The panorama has changed and continues to change since the pandemic struck in Latin America, but not all is doom and gloom – delegates at IJLatAm 2020 heard.
S&P made around 100 rating actions since the pandemic hit earlier this year, among them downgrades, changes on the outlook and credit watches turned to negative... mostly due to tighter liquidity cushion.
The following countries have been down rated:
- Dominican Republic
- Costa rice
However, according to the panel that met at the IJLatAm 2020 virtual conference – to replace IJGlobal's famed Miami event that was cancelled in March due to the pandemic – it is an interesting time to deploy capital as global markets are fairly liquid and interest rates remain low. Commercial banks have been very active in Peru, Chile and a little bit in Brazil, delegates heard.
Ralph Scholtz from MUFG said: “We are in a constantly-evolving situation. The first reaction to the pandemic was a liquidity squeeze, we saw emerging market spreads widen tremendously in a way we had not seen in a very long time."
He continued: “Now they have come back to where they were and sometimes the all-in rates are actually lower than before Covid-19, so in a sense we have a stable outlook right now”.
However the impact of the coronavirus pandemic is ongoing, with some banks moving to mini-perm structures with refinancing of assets likely in the first couple of years, something not traditionally seen in Latin America.
Joao Carneiro from ING Bank said: “BNDES is getting creative by incentivizing mini-perms which is something we just don’t see in Brazil... even though we at ING are keen on this”.
Furthermore, as is usual in financial recessions, the market is witnessing a slow-down in activity from commercial lenders and an uptick in involvement from DFIs.
The shape of the economy is different to what the panel has seen previously as the downturn came out of nowhere. The market was quick to separate those assets that were winners and those that were losers – such as airports – and put them in different buckets. Whoever could raise cash was successful. Public issuances in Brazil were closed and are now slowly coming back to where they were.
This is all incentivized by historically-low interest rates, which in some ways increases interest in some infrastructure assets. Demand remains lively where the government selects the right structures, according to panelists.
“The government is starting to incentivize infrastructure and energy projects to try and stimulate the economy through the Covid crisis which can result in various attractive structure deals,” said Stuart Barrowcliff from Axium.
Finally Joao added: “In Brazil we are still on track to see a growth in wastewater – unrelated to Covid due to a law being passed and several bids being put in place.”
He added: “I think in renewable energy and energy we are going to see a slow down because there is a lower demand for power. It is not a full stop... its more of a slow down.”