Fitch: Latin America Corporate Outlooks Update - Peruvian Corporates Under Pressure
'Upgrades are expected to be rare during the next 12 months, while downgrades and negative rating actions are expected to continue,' according to Josseline Jenssen, a Director at Fitch. 'Sluggish economic conditions and weak external conditions continue to pressure corporate credit quality.'
Peruvian corporates have invested more aggressively than their regional peers during the past five years. Incremental cash flow is taking more time than expected to monetize, however, due to low metals prices and sluggish economic growth. The devaluation of the PEN has also hurt consumer confidence and reduced purchasing power.
The median net leverage ratio has increased to 2.7x in 2014 from 1.4x in 2011. Free cash flow should become less negative in 2015 and 2016 and companies reduce capex and acquisition activity to counteract macro conditions. FX risk remains extremely high for Peruvian corporates due to their reliance upon international capital markets and the scare use of derivatives to offset the mismatch between the currency of debt and cash flow.
Fitch's Five Report Outlook series will be released one report per day as follows:
Aug. 17: Brazil Corporate Outlook Update -- Dark Days to Continue
Aug. 18: Chile Corporate Outlook Update - Challenges Persist
Aug. 19: Colombia Corporate Outlook Update - Resilient Credit Quality
Aug. 20: Mexico Corporate Outlook Update - Slow but Steady
Aug. 21: Peru Corporate Outlook Update -- Facing Hard Times
The Peruvian special report titled 'Facing Hard Times' is available on the Fitch Ratings web site at www.fitchratings.com.