creditor and guarantor.

--Due to the upcoming general elections in October, Fitch expects some delays in the government's legislative agenda, especially items affecting subnationals such as pension reform and additional federal debt relief.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

State of Maranhao

--Long-term Foreign and Local Currency IDRs at 'BB-'; Outlook Stable;

--Short-term Foreign and Local Currency IDRs at 'B';

--National Long-term Rating at 'AA-(bra)'; Outlook Stable;

--National Short-term Rating at 'F1+(bra)'.

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Publication:	Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:	3BRAZ
Date:	Aug 21, 2018
Words:	563
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