Project development and finance is likely to slow in the first half of the year in Latin America, according to industry sources.
While region grapples with the impact of COVID-19, sponsors, advisors and bankers are also having to adapt to a new scenario of business travel coming almost to a halt, remote work becoming the norm, and volatility and uncertainty in the markets, and unpredictability of economic, social and political prospects.
“How to price a long-term transaction now? It is virtually impossible,” said a syndication banker at an international commercial lender. “And I mean a corporate loan, arranging a structured debt deal is even harder. If there is anything on the table now, must be short-term facilities for familiar clients. No new credit risk,” he added.
Everybody is in a wait-and-see mode primarily, after seeing the sudden 100bps-cut to the US monetary policy rate that the Federal Reserve announced on 15 March. Chile’s Central Bank also cut the benchmark rate by 75bps to 1% the following day, while the Peruvian Central Bank cut the policy rate by 100bps to 1.25% on 19 March. More cuts are anticipated in the region, especially in Mexico. Additionally, rating agencies have hinted at coming downgrades to sovereigns, corporates and financial institutions. Fitch’s announced recently its decision to place Chile on a negative outlook.
“Those transactions that we were expecting to see closed in the next two, three or four weeks are most likely to be delayed, especially if commercial lenders are involved, because of all the volatility and the possibility of a global recession. Maybe multilateral lenders can get something done, given that they have a different role and priorities,” said a project finance banker at a multilateral institution.