More Volatility Related Distress to Come

While the bankruptcy of Brazilian seed company Selecta Sementes appears to be an isolated incident, more derivative and refinancing-related distress is seen coming in Brazil’s agricultural sector, say advisory experts. Beef processors and sugar and ethanol companies are particularly vulnerable, they add. Glauco Abdala, advisory specialist at Brazilian restructuring boutique Galeazzi Associados’ said recently that an abundance of credit to the sector is generating a rollover crisis at a number of agricultural companies. Generally in LatAm, currency volatility has hurt exporters’ hedging mechanisms and more fallout could still be coming, say credit analysts. “To the extent [LatAm continues to see] high volatility and capital markets remain frozen, the risks [of defaults and bankruptcies] will be higher,” says Daniel Kastholm, corporate credit analyst at Fitch. He adds while Fitch believes most of the large derivatives-related losses in the region have been announced, it is still unclear how much counterparty loss remains unreported. In Brazil, Votorantim, Sadia and Aracruz announced close to BRL5bn in losses, while in Mexico Comerci filed for bankruptcy amid derivatives implosion. Durango also filed for creditor protection. Prior to these incidents, LatAm’s most recent defaults occurred in 2003, with Durango, Avianca and Argentina’s CLISA, according to Fitch.