Latin American corporate credit indicators point to an improving economic and operating environment for most countries across the region in 2021, according to a series of new reports from Fitch Ratings.
A slow economic recovery is expected in Brazil, Chile, Colombia, Mexico and Peru next year following the shock of the pandemic, said Jay Djemal, Senior Director. Chilean corporates are also facing two years of uncertainty in light of the new constitution set for 2022, while corporate issuers in Argentina continue to navigate tight capital controls.
Corporates in Argentina already have limited access to U.S. dollar revenues and reserves. Several capital controls forced them to burn U.S. dollar resources held abroad, reducing liquidity cushions and weakening financial flexibility.
Fitch forecasts median revenues for Brazilian corporates strengthening by 26% in 2021, from a weak base of (-2%) expected in 2020. EBITDA is expected to grow by 32% in 2021 after falling 6% in 2020, partially offset by commodity exporters.
The political agenda over the next two years in Chile will be volatile, introducing uncertainty to the business environment. Upcoming elections will affect the process of rewriting a new constitutional charter that Chileans just voted to initiate.
Demand shocks, lower economic activity and low oil prices, partially offset by Colombian peso depreciation, will keep Colombian corporate cash flows under pressure for 2020 and 2021.
The ability of Mexican issuers to reduce leverage depends on boosting operating results. Expectations for gradual strengthening of leverage metrics in the next two years are challenged by the current economic environment and will most likely be delayed. Fitch believes economic growth in Peru next year will likely be achieved despite the political backdrop. Key industries such as mining and cement were essentially closed between March and May 2020 due to lockdown measures.