Few Corporate Defaults Expected in 2009

Thanks largely to liquidity support from governments, EM corporates should see low default rates in 2009, says Anne Milne, head of Deutsche Bank’s LatAm corporate bond research group. “We see almost no default next year in Latin America,” she tells investors at an EMTA event in New York, adding that her shop forecasts a 4.0% default rate in EM. JPMorgan and Merrill expect 1.0% and 3.0% respectively, versus 0.3% currently. The most probable candidates are Argentine corporates having difficulties long before the credit crisis, she says. Milne places Brazil and Mexico as among the best EM corporates going into 2009, citing the Brazilians’ low short-term debt and available BNDES support and Mexico’s liquidity support. She says her shop likes industry leaders and quasi-sovereigns like Petrobras, Vale and Televisa in a conservative portfolio, as well as Braskem, CSN, Embraer, Gerdau and Odebrecht for the moderate investor. She also tips top tier Argentine oil companies that have not defaulted, and TGS, for more aggressive allocation. Though hedge funds and others with a shorter-term view may be mostly gone, Milne sees the buy-side slack next year picked up by local market investors. Generally in EM, analysts are concerned about the private sector. “The sovereign looks great, the problem is the corporates,” says Joyce Chang, head of global EM and global credit research at JPMorgan. “They have about $210bn to roll over,” she adds.