Latin America Credit Conditions Committee 2017Q1:
Lending Conditions Improve Slightly As Does Upgrade Ratio, But May Belie Several Risks (Including Foreign Trade Policy and Brazilian Domestic Politics)
S&P Global Fixed Income Research
Sudeep Kesh
Senior Director
+1 212 438 7982
[email protected]
www.spratings.com/GFIR
2017Q1
2
•
RatingActions‐ Corporate(financialandnonfinancial)andsovereigndowngradessignificantlyoutpaced
upgradesinLatinAmericain2016with142downgradesand39upgrades,whereasthereverseistrueso
farin2017withthreedowngradesandeightupgrades.
•
Outlook ‐ Lookingaheadfortheyear,however,weexpectcontinueddowngradepressureinLatinAmerica,
withitsnegativebiasatanelevated46%acrossLatinAmerica,comparedtoits10‐yearaverageof17%‐‐
tenpercentagepointshigherthanitslevelatthispointlastyear.
•
CreditmarketvolatilityandrelatedrefinancingriskremainselevatedinLatinAmerica,whereweexpect
$202billionofLatinAmerican(includingtheCaribbean)financialandnonfinancialcorporatedebtto
maturethrough2021.Ofthetotal,$33billionisscheduledtomaturein2017,$40billionin2018,$43
billionin2019,$42billionin2020,and$45billionin2021.CompaniesinBrazilandMexicoaccountfor
72%oftheLatinAmericancorporatedebtmaturingthrough2021.Approximately39%ofallLatin
Americanrateddebtmaturingthrough2021isintheoilandgassector,wherecreditqualityhasbeen
challenged,inpartbythefallincommoditypricesoverthepastyear.
•
Sofarin2017,newissuancestandsatabout$10billioninratedfinancialandnonfinancialdealsfrom$39.7
in2016and$35in2015.ThemajorityofissuancesofarhasbeeninArgentina($2.4billion)andMexico
($5.1billion),thelatterofwhichsaw$4.5billionthroughthree‘BBB+’‐ratedofferingsbyPEMEX.
•
Onthesurface,financingconditionsappeartobesomewhatmoresupportivein2017thantheywerein
2016withtheInstituteofInternationalFinance’sLendingConditionsIndexincreasinginLatinAmerica
acrosstheboard(tonear‐neutralfromnegative).Risksthatmaydeterioratetheseconditionsincludea
ramp‐upofgeopoliticalinstability,retracttodecliningoilprices,orsignificantincreaseinprotectionismon
partoftradingpartnerswithLatinAmericaneconomies‐‐however,webelievetheserisksarecurrentlykept
atbay.Onthepositiveside,asizeableabsenceofthesefactorswouldindeedimprovefinancingconditions
aswellasinvestorconfidence,thoughwebelievethismaybesomewayoff.
IIF Lending Survey – Improvements across the board in Latin America; Neutral / Near‐Neutral Financing Conditions Across Most Dimensions
Theindexvaluesrangefrom0%(extremelyunfavorable)to100%(extremelyfavorable).Specifically,theindexforoveralllendingconditions
isnowat48%comparedto45%mid‐2016,nonperformingloansindexisat47%comparedwith42%,andfundingconditionsindexat46%
comparedwith40%.Creditstandards,demandforloans,andtradefinanceareleastchanged(about2.5%improvement)at47%,50%, and
49%,respectively.Together,thesemetricsareindicativeofimproving,thoughstillneutral,financingconditions.
Ratings Actions – Downgrades Grow (And Potentially Apex) In 2016; So Far Upgrades Dominate In 2017
Corporate(financialandnonfinancial)andsovereigndowngradessignificantlyoutpacedupgradesinLatinAmericain2016with
142downgradesand39upgrades,whereasthereverseistruesofarin2017withthreedowngradesandeightupgrades.
Outlook – Negative Bias Continues To Escalate; Positive Bias Steadies At Historical Lows
Lookingaheadfortheyear,
however,weexpect
continueddowngrade
pressureinLatinAmerica,
withitsnegativebiasatan
elevated46%acrossLatin
America,comparedtoits
10‐yearaverageof17%‐‐
tenpercentagepoints
higherthanitslevelatthis
pointlastyear.
Downgrade Potential – Sovereign / Gov’t Related Industries Show Highest Downgrade Pressure; Upgrade Potential Limited and Idiosyncratic
Financialswilllikelydrive
thisdowngradepressure
withitsnegativebiasof
68%comparedtoits
historicalaverageof20%,
followedcloselyby
transportationat71%
(comparedtoahistorical
averageof33%).Thisis
especiallyowesto
sovereignratings’caps,as
halfofthesovereignratings
inLatinAmericaare
currentlyonnegative
OutlookorCreditWatch
withnegativeimplications
andmaytakeseveralyears
toimprove.
Brazil Downgrade Hit Record Highs In 2016; Wanes So Far In 2017
Despite Downgrades, Downgrade Pressure Remains In Brazil With Domestic Politics As Continued Key Risk
StatisticalInferenceSignifies
PotentialPeakInDowngrade
PropensityLastYear