According to a report by the credit rating agency Fitch Latin American corporate credit indicators show a sharp drop due to the coronavirus pandemic. This is adversely affecting credit profiles for many corporate issuers, according to a series of new reports from Fitch Ratings.
“The economic fallout from the coronavirus pandemic has hit the region’s corporates hard,” said Jay Djemal, Senior Director. “Lockdowns have been in place for months for many non-essential sectors, and in many cases are still ongoing. Non-essential sectors in some countries are gradually emerging from operating restrictions, with all eyes on the trajectory of a tentative recovery.”
In Argentina (RD), corporates facing debt payments in U.S. dollars may face difficulties buying dollars at the official rate. New restrictions implemented by the Central Bank prohibit companies that received government loans at subsidized rates due to the coronavirus pandemic from buying U.S. currency. If corporates bought blue-chip swaps 30 days before payment of a dollar-denominated principal or coupon, or if they performed swaps and transferred dollars from those transactions outside Argentina within 30 days before any debt payment, access to the official exchange market is blocked.
The ongoing coronavirus pandemic and extensive mobility restrictions to curb the spread of the virus are devastating the already debilitated economy environment for corporates in Brazil (BB-/Negative). Closing non-essential businesses and malls since mid-March 2020 will result in a deep economic crunch in 2020, possibly extending to 2021. The downturn will be marked by rising unemployment, heavy income loss and large bankruptcies of small and less capitalized businesses. Recovery in 2021 is still uncertain as the pandemic rapidly spreads throughout Brazil. Fitch revised Brazil’s Outlook on May 5 to Negative from Stable due to a deteriorated economic and fiscal outlook and persistent political uncertainty.
Chile (A/Negative) is still under lockdown measures due to increasing rates of infection. After imposing selective quarantine measures and closing non-food retailers in March, the government ordered a mandatory total quarantine for the capital of Santiago in mid-May. The government presented fiscal packages of up to USD17.1 billion (6.9% of GDP) in March and April 2020, mainly to support small- and medium-sized enterprises, unemployed people and low income families. The government is also researching mechanisms to support strategic large companies. Meanwhile, the Central Bank decreased the interest rate twice in March, to 0.50% from 1.75%.
Companies in Colombia (BBB-/Negative) have been able to strengthen liquidity positions with loans as support from the Central Bank facilitated the availability of financial sector resources. Relatively low leverage at some companies and a low concentration of short-term debt provides also bolstered liquidity. Short-term debt accounted for 11% of total debt as of YE 2019, a relatively low portion. No major bond maturities are scheduled for 2020 in international and domestic markets. Expected domestic market maturities amounting to COP2.2 trillion were refinanced by new issues or bank debt.
Liquidity profiles for corporates in Mexico (BBB-/Stable) remain relatively healthy, with no major maturities in 2020. Fitch expects Mexican corporates to continue looking for market opportunities to execute liability management. While most companies face refinancing risk in the medium to long term, issuers should seek opportunities to refinance in advance, as most maturities are bullets and are more concentrated in capital markets than in bank debt. Fitch’s key credit concerns are the magnitude and depth of the coronavirus crisis, increased regulatory risk, FX volatility and trade issues.
In Peru (BBB+/Stable) the government is executing a substantial economic stimulus plan, the largest in Latin America so far, to mitigate the economic effects of the coronavirus crisis. The plan considers spending PEN90 billion, approximately USD26 billion, in three phases of PEN30 billion each. The stimulus plan represents 12% of Peruvian GDP and includes healthcare spending, tax breaks and loan guarantees oriented to recuperate economic activity.
Link to Fitch Ratings’ Report(s):
Colombian Corporate Credit Indicators: First-Quarter 2020(Historic Economic Decline)
Argentine Corporate Credit Indicators: First-Quarter 2020 (Corporates’ Financial Maneuverability Restricted)
Peruvian Corporate Credit Indicators: First -Quarter 2020 (Rating Pressure Increases as Economy Shrinks)
Brazilian Corporate Credit Indicators: First-Quarter 2020 (Sharp Downturn Looms)
Chilean Corporate Credit Indicators: First-Quarter 2020 (Post-Pandemic Challenges)
Mexican Corporate Credit Indicators: First-Quarter 2020 (Coronavirus Crisis and Global Recession Affect Credit Quality)
Source: Fitch Ratings Press Release