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Most companies in Latin America, particularly more conservative firms, are still in "savings mode" and are focused on strengthening their balance sheets, a Moody's executive told BNamericas.
Ninety-five percent of bond issuances in Latin America in the first quarter of the year were directed to refinancing, according to a Moody's estimate based on rated, non-regulated and non-financial companies.
Just 5% of bond issuances were for capex over the three-month period compared with 6% for the whole of 2016 and 15% for 2015. In 2015, 37% of bond issuances were directed to refinancing.
"Either because of the modest growth trends or because of the deceleration in commodity prices in 2015, we have seen all companies, or most of the companies in most of the sectors in Latin America, with a more conservative approach towards investment, costs and also liquidity," Marianna Waltz, managing director, corporate finance, told BNamericas on the sidelines of a Moody's conference in Santiago, Chile.
"When we look at the aggregate number of cash over short-term debt, for example, we have seen an improvement in 2016 when we compare with 2015. The cash over short-term debt coverage increased a bit, and this is a consequence of companies being more conservative, cutting capex, cutting costs, doing issuances in order to refinance debt and not to expand," she added.
Many companies, she said, tend to be in "savings mode" still.
"[Generally speaking] given the modest growth expectations for Latin America in general, we still think that companies will be cautious in resuming investment. I think we're going to see companies still trending towards additional refinancing and deleveraging. I think that will be the trend over the next couple of years or so."
The region as a whole is gaining strength and the business environment is expected to become more positive. The economies of Brazil and Argentina are forecast to expand this year, the latter by 3.0%, and sentiment has improved. One factor is the stabilization of commodity prices in general.
"We have now a more favorable sentiment towards emerging markets as a whole and this has been benefiting companies in Latin America, their access to international capital markets," Waltz said.
She added, however, that sentiment could change and lead to outflows, citing as an example potential deterioration in the political environment in Brazil.