The outbreak of ongoing protests and demonstrations in Peru as a result of social unrest in the South American country could weaken the creditworthiness of some companies in the South American country, rating agency Fitch warned on Wednesday. Companies with high operational exposure to areas of social unrest, as well as companies dependent on domestic consumption or the production of goods and services, could experience business disruptions severe enough to affect their ability to service debt, the company’s analysts said New York-based Julie Garcia. Caroline Rudge and Stephen Boyd.
According to the latest report from the Office of the Ombudsman, 60 people have died in the demonstrations that began in December when then-President Pedro Castillo failed in his attempted coup and was arrested by the authorities. Castillo is being held in a Lima jail, where he is serving an 18-month suspended sentence for trying to dissolve Congress and impose an emergency government. His supporters have since taken to the streets demanding snap elections, which Congress did not approve.
Credit ratings are assigned by private research firms such as Fitch to companies or governments that issue debt in international markets. Investment grade issuers have access to a larger buyer base and pay lower interest rates. Some companies in Peru, as well as the government itself, are currently investment grade, but in October the Treasury Department asked Congress to pass “urgent” measures as Peru could lose its rating and pay more interest. Fitch changed his outlook on the country to negative from stable in October last year, as the Castillo administration weathered two failed attempts by Congress to overthrow him and his cabinet experienced high staff turnover.
“Companies involved in the natural resources and mining sectors face the highest risk of business disruption from social unrest,” Fitch said in his report. “Many of Peru’s mines are located in the Cuzco and Puno regions, where protesters have concentrated their activities. These rural regions southeast of Lima, near Bolivia, have mountainous terrain that limits the number of transportation corridors. Prolonged lockdowns could lead to a drop in metal supply and ultimately revenue,” the analysts added.
This weakens their financial position and increases the risk of not being able to pay their debts. “Negative rating actions are possible in a scenario of persistent social instability affecting a company’s operations, after accounting for insurance and other compensatory measures,” Fitch warned. According to the company, the Minsur company has halted operations at one of its mines due to nearby protests; Minmetals’ Las Bambas mine, Glencore’s Antapaccay mine and Hudbay Minerals’ Constancia mine were also temporarily suspended.
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