PRESS RELEASE

Moody's: Chilean corporates to benefit from improved macro environment through 2019

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Tuesday, August 14, 2018

Press release from Moody's

14 August 2018

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Buenos Aires City, August 13, 2018 -- Chile's improved macroeconomic environment will support non-financial corporate credit quality through 2019, Moody's Investors Service says in a new report. While a company's credit profile will depend on its individual efficiencies, overall credit quality should modestly improve for telecom, oil and gas, and consumer companies though at least mid-2019, while mining and forestry firms likely will see bigger gains.

"Following a deceleration in 2016-17, we expect Chile's economy to grow by about 4% in 2018 and 2019," says Moody's analyst, Veronica Amendola. "Solid copper prices, along with a strong rebound in business and consumer confidence, will support investments and domestic consumption, while inflation will remain low."

Copper prices have risen about 27% in the past two years, and combined with continued investments and cost-cutting will support stronger cash flows and credit metrics for Chilean mining companies. Production will however continue to be constrained by declining ore grades and a lack of new projects, while ongoing labor negotiations pose a further hazard to supplies.

Meanwhile, rising pulp prices as a result of lack of significant new supply will benefit Latin America's forestry companies this year. Prices are likely to be more volatile next year, as global capacity increases. Higher prices, in tandem with their competitive cost structures and expansions, will nonetheless support improved credit quality for Chilean pulp producers in the coming 12 months.

A strong rebound in business and consumer confidence will benefit Chile's consumer-related sectors in 2018-19, with market participants approving of the new government's intention to simplify and accelerate efforts to ease doing business in the country. As GDP growth picks up though 2020, consumer purchasing habits should revert to pre-slowdown levels.

And as a result of infrastructure improvements across Latin America, the Chilean airline industry will continue to be benefited by increasing numbers of air passengers, Moody's says. At the same time, intense competition for mobile telecom customers will persist through next year, though the main telecom operators' strong market shares will help ensure their operating performance remains both solid and stable.

Moody's research subscribers can access this report, "Corporate credit quality -- Chile: Steady recovery in economic growth will support business sectors in 2018-19," at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133031