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December 26, 2007 |
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* LATIN AMERICA: Moody's Says Exposure to US Slowdown Manageable Moody's Investors Service reported that most of the Latin American companies it rated have manageable exposures to the US market and hence to a US economic slowdown. Moody's estimates that the direct exposure to the US economy is low for four- fifths of the corporate issuers that it rates. The manageable exposures should allow Latin American credit ratings and credit quality to move upward overall in 2008, even if the US economy should slow. "Assuming a scenario with moderately strong global economic growth in 2008, although weaker than in 2007, we expect that Latin American rating drift to remain positive due to continued improving credit metrics, lower regulatory risk and advances in disclosure and corporate governance," Moody's Latin America chief credit officer Alexander Carpenter said. "Credit metrics should continue to improve due to lower interest rates and strong economic growth." Moody's said that should global economic growth be below its long-term average next year, the drift in ratings could be slightly negative. Market sentiment is apparently questioning the credit quality of Latin American issuance right now, with no significant cross- border bond deals since October. So far in the second half of 2007, there has been approximately US$9 billion in Latin American corporate debt issued, down from US$19.5 in the first half of the year, and down from US$15.7 billion in the second half of 2006. Rating drift has remained positive in Latin America even during the subprime crisis, with rated debt issuers experiencing 15 positive rating actions versus six negative ones since the beginning of August. Moody's research suggests that the credit quality of Latin American issuers may depend less on the health of the US economy than is generally assumed. Moody's estimates that 81% of rated Latin American companies have only low direct exposure to the US through exports or subsidiaries, while 57% have low indirect exposure through commodity prices, which overall global economic activity indirectly impacts. Mexico is the most exposed to a US slowdown, with 43% of its companies having either medium or high exposure to US markets and 43% also being exposed to volatile commodities prices. Forty-two percent of rated Chilean companies have high exposure to commodity prices. A third way Latin American companies may be vulnerable to US economic conditions is if unstable cross-border debt markets make refinancing difficult. "Latin American issuers with refinancing risk will have less flexibility in addressing their debt maturities due to instability in cross border debt markets and the limited size of domestic debt markets," Mr. Carpenter stated. According to Moody's, the liquidity of Latin American issuers, however, is solid or adequate among 83% of rated companies, positioning them well to weather disruptions. |
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