(Fitch Ratings, 27.May.2020) — Latin American infrastructure projects face heightened risk of grantor payment delays driven by the increased pressure the coronavirus pandemic is placing on government finances, according to a new Fitch Ratings report.
“Sharper delays, depending on materiality and duration, could rapidly lessen payment capacity of projects with an already weak liquidity position,” said Astra Castillo, Senior Director at Fitch.
In some projects, liquidity requirements were underestimated and the longer than anticipated collection days resulted in unexpected stress on cash flows.
Projects that suffer prolonged grantor payment delays face unexpected increases in working capital needs. Some projects used reserve funds for contingencies, accrued dividends, and delayed supplier payments to finance day-to-day operations and meet debt service in a timely manner.
In the absence of adequate liquidity, projects have tended to increase the payment days to suppliers or to defer capex, heightening projects’ vulnerability to underperformance. Fitch has seen how some debt structure characteristics can mitigate, to some extent, grantor payment delay risk, but these enhancements are not cost-neutral.
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