Fitch Ratings recently published several important reports on areas of interest in Colombia and Latin America. Below is a summary of what the New York-based rating agency revealed in each of its reports about Colombia’s municipalities after last year’s elections. Improving the real estate sector across Latin America. and a neutral outlook for the region’s cement sector.
colombian government
Fitch Ratings 2024 Outlook: Colombian Municipalities
Fitch Ratings expects the risk profile assessment to remain unchanged, along with key risk factors (KHRs), but both the macroeconomic environment and the ability to mitigate its impacts will impact the sustainability and adaptability of spending. We will continue to pay special attention to related matters. growth.
However, low economic growth may affect consumption-related tax revenue trends and negatively impact local operating balances to the extent that local government groups (LRGs) are unable to carry out effective expenditure management.
The new territorial government, which will take office in January 2024, is expected to announce a development plan by mid-2024. No new borrowings are expected to be required to fund infrastructure projects, as Fitch expects capital spending to take place from the second half of this year.
There is an extensive list of projects that impact the region, which may require co-financing from central government. Dialogue between these regional entities and States will be the basis for moving forward with such investment initiatives.
real estate sector
2024 Latin American Real Estate Outlook
Fitch Ratings expects the fundamentals of the Latin American real estate sector to continue to improve in 2024, according to a new outlook report.
Nearshoring supports high occupancy rates and rental growth for industrial real estate in Mexico. Additionally, Fitch expects issuers in the industrial subsector to post high-single-digit revenue and EBITDA growth in 2024, supported by strong demand.
Fitch expects the region’s shopping malls to maintain strong cash flow generation capacity and healthy liquidity. This segment should benefit from inflation-adjusted rents, high recovery rates, and limited occupancy fluctuations across the cycle. Fitch believes Latin America’s office market should recover slowly but steadily in occupancy and rents, but remain constrained by oversupply and hybrid working.
Latin America’s real estate credit profile has experienced limited credit risk and rating downgrades over the past few years, supported by strong initial balance sheets, sound capital access, and stable operational metrics. The sector’s leverage is manageable, liquidity is high, short-term debt maturities are low, and the portfolio contains a high level of unencumbered assets.
Most high-yield issuers rated in this sector are limited by size and operating environment. A potential slowdown in the U.S. economy, the election cycle, inflation, and continued tight financial conditions remain potential risks.
cement department
Latin America Cement Outlook 2024
The outlook for the Latin American cement sector is neutral, according to Fitch Ratings’ latest Latin America Cement Outlook Report. Fitch expects volumes to recover throughout the year after ending 2023 at subdued levels. Pricing in 2023 was encouraging with record double-digit increases, but is likely to lose momentum given lower inflation trends and lower energy prices.
Capital allocation strategy is expected to set the tone for rating changes in 2024. Most issuers currently exhibit strong capital structures within their respective rating levels. Management decisions to invest in business growth, diversification (M&A), ESG, or portfolio rebalancing in search of higher value-added products, services/solutions will be important factors that will determine credit indicators in 2024. right. Regarding refinancing, most issuers are expected to do so. Continue to aggressively pursue debt management strategies to avoid medium-term refinancing risks.