Peru: Low Commodities Keep Corporate Liquidity Elevated

Frontier Friday: Liquidity Risk Remains Elevated, But Stable

As commodity prices have remained low into 2016, Peru’s currency has weakened against the US dollar as Peruvian corporations see liquidity risks rising, according to a published report from Moody’s Investors Service. An evaluation of 14 Peruvian companies showed “high liquidity risk” Moody’s found, meaning they lack sufficient, readily available cash sources (cash and committed credit facilities) to cover their cash needs, including short-term debt maturities or free cash flow deficits through the next two years.

“Low commodity prices and weaker growth will continue to put corporate liquidity under pressure,” said Veronica Amendola, a vice president and senior analyst at Moody’s Investors Service, said this month in a published note to clients.

By sector, a number of agricultural and fishing companies in Peru are showing to have the weakest cash cushions. Moody’s notes that “liquidity will also generally be tight through 2016 for a few mining companies, particularly the ones facing strained cash flows and carrying out large expansion projects.”

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A trader checks a newspaper at the Santiago Stock Exchange (Ivan Alvarado/Courtesy Reuters)

Overall, Moody’s believes that Peru’s economic growth will pick up to 4%-4.5% in
2016 and 2017 respectively, driven by a recovery in private and public investment, particularly within infrastructure development. However the agency notes that growth “will remain below the levels achieved in previous years”.

This slower pace of growth is mostly due to lower commodity prices worldwide, economic deceleration in China and persistent financial market volatility.

Photo Credit: Andina/Carlos Lezama

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