Moody’s: Half of Brazilian Companies Remain Exposed To Liquidity Risks

Sao Paulo, May 07, 2012 — While corporate liquidity in Brazil has improved modestly over the last year, practices continue to lag global standard and companies remain more reliant on banking relationships rather than the international capital markets when compared to Mexico and the U.S., says a new special comment by Moody’s Investors Service.

“Market improvement over the past year allowed a number of companies to tap the capital markets and extend debt maturities,” said Filippe Goossens, a Moody’s Senior Vice President and an author of the report.

Moody’s concluded that 59% of the 39-rated companies—excluding homebuilders— have adequate or good liquidity, compared to the 81% observed in Mexico. Moody’s defines the degree of liquidity risk by considering each company’s cash needs to fund debt maturities from December 31, 2011 until December 31, 2013 against available cash sources.

Brazilian companies remain exposed to varied liquidity risks including potential credit market disruptions, the ongoing sovereign crisis in Europe, a potential hard landing in China, the fragile global economy and foreign exchange volatility, says Moody’s.

Companies in Brazil often rely heavily on bank financing and government-owned financial institutions, although few companies have committed bank lines of credit. Moody’s notes that this is a common practice in Latin America as companies prefer to maintain high cash balances to cover upcoming maturities and retain flexibility. Foreign exchange volatility also remains a key issue for companies with high levels of foreign currency denominated debt.

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