Moody's: Liquidity risk increases for Peruvian non-financial corporates

Liquidity risk has increased for Peruvian non-financial, non-utility companies over the past year, Moody's Investors Service says in a new report. Peru's mining-dependent economy looks set for a partial rebound in 2015, but growth will be well off the brisk pace of a couple of years ago, while the depreciation of the nuevo sol is hurting companies' credit quality.

Moody's new report, "Liquidity Risk Increasing, but Most Maturities are Still Far in the Future," looks at the liquidity risk of the 16 non-financial, non-utility Peruvian corporate issuers rated by Moody's as of 30 April 2015.

"At the end of 2014, 69% of the Peruvian companies we reviewed had high refunding risk, in line with the previous year, while their consolidated short-debt coverage decreased to 1.0 times from 1.7 times," says Vice President -- Senior Analyst, Barbara Mattos. "Meanwhile, the economy expanded just 2.4% last year, well off the 5.8% growth seen in 2013."

Eleven of the 16 Peruvian companies had high refunding risk at the end of last year, with some combination of insufficient cash to cover short-term debt maturities, negative free cash flow or a lack of committed credit facilities to meet maturities through mid-2017, Mattos says. Nevertheless, none have significant refinancing peaks until 2019, and for most there are also mitigating circumstances, including good capital market access, support from parent entities and solid operations.

Peruvian corporate debt issuance reached $1.8 billion in 2014, only a slight decline from $2.2 billion in 2013. Hochschild, Minsur, InRetail Consumer and Union Andina de Cementos all issued bonds last year.

Meanwhile, the depreciation of the nuevo sol is hurting the credit quality of Peruvian non-financial corporates. "Around 67% of the companies' mostly unhedged debt is denominated in US dollars, while they earn most of their income in local currency," Mattos says. "While a weaker local currency increases the cost of servicing debt and leverage, expansion abroad, dollarized commodity prices and export-heavy business models all ease this risk, particularly for mining companies."