May 13, 2021

27% of Latin American firms operate in risk sectors before COVID-19



27% of Latin American companies operate in a sector considered high risk for the coronavirus, according to a report by the Fitch rating agency in which it analyzed the impact of factors associated with COVID-19 such as the fall in oil prices, the reduction tourism and the decline in commercial activity.

AIRLINES, TOURISM AND ENERGY, AMONG MORE HITS

Fitch analyzed its portfolio of rated companies in Latin America, based on sector risk, and identified “four airline operators and 10 energy companies that will face a drastic reduction in operating income and cash flow.”

Airlines will “be strongly and immediately affected” as travel is limited and entry bans are enacted to prevent the spread of the coronavirus, although governments are expected to design aid plans to sustain the industry.

On this sector, the firm mentions the impact on the international routes of Latam, GOL and Avianca, which “were among the most profitable”.

For the same reasons, hotels and casinos will suffer a sharp decline in customers.

As for mining, Fitch believes that copper will also face enormous pressure, “as demand growth will be negative in 2020 due to the sharp drop in economic activity in China (origin of the COVID-19 outbreak ), which represents more than 50% of the demand “.

Something similar can happen with the demand for refined petroleum products, which will decrease substantially due to the reduction of air and road trips and the interruption of production activities.

However, Fitch believes that the national oil companies will be able to bear the impact due to the support of the Government and their access to financing.

RISKS FOR RETAILERS

Amid restrictions enacted in much of the region by the pandemic, which includes the closure of “nonessential” businesses, the agency expects difficulties for retailers, while grocery stores, hypermarkets and pharmacies “will post solid results “

“The closure of shopping malls would greatly harm specialty and non-specialty food retailers. While grocery stores and pharmacies will benefit from strong demand caused by uncertainty about the coronavirus,” the ratings agency said.

This is the case of firms such as Enjoy, a casino operator in Chile and Uruguay, which may suffer “serious pressure” if quarantine measures force the temporary closure of their premises.

The rating agency also notes that some of Mexico’s smaller operators, such as Kaltex, Posadas and Famsa, “will also face pressure due to their financial limitations, as well as the plummeting fall of the Mexican peso.”

According to the report, the final impact of the coronavirus is very “uncertain and will depend on the possible spread of the virus, the impact effect of the measures introduced to control it and the duration of the pandemic.”

Despite this, he states that “most of these companies, particularly those dedicated to the goods of the metallurgical and mining industry, have a solid commercial position and a strong capital structure that will allow them to weather the imminent storm.”

This Thursday, the International Monetary Fund (IMF) pointed out that it does not rule out that the Latin American and Caribbean region is going into a recession this year due to the crisis caused by the coronavirus, which will especially affect the services, oil and transport sectors , in a situation of low prices of raw materials.

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