Fitch: Currency Volatility Magnifies FX Risk for Infrastructure Projects

BOGOTA, Colombia--(BUSINESS WIRE)-- Currency devaluation, in the face of a strong USD, is increasing FX risks for infrastructure projects, according to a new Fitch ratings report.

"Multiple currencies are at their lowest levels in over a decade due in part to waning demand for commodities, particularly copper and oil. That, coupled with a USD that was up 78% over various Latin American currencies through February, has created a situation where FX risk is heightened - and at the same time more difficult to mitigate," said Glaucia Calp, Managing Director.

Hedging may be limited, or unavailable, because long-term exposure to a country or currency is undesirable. Even if hedging is possible, the local market may lack sufficient liquidity or be prohibitively expensive.

FX risk occurs in projects with a revenue/debt mismatch, projects with operating expenses/debt mismatch, or projects with lifecycle costs.

Potential FX risk can be mitigated with revenue indexation or mechanisms that allocate the grantor most of the risk. These indexing mechanisms are imperfect, exposing project structures to some level of risk through exchange timing or measurement limitations. Fitch considers such risks when assigning a rating.

Colombia's 4G highway project, for example, poses two kinds of FX risk. U.S. Dollar depreciation could limit pesos available to pay for date-certain fixed-price construction-related contracts. Conversely, USD appreciation could affect debt service in some specific instances.

For more information, a special report titled 'FX in Infrastructure Project Finance: Where are the Risks?' is available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.FX in Infrastructure Project Finance: Where Are The Risks? (Latin America Focus on Foreign Exchange Risk)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872949

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160331006187/en/

Fitch Ratings
Glaucia Calp
Managing Director
Fitch Ratings, Inc.
Bogota, Colombia
+57 1 326 9999 x1110
or
Casey Cathcart
Associate Director
+1-312-368-3214
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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