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Liquidity risk in the region is low and credit conditions are improving, Moody’s said

Liquidity risk in the region is low and credit conditions are improving, Moody’s said
Liquidity risk in the region is low and credit conditions are improving, Moody’s said

He liquidity risk general is low in companies Latin America, but the credit quality is slowly improving, the international rating agency said. Moody’s Ratings In a report published on Thursday. For Uruguay, In particular, it will be particularly influential how the political environment will be determined following the presidential elections in October.

The agency Moody’s Ratings published a new report on financial stability in Latin America and the Caribbeanwhich he accessed Ambitin which it mainly highlighted that “the overall liquidity risk will remain low in most non-financial speculative-grade companies, utilities and infrastructure in Latin America during 2024-2025”; but that, despite this, the easing of the credit conditions general during this year, as well as the high interest rates and the volatility of the market accesswill continue to exert pressure on the credit quality of non-financial companies, especially those with low speculative grade.

Likewise, “downgrades will continue to outweigh upgrades for Latin American companies in 2024, albeit at a slower pace than in 2023.”

Factors influencing credit conditions

While there are particular issues highlighted in the report, such as the increased liquidity risk presented by Argentina and Peru due to their conditions of political and economic instability, or those of sectors such as agribusiness, airlines and public service companies; Moody’s He noted that “credit conditions will improve in some non-financial companies in Latin America in 2024 after a tight 2023 in a context of moderate economic growth”.

The reasons given for this projection include a scenario of a decrease in both interest rates and inflation rates in the countries, although the still high rates “will continue to affect the affordability of the debt.”

In addition, the rating agency put a yellow light on the slowdown in growth of China —as did many international organizations, such as the International Monetary Fund (IMF) or the World Bank-, which could reduce the growth of the demand for commoditiesin a situation of already low prices that has been affecting countries exporting raw materials such as Uruguay. In the case of the country, as has already been experienced, the effect is double due to the high commercial dependence on the Asian giant.

On the other hand, the elections presidential elections in several countries such as Mexico, Panama and USA -in addition to Uruguay- will determine the political environment and, therefore, the confidence and stability of the economy and credit markets.

“Economic growth in Latin America will be uneven in 2024 and will remain below trend across the region,” Moody’s finally warned.

Non-financial corporate debt

Moody’s also took stock of the Non-financial speculative grade companies of Latin America that, as of December 2023, had a total current debt approximately $384 billion.

“Companies rated Ba, the highest speculative grade category, have better access to capital than their lower-rated peers and account for just under two-thirds of annual maturities. However, companies with weaker credit quality have annual maturities of around $5 billion and bear greater refinancing risk, with a higher probability of default,” it said in its report.

Also as of December 2023, these companies had a debt of $81.3 billion with expiration over the next 24 months. Around 29% of this figure was held by companies with high liquidity risk, compared with 22% of companies with medium risk and 49% with low risk.

“Within the high risk category, the telecommunications and media sector had the highest concentration of current debt at 58% of the total $4.8 billion in the sector, compared to 43% of the total in the oil and gas sector, “24% of the total in the agribusiness sector and 34% of the total in public service companies,” Moody’s said.

He also noted that “just over half of the future debt of the oil and gas sector is with the Mexican state oil company.” Mexican oil (Pemex, B3 negative)”. “Most Latin American utilities have low to medium liquidity risk, except in Argentina, where four of the six high-risk utilities in the region are located,” the report concluded.

Source: Ambito

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