CHICAGO--(BUSINESS WIRE)--Foreign exchange (FX) exposure is high for Latin America corporates with 70% of the USD813 billion of total outstanding debt in the region in foreign currency, according to the first report in Fitch Ratings' six report series 'LatAm Corporate FX Risk'.
Fitch will publish reports daily through April 22 per the schedule found at the bottom of this release.
"FX risk is broadly manageable despite high foreign currency debt levels," said Alvin Lim, Director. "Based on Fitch's sensitivity analysis of 10% local-currency depreciation against USD, 26 out of the total 177 issuers analyzed are forecast to undergo net leverage deterioration of at least 0.25x. Two-thirds of these companies are based in Mexico and Brazil."
The degree of currency mismatch varies per country with Chile and Peru boasting the highest proportion of issuers with natural-hedge positions to mitigate the risk. Mexican corporates' exposure to a weak local currency is highest in the region as many issuers rely on international capital market, partly due to limitations in local funding.
Hedge derivatives are not widely used in the region, despite the high level of foreign currency debt, as Fitch estimates only 27% of issuers with international debt have entered hedge transactions. Reflecting the hedge effect, the percentage of foreign currency debt out of the total outstanding debt declined modestly to 66% from 70%.
The 'LatAm Corporate FX Risk' series will be released as follows:
April 15: Latin America Corporates FX Sensitivity Analysis
April 18: Brazil Corporates - Moderate Exposure to FX Risks
April 19: Chile
April 20: Colombia Corporates - Moderate Exposure to FX Risks
April 21: Mexican Corporates Confront FX Exposure
April 22: Peruvian Corporates - Well Hedged Against FX Risk
For more information, a special report titled 'Latin America Corporates FX Sensitivity Analysis' is available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Latin American Corporates FX Sensitivity Analysis