Fitch Ratings has released several key reports of late regarding areas of interest across Colombia and Latin America. The following is a summary breakdown from the New York-based rating agency of what each report finds about local and regional governments of Colombia after last year’s elections; the improving real estate sector across Latin America; and a neutral outlook for the cement section in the region.
Fitch Ratings expects the assessment of risk profiles, together with key risk factors (KHRs), to remain unchanged, but will maintain special attention on those linked to the sustainability and adaptability of spending, both due to the macroeconomic environment and the ability to mitigate its growth.
However, low economic growth would have an impact on the dynamics of consumption-related tax revenues and could have a negative effect on territorial operating balances to the extent that local and regional governments (LRGs) are unable to implement effective expenditure control.
The new territorial administrations that will take office from January 2024 will present their development plans by mid-2024. Fitch expects capital investments to be made from the second half of the year, so no additional new debt needs are expected to finance infrastructure projects.
There is a wide list of projects with regional impact, which may require co-financing from the National Government. Dialogue between these territorial entities and the Nation will be fundamental for the advancement of such investment initiatives.
Real Estate Sector
Fitch Ratings expects the Latin American real estate sector’s fundamentals to continue improving in 2024, according to its new outlook report.
Nearshoring is supporting strong occupancy rates and rent growth for industrial properties in Mexico. In addition, Fitch expects issuers in the industrial subsector to post high-single-digit revenue and EBITDA growth in 2024, supported by high demand.
Fitch expects the region’s shopping malls to maintain strong cash flow generation capacity and sound liquidity. This segment should benefit from inflation-adjusted rents, high collections and limited occupancy rate volatility throughout cycles. Fitch believes the LatAm office market will experience a slow but steady recovery in occupancy rates and rents, but should remain limited by oversupply and hybrid work.
LatAm real estate credit profiles experienced limited credit risk and rating deterioration over the past few years, aided by strong beginning balance sheets, healthy access to capital, and stable operating metrics. Sector leverage is manageable, liquidity is strong, near-term debt maturities are low, and portfolios hold high levels of unencumbered assets.
High-yield issuers rated in the sector are mostly limited by scale and/or operating environment. A potential slowdown in the U.S economy, electoral cycles, inflation, and persistently tight financial conditions remain the potential risks.
The outlook for the Latin American cement sector is neutral, according to Fitch Ratings latest Latin American Cement Outlook report. Fitch expects volumes to stage a recovery throughout the year after closing 2023 at subdued levels. Pricing was a bright spot in 2023, with record price increases at double digits, but it is likely to lose traction given declining inflation trends and lower energy prices.
Capital allocation strategies are expected to set the tone for rating changes during 2024. Most issuers currently present strong capital structures within their respective rating levels. Management decisions to invest in business growth, diversification (M&A), in ESG, or even in portfolio rebalancing seeking more value-added products or services/solutions will be key factors driving credit metrics in 2024. In terms of refinancing, we expect most issuers to remain proactive with their liability management strategies to avoid refinancing risks in the medium term.