Brazil companies more leveraged than ever, Credit Suisse says
SAO PAULO Oct 27 (Reuters) - The risk that Brazilian companies face trouble rolling over or repaying their liabilities is on the rise, as they struggle with a record debt burden, the worst recession in a quarter century and a slumping currency, Credit Suisse Securities analysts said on Tuesday.
At the end of June, a survey of around 1,000 companies in Latin America's largest economy had debt equivalent to 3.1 times 12-month trailing operational earnings, with leverage being more widespread than previously thought, Credit Suisse analysts led by Marcelo Telles said in a client note.
The companies surveyed set aside an average of 1.6 times annual earnings for interest payments, which the analysts considered low. With operational performance sagging and expectations that borrowing costs will remain high, leverage indicators could possibly deteriorate over the next 18 months, the note said.
The report is the latest pointing to the risk that the eroding quality of corporate loan books poses to Brazil's largest listed lenders. Farming, industrial and services companies have ramped up their borrowing substantially since 2009, encouraged by a glut of subsidized government credit, low global interest rates and declining capital markets activity.
In light of the current recession, the analysts said that leverage ratios for the sample could rise above their base case of 3 times earnings for this year and 3.4 times for next, excluding debt owed by state-controlled oil producer Petróelo Brasileiro SA. The company is Brazil's biggest borrower.
"Despite an improvement in their debt profile over the past 20 years and somewhat reasonable liquidity ratios, operating margin compression and higher financing costs have led to an ongoing increase in refinancing risk," Telles wrote. "Brazil's poor economic performance is taking a toll on corporate profitability, with margins compressing and returns declining."
Pressure on short-term debt servicing is growing, with some ratios indicating the weakest coverage position for the country's companies since 2002, the note showed.
The sample had aggregate gross debt of 1.6 trillion reais ($435 billion).
($1 = 3.9147 Brazilian reais) (Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn)
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