The political, financial and economic volatility in Latin America will provide ample opportunity for distressed investors that have the stomach for some risk. "Emerging markets have gained momentum as they offer growth in a low-return environment with interest rates in their lowest point in decades," said Guillermo Jasson, head of Latin American M&A and Restructurings at Morgan Stanley.
Lack of sector consolidation, poor management, technological discontinuities, unnecessary capital expenditures and the financial distress of parent companies are factors that could create opportunities for distressed players in the region, Jasson said. But, he noted, "Timing is everything," and having the discipline to know when to enter or exit situations is even more important than finding the next asset to default. Jasson would not discuss individual country situations.
According to Jasson, in places where there is low availability of local currency financing and a high degree of leverage in foreign currencies, typically capital intensive businesses tend to be more vulnerable to currency devaluation and become distressed candidates. However, in countries with developed local financing markets distressed opportunities will be less correlated with devaluations and be tied more to capital structure and business model fundamentals, he noted.
A slowdown in the U.S economy could also affect businesses that are highly linked to that market and could create additional sources of distressed investment in the region, Jasson added.