Latin American Energy Sector Economic Climate and its Impact on the Sector
Ana Paula Ares Senior Director La Jolla, May 12th, 2009
Global and Regional Economic Slowdown
Latin American GDP Growth (%) 7 6 5 4 3 2 1 0 (1)
19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 E 20 08 F 20 09 F 20 10 F
(2)
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2
Unprecedented Risk – Fear and Panic Strike VIX Signaling Next Great Depression? (VIX Index)
>
Volatility Off the Charts
90 80 70 60
>
Pricing Dislocations
9/11
50
Enron, Worldcom
40
>
Global Government Intervention
30 20 10
’09 Outlook Bleak
/ 02 5/2 / 02 9/2 / 02 1/2 / 03 5/2 / 03 9/2 / 03 1/2 / 04 5/2 / 04 9/2 / 04 1/2 / 05 5/2 / 05 9/2 / 05 1/2 / 06 5/2 / 06 9/2 / 06 1/2 / 07 5/2 / 07 9/2 / 07 1/2 / 08 5/2 / 08 9/2 / 08 1/2 / 09
/ 01
1/2
9/2
5/2
1/2
/ 01
0 / 01
>
Source: Bloomberg
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3
Dow Jones Industrial Average (Number of Days Over +/- 5.0% Change)
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1/6/1938
????
1/2/2014
1/2/2012
1/2/2010
1/2/2008
Series1
1/2/2006
Source: Bloomberg
22,504
15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 1/2/2004
Number of Observations
DJIA 1998 – 2008
14
1/2/2002
2008-YTD 2009
100
1/2/2000
1920-1940
1/6/1936
37
1/6/1934
1932
1/6/1932
13
1/6/1930
1931
1/6/1928
3
1/6/1926
1930
Series1
1/6/1924
13
1/6/1922
1929
450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 1/6/1920
129
1/2/1998
Since 1920
DJIA 1920 – 1939
4
Defaults On the Rise Recent Defaults –
–
Arantes (Liquidity/Trade Lines)
CCM (Derivatives/Bad Bets)
Latin American Cross-border Defaults $14,000
Systemic Related
$12,000 $10,000
–
Transtel (Undercapitalized)
$8,000 $6,000
–
Durango (Economy/Undercap)
$4,000 Idiosyncratic Related
–
$2,000
TGN (Lost Customer) $0
–
Vitro
–
Near Misses ???? (Gruma, Aracruz)
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19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
>
Source: Fitch
5
Contagion in Latin American Debt Markets
International
Domestic
2Q07
3Q07
Domestic
International
4Q07
1Q08
Total Latin America Issuance
(USD Bil.) 28,000 24,000 20,000 16,000 12,000 8,000 4,000 0 4Q06
1Q07
2Q08
3Q08
4Q08
Source: Dealogic
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Prepared Like Never Before De leveraging Net Debt (USD Mil.) EBITDA (USD Mil.) Debt/EBITDA (%)
(USD Mil.)
Better Debt Composition (Short Debt/Long-Term Debt) (%)
600
(%) 3,5
40
3,3
35
3,1
500
30
2,9 400
2,7
300 200
25
2,5
20
2,3
15
2,1
10
1,9
100
1,7 0
1,5 2003
2004
2005
2006
2007
Source: Fitch Data Base, median values
2008
5 0 2003
2004
2005
2006
2007
2008
Investing in an Unpredictable World >
Electricity reserve margins remain tight
>
Electricity demand continues to grow albeit at a slower rate
>
Large capital spending cycle likely to continue
>
Discretionary capex is a small component of total ongoing investment
>
Slowing growth will provide some opportunity to cut/ slow investments
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8
Short-Term Drivers Conflict with Long-Term Planning
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9
External Funding >
Reduced liquidity and access to capital and credit markets
>
Limited financing options
>
Higher cost of capital
>
Multilaterals to play a bigger ‘key’ role
>
IPOs subject to equity market conditions
>
Back to the Basics - Liquidity
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Back to the Basics - Liquidity Investment Grade
2003
2004
2005
2006
2007
2008
Cash/STD
1.4
1.2
1.3
1.2
0.9
1.0
STD/LTD
23%
37%
16%
17%
24%
23%
Cash+EBITDA/STD
4.3
4.1
5.2
4.3
2.9
3.5
Cash/STD
0.4
0.9
2.4
2.2
2.4
1.5
STD/LTD
45%
27%
20%
19%
21%
19%
Cash+EBITDA/STD
1.1
2.9
6.5
5.4
5.0
3.6
Cash/STD
0.5
1.1
0.7
1.5
2.5
2.3
STD/LTD
97%
23%
21%
16%
14%
15%
Cash+EBITDA/STD
1.1
2.5
2.4
3.8
5.3
4.8
Speculative Grade
Highly Speculative Grade
Source: Company Reports, Various Other Data Sources, Fitch Estimates
Concluding Observations >
Market Volatility at Levels Not Seen Since the Great Depression
>
Liquidity Crunch and Dramatic Economic Slowdown are Real
>
Default and Downgrade Risks Remain High – Expect More Defaults
>
Corporate Balance Sheets and Liquidity Strong for Most Cross-Border Issuers
>
Credit Rating and Outlook Implications – Utilities are well positioned => Defensive Sector – Short term stresses do not generally affect ratings and outlooks > Expect coverage measures to weaken > Draw-downs on bank revolvers reduce flexibility – Credit Rating Activity likely to reflect individual issuer circumstances
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