Marianna Waltz of the Corporates team talks with analysts Carolina Chimenti and Alonso Sanchez about differences in Latin American corporate credit quality in 2021, after the worst effects of the pandemic have eased.
The benefits of low interest rates for corporate borrowers and infrastructure project debt issuers will depend largely on their exposure to local-currency debt. Low rates will challenge bank margins.
For governments with wide current account deficits and heightened government liquidity risk, upcoming external debt repayments will constrain or weigh on credit quality, with restricted market access a further complicating factor.
Effective policymaking will enable China’s government to address challenges from rising public sector debt, occasional pockets of financial stress, and slowing growth potential.
Turkey’s foreign-currency reserves as a percentage of GDP have reached a multi-decade low, significantly weakening the government’s ability to cover external debt repayments.
Aggregate EBITDA for the 24 rated mining and miningservices companies in Asia Pacific (APAC) will decline around 10% to $53 billion in 2020 from $59 billion in 2019.
We expect EM debt burdens to rise by almost 10 percentage points of GDP on average by the end of 2021, driven primarily by wider primary deficits.
A recovery in market conditions and an increase in the borrowing requirements of the world's largest sovereign issuers, including Saudi Arabia and Malaysia, will lead to a greater rise in nominal sukuk issuance this year than we had anticipated.
The risk of private-sector creditors being asked to incur losses in all or most cases of the G-20’s debt service suspension initiative for highly indebted countries has diminished over the last few months, but some risks remain in individual cases.
Amid the coronavirus pandemic, migrant workers’ lower remittances to home countries will reduce recipient countries’ balance of payments.
Full-year issuance is on course to test all-time highs in 2020, as highly rated governments and companies take advantage of normalizing financial conditions to raise fresh funding and refinance existing obligations with longer maturities.
Strong operational execution, presence in convenience and the ability to adapt to evolving consumer demand should support credit quality despite the weak economy and fierce competition.
The $15 billion financing will support asset quality by injecting liquidity into the private sector and reducing the risks associated with financing cross-border transactions.
Marianna Waltz, Marie Fischer-Sabatie, Martina Gallardo Barreyro and Erick Rodrigues of the Corporates team discuss how the worldwide coronavirus outbreak has affected corporate liquidity in Latin America.
Credit risks are likely to be most intense for those with limited fiscal space and heightened liquidity pressures, in contrast to those with buffers or better ability to reduce spending.
The coronavirus outbreak will lead to a deep recession and an increase in debt. Political risk and prolonged reform delays could weigh on the medium-term outlook.
Early June data on trade, manufacturing and tourism indicate a firming of the global economy, with a recovery on the way in the third quarter, in line with our view.
China's government released its policy focus for 2020, which includes a moderate degree of fiscal support for the economy, accommodative monetary policies and measures to support employment.
India’s policymaking institutions will face challenges in enacting and implementing policies that effectively mitigate risks of sustained low growth, further fiscal deterioration and financial sector stress.
Of the 54 mostly negative sovereign rating actions that we have announced so far this year, 23 were the direct result of the coronavirus pandemic.
Most sub-indicators now well above their long-term averages as market access remains limited and refinancing risks rising especially for lower-rated debt issuers with upcoming maturities.
All rated Russian rail service operators are exposed to a subdued level of economic activity, but their business models, financial and liquidity profiles have different levels of resilience.
The Saudi government faces increased downside risks to its fiscal strength from the severe shock to global oil prices triggered by the coronavirus pandemic and uncertainty over the government's ability to offset its oil revenue losses.
The speculative-grade default rate for emerging market companies will likely rise significantly by the end of the year. We base our forecasts on the expectation of a global recession due to coronavirus-induced economic disruption.
Rated commodity producers, infrastructure and utilities companies are more insulated than those in the transport and non-essential consumer sectors or with weak liquidity.
Sustainable demand amid virus containment measures, fixed capacity payments for generators, and state support will help the sector maintain its credit health during the pandemic.
Shrinking domestic demand for steel will lead to lower operating cash flows but a weaker rouble, lower capital spending and dividends will reduce cash outflows.
Government support measures throughout Asia will cushion but not fully offset the economic and financial fallout from the coronavirus outbreak.
The average covenant quality score for full-package EM bonds issued during the 6 months to 31 March 2020 improved to 3.25 (moderate ↓) from 3.35 (moderate ↓) for the previous 6 months.
The Mexican government’s policy responses have failed to address the country's significantly weakened economic growth prospects, which we forecast will decline to 2.0% in 2021-23 from 2.7% during 2010-19, or the continued financial and operating prob
Nationwide contracted sales will decline 5%-10% for full-year 2020, and inventory levels will remain high. But rated developers' sales growth will remain higher than the nationwide level.
The two-notch rating downgrade reflects our expectation that private creditors will likely incur substantial losses in the current government debt restructuring process. The economic and financial shock stemming from the coronavirus outbreak has comp
The high exposure companies we rate operate in the airline, auto, oil and gas, gaming, retail and hospitality sectors. Exposure is moderate for 36% of the rated companies and low for 44%.
We are revising our outlook for the Latin American asset management industry to negative from stable amid the coronavirus outbreak, oil price shock and given the extreme volatility and uncertainty in capital markets.
Rapid growth in consumer loans in recent years, combined with oil price weakness and coronavirus related slowdown, is raising asset risks for banks in the region.
Prolonged risk aversion and capital outflows triggered by the coronavirus outbreak and sharp commodity price declines will exacerbate credit weaknesses in some low-rated, emerging market sovereigns.
The South African government faces a continued deterioration in fiscal strength, structurally very weak growth and a debt burden that is set to rise even faster and to higher levels than we had previously expected.
The coronavirus outbreak will strain Mexico's lodging companies Playa and Posadas throughout 2020, while low fuel prices and capacity cuts will help Aeroméxico defray some lost revenue.
The collapse of global oil prices in March 2020 will have a significant impact on banks in Azerbaijan, Kazakhstan and Russia but they are less vulnerable than during the 2014-15 crisis.
Sustainability strategies of EM issuers will come under greater scrutiny given the ESG risk exposures of EM economies and the huge funding needs for low-carbon, climate-resilient investment.
Companies in Latin America will suffer from lower economic growth domestically because of the coronavirus outbreak and spillover effects from global trade, supply chain and capital markets access.
This report answers frequently asked questions regarding Lebanon's mounting financial and economic pressures that have resulted in a decision that will likely entail significant losses for private creditors.
The effects of ongoing violent protests since October 2019 and any new upsurge in violence this year will weigh on Chile’s economic growth through 2021.
Slower economic growth in China increases the risk of zero growth or even a contraction in general budgetary revenue for regional and local governments in 2020. However, the impact will vary across regions, and those that are currently most affected
Credit risks vary across the region but are most elevated where unfavourable debt structures and large borrowing needs coincide with weak debt-management capacity.
We revise our GDP growth forecasts for Asia Pacific countries following the coronavirus outbreak.
Many of the sovereigns that benefited from the heavily indebted poor countries debt relief initiative have seen their debt levels return to or exceed their pre-debt relief highs.
Despite fiscal consolidation measures, Costa Rica's fiscal deficits, debt ratios, and interest burden will remain materially higher than those of similarly rated peers for the foreseeable future. Average annual funding needs of above 12% of GDP in 20
The locust infestation in East Africa has destroyed a large number of crops, particularly in Ethiopia, Kenya and Somalia, and will weigh on agricultural output and GDP growth in 2020.
While Asia and Latin America will be the fastest growing auto markets over the next decade, China, Europe and the US will remain the largest markets globally in terms of unit sales.
For the most exposed sovereigns, the pace of increased frequency and severity of natural disasters related to rising sea levels and the effectiveness of adaptation measures will determine the degree of credit-negative effects.
The deal reduces political uncertainty, which will strengthen global risk appetite and bolster the ongoing rally in emerging market capital inflows.
African regional and local governments' (RLGs) weak fiscal capacity will limit their ability to spend on infrastructure and other capital projects, which, in turn, will constrain their sustainable development.
In 2020, Russia’s regional governments will continue to record revenue growth, facilitating an increase in spending without taking on further debt and reducing leverage.
On 3 December, the Russian government announced RUB45 billion ($700 million) in federal grants to regions that performed best on key performance indicators set by President Vladimir Putin earlier this year.
In 2020, Argentina's regional governments face an increasingly challenging operating environment, characterized by national policy changes and rising social pressures that will undermine their financial results and ability to refinance debt.
Growth prospects for non-investment grade sovereigns have softened on global and domestic factors, highlighting underlying credit weaknesses.
The main challenges facing Chinese provinces in 2020 are the continued slowdown in national GDP growth, which will weigh on their budgetary revenue, and the local state-owned enterprises (SOEs), whose liabilities are around RMB 70 trillion.
Our negative outlook reflects continued sluggish growth, with shifts in trade policy, political priorities and financial flows leaving emerging market issuers vulnerable to sudden shocks.
The amendment will reduce regions' refinancing needs over the next five years and minimise funding cost pressure stemming from the need to refinance budget loans with market borrowing.
Despite government measures to help reduce India’s slowdown in economic growth, prolonged financial stress among rural households, weak job creation, and a credit crunch have increased the probability of a more entrenched slowdown.
The Latin America Banking Monitor is the inaugural report of a new series providing a semi-annual review of key credit developments in the Latin American banking market.
South Africa’s high unemployment, income inequality and related social and political challenges have proven to be a greater obstacle to government plans to raise potential growth and contain fiscal deficits than we expected a year ago.
China's regional and local governments play a critical role in mitigating and potentially transmitting economic and financial risks within China’s highly interconnected institutional framework, economy and financial system.
This edition focuses on a range of sectors in countries such as India, Argentina, Turkey, China, among others, with a data-rich appendix of metrics for 105 EM sovereigns.
Argentina’s consumer activity will suffer through 2020 in line with a shrinking economy, worsening economic conditions and a reluctance to make big purchases.
Turkey’s recent military incursion into Syria has resulted in US sanctions which, while limited, are likely to increase economic risks because of the knock-on effect they will have on investor and business sentiment.
Third quarter 2019 score weakens to second-weakest level.
Nigeria's banks and payment service companies will expand their products and increase revenue while cutting costs as usage of electronic platforms rises.
The new rule is credit positive because it increases agility and efficiency by simplifying the authorization of foreign investment in banks and the establishment of branches of foreign banks in Brazil.
The ratification may accelerate the introduction of environmental regulation previously targeted for 2025.
Output disruption will not leave a long-lasting impact on the government or Saudi Aramco, but highlights elevated and broader-based exposure to geopolitical risk than previously assumed.
Mexico’s proposed new budget assumes relatively optimistic GDP growth and oil production. These assumptions result in the budget overestimating next year's government revenue and underestimating the financial support that PEMEX may require.
Although Argentina’s capital controls should ease negative exchange-rate pressures, its central bank reserve losses are likely to persist as individuals and firms continue to withdraw their foreign-currency deposits from the banking system.
A shock to financing conditions would significantly reduce fiscal strength and increase external vulnerability risk for many frontier markets, and some emerging markets.
The three-notch downgrade from B2 reflects the rising likelihood of losses for investors further to the government’s decision to delay the repayment of around $8 billion in short-term debt and its intention to restructure longer-term debt maturities.
Our outlook for Mexico’s banking system is negative. A weaker economy will limit government support, and lead to higher delinquencies and lower volume growth for banks.
Countries across the CIS have made tangible progress implementing reforms over recent years, bolstering government effectiveness. However, for some sovereigns, the momentum for policy action is fading as economic and external challenges have ebbed.
The central bank asked for comments on its planned approach to resolution planning, indicating that it aims to use statutory bail-in legislation once enacted to ensure banking stability.
The majority vote for Alberto Fernandez in Argentina’s recent primary elections resulted in a 15% depreciation of the Argentine peso, weakening the country’s economic prospects for the remainder of 2019.
The Central Bank of Nigeria's drive to push Nigerian banks to lend more while economic growth is still weak will crease NPLs for the banks and slow down asset quality improvements.
Our credit view for Thailand reflects the sovereign's very strong public and external finances, as well as lingering political risk and demographics and labour skills challenges.
Policy reversal following elections in October could lead to further damaging currency shocks and hamper access to the international capital markets, leaving most debt issuers at risk.
This edition focuses on a range of sectors in countries such as India, Argentina, Turkey, China, among others, with a data-rich appendix of metrics for 105 EM sovereigns.
We rate 36 Indonesian corporates across six core sectors, the bulk of which continue to demonstrate stable credit trends. This report provides an insight into the key credit themes impacting each sector, including oil and gas, property and more.
In the inaugural issue of our State of the Brazilian Consumer publication, we discuss how the gradual improvement in employment since the end of Brazil’s severe recession of 2015-16 has contributed to consumption and economic growth.
Our credit view of Argentina reflects its large and relatively wealthy economy against rising policy uncertainty and the risk it poses for increased financing pressures and eroding buffers.
In a new cross-sector report we study the effects of corruption, commodity prices and portfolio flows, technological disruption, and skills gaps on Latin America’s business, finance and macro-economic conditions.
The latest developments are a further illustration of the erosion of the central bank's independence in terms of setting monetary policy and also the country's institutional strength.
The average covenant quality (CQ) score for Asian high-yield bonds in the second quarter of 2019 was 3.26 (moderate ↓)
The wave of mergers and acquisitions (M&A) sweeping through sub-Sarahan Africa's (SSA) banking markets is credit positive for SSA bank creditors. We expect the drivers of consolidation to remain in place over the next two years.
China’s economy-wide leverage is likely to continue rising, with pockets of financial stress developing periodically for some local banks or State-Owned Enterprises (SOEs).
The recent restructuring of Barbados’s local-currency debt has cut the stock of government debt to 90% of GDP from 101% previously, significantly reduced the interest burden and lowered the government’s financing needs and overall liquidity risks.
Various central government initiatives have strengthened governance standards and tightened federal oversight of regional governments, but some regions to still face high refinancing risks.
Backed by strong profitability, Islamic banks in Malaysia and Indonesia have plans to step up investment in digitization. These efforts will lead the industry to expand further at lower cost.
Argentina's Federal Fiscal Responsibility Council published the results of its evaluation for 2018 and first-quarter 2019, which showed that the provinces generally were in compliance. The results are credit positive.
All but five of the 47 rated South and Southeast Asian high-yield companies have protections to limit the effect of a significant depreciation of their local currencies against the US dollar.
After a period of relative calm, the Turkish lira came under renewed pressure in the first half of 2019 amid investor concerns about accelerated reserve depletion and expanding fiscal deficits.
Mauro Leos and Gabriel Torres discuss the credit implications of income inequality. While income inequality is not a differentiating factor of ratings across all sovereigns, for some, rising income inequality exacerbates broader credit challenges.
A proposal to allow government-managed retirement funds to compete directly with banks in offering payroll loans would be challenging for banks that have a niche in payroll loan.