Emerging Market Mega Borrowers Forecast Snapshots for Mid to Low Investment-Grade Issuers Corporates / APAC and Latin America April 2019 Contacts Global Head Richard Hunter Global Group Head – Corporate Ratings +44 20 3530-1102 Regional Group Heads Daniel R. Kastholm, CFA Buddhika Piyasena Head of Latin America Corporate Ratings Head of Asia Pacific Corporate Ratings +1 312 368-2070 +65 6796-7223 Deputy Regional Group Heads Joe Bormann, CFA Steve Durose Deputy Head of Latin America Corporate Ratings Deputy Head of Asia-Pacific Corporate Ratings +1 312 368-3349 +61 2 8256-0307 Research Heads Jay Djemal Matt Jamieson Head of Credit Research – Latin America Head of Credit Research – Asia Pacific +1 312 368-3134 +822 3278-8355 Analytical Contributors Danny Patel Nikhil Chaturvedi Analyst Data Analyst +1 312 368-5461 +1 312 205-3396 Brian Lively Associate Analyst +1 312 368-3129 www.fitchratings.com | April 2019 2 This report, originally published on March 13, 2019, was amended to correct Codelco’s SCP rating on page 15. Content GREs Comprise Half of APAC and LatAm Emerging Market Mega Borrowers 4 Emerging Market Mega Borrowers in APAC and LatAm 5 Mega Borrowers America Movil S.A.B. de C.V. 7 Braskem S.A. 8 China Communications Construction Company Limited 9 China Minmetals Corporation 10 China National Chemical Corporation Limited 11 China Railway Group Limited 12 CK Hutchison Holdings Limited 13 Comision Federal de Electricidad (CFE) 14 Corporacion Nacional del Cobre de Chile (Codelco) 15 Country Garden Holdings Co. Ltd. 16 Ecopetrol S.A. 17 HBIS Group Co., Ltd. 18 Petroleo Brasileiro S.A. (Petrobras) 19 Petroleos Mexicanos (PEMEX) 20 Poly Developments and Holdings Group Co., Ltd. 21 Power Construction Corporation of China 22 PT Perusahaan Listrik Negara (Persero) 23 Reliance Industries Ltd 24 Shougang Group Co., Ltd. 25 Suzano Papel e Celulose S.A. 26 Vale S.A. 27 Analyst Contacts 28 www.fitchratings.com | April 2019 3 Corporate Finance GREs Comprise Bulk of APAC and LatAm Emerging Market Mega Borrowers Mid to low investment-grade issuers — defined as companies with Issuer Default Ratings (IDRs) spanning ‘A–’, ‘BBB+’, ‘BBB’ and ‘BBB–’ — compose 38% of Fitch Ratings’ portfolio Total Adjusted Debt/EBITDAR — in both emerging market regions of APAC and LatAm, respectively. This share of ratings ‘BBB’ Category Medians shows a slight increase for LatAm compared with a decade ago, when mid-investment- APAC LatAm grade ratings composed 36% of the portfolio, but indicates a small reduction for APAC, (x) where the proportion was 44% a decade ago. 4.0 3.8 The majority of emerging market mega borrowers in this rating range — classified 3.5 as issuers with USD30 billion or more of adjusted debt over our rating horizon in APAC and USD10 billion or higher in LatAm — are located in China (nine of 20), Brazil (three) 3.3 and Mexico (three), the largest economies of both regions, respectively, and in the case 3.0 of China, among the largest globally. The higher debt cut-off point used to define a 2.8 mega borrower in APAC compared with LatAm reflects the larger number of Fitch-rated 2.5 government related entities (GREs) in China alone (32), compared with the entire LatAm 2016 2017 2018F 2019F 2020F region (18), tilting the scale in our sample above USD30 billion in that market. F – Forecast. Source: Fitch Ratings. The gross adjusted debt of the top 20 GREs rated by Fitch since 2008 has almost tripled to over USD1 trillion. Debt raised by corporate GREs has been a major driver of increasing Total Adjusted Net Debt/EBITDAR — emerging market corporate indebtedness. Eleven of the 21 issuers listed in this report ‘BBB’ Category Medians are GREs holding USD532 billion of debt between them, accounting for 61% of the APAC LatAm (x) total adjusted rating horizon debt of USD870 billion for all the emerging market mega borrowers. APAC GRE mega borrowers comprise six of 12 issuers and LatAm GRE mega 3.3 borrowers represent five of nine issuers. 3.0 The emerging market mega borrower with the largest rating horizon adjusted debt 2.8 balance is Petroleos Mexicanos (PEMEX, BBB–/Negative) with USD109 billion, followed 2.5 by Petroleo Brasileiro S.A. (Petrobras, BB–/Stable) with USD82 billion. The inclusion of Petrobras at ‘BB–’ is an exception due to its established status as a mega borrower 2.3 in LatAm and its stand-alone credit profile being close to investment grade at ‘BB+’. 2.0 The third largest is CK Hutchison Holdings Limited (A–/Stable), with USD63 billion. 2016 2017 2018F 2019F 2020F Fourth through seventh place are Chinese GREs: China National Chemical Corporation F – Forecast. Limited (A–/Stable), China Communications Construction Company Limited Source: Fitch Ratings. (A–/Stable), Power Construction Corporation of China (A–/Stable) and China Minmetals Corporation (BBB+/Stable), together representing over USD230 billion of adjusted debt. FFO Interest Coverage — The third-largest borrower in LatAm is America Movil S.A.B. de C.V. (A–/Stable), with ‘BBB’ Category Medians USD32 billion of adjusted debt. Vale S.A. (BBB–/Rating Watch Negative) is the fourth- APAC LatAm (x) largest LatAm mega borrower, with USD23 billion over the rating horizon. 6.5 The sectors with the highest representation of emerging market mega borrowers are 6.0 Metals & Mining (four of 21, two of which are GREs) jointly with Oil & Gas (four of 21, all of which are GREs) and Building Materials & Construction (three of 21, also all GREs). 5.5 5.0 Individual forecast snapshots that include rating derivation summaries, rating action sensitivities and forecast assumptions follow for each emerging market mega borrower. 4.5 4.0 EM Mega Borowers’ Rating Horizon Adjusted Debt Split 2016 2017 2018F 2019F 2020F (Approximately USD790 Billion Total) F – Forecast. Vale Codelco Ecopetrol CFE Braskem Source: Fitch Ratings. 3% 2% 1% 1% PLN 3% Suzano 3% 1% FCF Margin — PEMEX ‘BBB’ Category Medians China Railway Group 13% 3% APAC LatAm Petrobras (%) HBIS Group 9% 2.0 4% 1.5 CK Hutchison America Movil 1.0 7% 0.5 4% ChemChina 0.0 (0.5) RIL 7% 4% (1.0) CCCC (1.5) Poly Developments (2.0) 5% 7% PCCC (2.5) Shougang Group Country Garden China Minmetals 7% 2016 2017 2018F 2019F 2020F 5% 6% 6% F – Forecast. Source: Fitch Ratings. Source: Fitch Ratings. www.fitchratings.com | April 2019 4 Corporate Finance Emerging Market Mega Borrowers in APAC and LatAm Mega Borrower IDR/Outlook Adjusted Rating Horizon Debt (USD billion) Pemex BBB–/Negative 109 a Petrobras BB–/Stable 82 CK Hutchison Holdings Limited A–/Stable 63 China National Chemical Corporation Limited A–/Stable 61 China Communications Construction Company Limited A–/Stable 60 Power Construction Corporation of China A–/Stable 57 China Minmetals Corporation BBB+/Stable 53 Country Garden Holdings Co. Ltd BBB–/Stable 48 Shougang Group Co., Ltd A–/Stable 45 Poly Developments and Holdings Group Co., Ltd. BBB+/Stable 40 Reliance Industries Ltd BBB–/Stable 34 America Movil A–/Stable 32 HBIS Group Co., Ltd. BBB+/Stable 32 China Railway Group Limited A–/Stable 30 PT Perusahaan Listrik Negara (Persero) BBB/Stable 27 Comision Federal de Electicidad (CFE) BBB+/Negative 25 Vale BBB–/RWN 23 Codelco A–/Stable 16 Ecopetrol BBB/Stable 12 Suzano Papel e Celulose S.A. BBB–/Stable 11 Braskem BBB–/Stable 10 aFinancial debt only. IDR – Issuer Default Rating. RWN – Rating Watch Negative. Source: Fitch Ratings, Fitch Solutions. Rating Level Split of EM Mega Rating Horizon Adjusted Debt Country Split of EM Sector Split of EM Borrowers Split of GRE Versus Non-GRE Mega Borrowers Mega Borrowers (As of Feb. 26, 2019) EM Mega Borrowers Utilities Building Materials BB– Telecom 10% & Construction 5% Mexico 5% 14% A– Non- 15% Brazil Pulp & Chemicals BBB– 38% GRE 19% Paper 10% 29% 39% Indonesia 5% 5% Hong Chile Kong 4% 5% India 5% Oil & Colombia Gas Diversified BBB GRE 5% 19% Services 9% 61% BBB+ 10% China 19% Metals & Mining 43% Homebuilding 19% 10% GRE – Government-related entity. EM – Emerging market. EM – Emerging market. EM – Emerging market. EM – Emerging market. Source: Fitch Ratings. Source: Fitch Ratings. Source: Fitch Ratings. Source: Fitch Ratings. www.fitchratings.com | April 2019 5 Corporate Finance Emerging Market Mega Borrowers in APAC and LatAm (Continued) APAC Mega Borrowers LatAm Mega Borrowers Margins — APAC Commodities Sector Medians Margins — LatAm Commodities Sector Medians EBITDA Margin CFFO Margin FFO Margin EBITDA Margin CFFO Margin FFO Margin (%) (%) 25 40 35 20 30 15 25 20 10 15 10 5 5 0 0 2016 2017 2018F 2019F 2020F 2016 2017 2018F 2019F 2020F CFFO – Cash f low f rom operations. F – Forecast. CFFO – Cash f low f rom operations. F – Forecast. Source: Fitch Ratings, Fitch Solutions, company reports. Source: Fitch Ratings, Fitch Solutions, company reports. Margins — APAC Industrials Sector Medians Margins — LatAm Industrials Sector Medians EBITDA Margin CFFO Margin FFO Margin EBITDA Margin CFFO Margin FFO Margin (%) (%) 30 25 25 20 20 15 15 10 10 5 5 0 0 2016 2017 2018F 2019F 2020F 2016 2017 2018F 2019F 2020F CFFO – Cash f low f rom operations. F – Forecast. CFFO – Cash f low f rom operations. F – Forecast. Source: Fitch Ratings, Fitch Solutions, company reports. Source: Fitch Ratings, Fitch Solutions, company reports. Margins — APAC Consumer and Margins — LatAm Consumer and Healthcare Sector Medians Healthcare Sector Medians EBITDA Margin CFFO Margin FFO Margin (%) EBITDA Margin CFFO Margin FFO Margin (%) 20 20 16 15 12 10 8 4 5 0 0 2016 2017 2018F 2019F 2020F 2016 2017 2018F 2019F 2020F CFFO – Cash f low f rom operations. F – Forecast. CFFO – Cash f low f rom operations. F – Forecast. Source: Fitch Ratings, Fitch Solutions, company reports.
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