Fitch: High Interest Rates Pummel Brazilian Corporates
OREANDA-NEWS. Fitch Ratings expects continued pressure on credit metrics through 2016 due to a combination of the weak Brazilian macro environment and rising interest rates.
'Rising Brazilian interest rates have hindered free cash flow (FCF) generation, threatening the viability of corporates such as CSN and Usiminas and contributing to the downgrades of Camargo Correa, Eletrobras, and Oi,' said Cristina Madero, an Associate Director at Fitch Ratings. The interbank target lending rate (SELIC), which is the key benchmark rate for most corporates, has increased to 14.25% from 7% since 2013. Other lending rates are the benchmark inflation rate (IPCA), which has risen to 9.5% from 6.6%, and BNDES' lending rate (TJLP), which has increased to 7% from 5%.
Fitch estimates that 32% of its Brazilian portfolio now spends more than 50% of EBITDA on debt service compared with 24% at year-end 2013. The median FCF for Brazilian corporates is USD20 million, compared with negative USD47 million for companies spending more than 50% of EBITDA on debt service.
Most issuers are not able to avoid high-cost local debt. International capital markets remain closed for most companies due to concerns related to Brazil's deteriorated political and economic environment and uncertainty related to several corruption investigations. Only six issuers have been able to tap the markets in 2015: Petrobras, Votorantim Cimentos, Oi S.A., Embraer S.A. (NR), Globo Comunicacao e Participacoes and BRF S.A. This compares with 36 issuances during 2014.