Polina’s Perspective: Brazil 3-0 Scotland revisited – EM corporates deliver against all odds

Are you a football fan? I watch a game or two every four years during the World Cup. The scale, emotional intensity and great atmosphere turn most of us into passionate football fans.

Last week I was in Miami, attending an excellent EM credit conference hosted by BofAML, coinciding with the Brazil–Scotland match. Just as Brazil's commanding 3-0 victory over Scotland demonstrated tactical brilliance and individual excellence working in harmony, the emerging markets corporate sector delivered its own masterclass. Brazil's goals came not only from the standout performance of Vini Junior, but disciplined positioning and clinical execution under pressure - the qualities I witnessed among select EM corporates who are not just surviving, but thriving, despite operating in an environment of historically high real rates and sovereign uncertainty.

What struck me during my meetings was the level of corporate maturity and operational sophistication. I encountered CFOs who speak fluently about ESG frameworks, operational efficiency, and strategic capital allocation with a precision that would make some developed market peers envious.

As companies mature, so does the market, with a growing share of local debt. For example, in Brazil, according to one of the advisory firms I met with, “the proportion of debt inventory sourced from local capital markets amongst Brazilian corporates compared to bank loans is approaching 50-50 for the first time”. This $150bn local issuance represents a structural shift towards corporate self-reliance that fundamentally alters the macro narrative.

It was also interesting to probe the impact of key macro variables on EM corporate balance sheets – including the growth outlook, inflation, commodity price volatility, as well as elevated local rates and local currency volatility - and to learn about companies’ strategies to bolster their resilience. Here are some of my findings:

On growth: ambitious plans meet financing reality

The growth story is nuanced - corporate ambition is unmistakable, but financing and rating constraints are forcing tactical pivots. Argentina's quasi-sovereign energy company [YPF] is a good example. Its US$20bn+ LNG project represents transformational potential, with "US$12bn EBITDA by 2031 with US$3bn coming from this project alone" – yet it is not clear if suppliers are able to access funding at the required pace to support the company’s growth ambitions.

This creates a paradox: corporations are ready to invest at unprecedented scale, but sovereign-level financing bottlenecks remain. The company’s management says it needs "US$4.5bn, so US$1.5bn per year" but it must rely on bond funding when contractor financing remains elusive, given the high level of local rates and limited lending from the banking sector.

In other countries, like Colombia, some large conglomerates in the consumer goods sector [Nutresa] are focusing on acquisition fuelled expansion in higher rated countries like Mexico and the US in order to reduce their cost of funding. 

On inflation: a healthier pass-through evolution

Notably, contrary to previous cycles, weaker sovereign nations - particularly across Africa - have demonstrated significantly improved payment discipline during this current period. Senior management at a global multinational energy company that operates across a range of EM countries [Puma Energy] noted that these governments have been promptly settling fuel supply payments, despite elevated oil prices in 2Q26, while simultaneously adjusting domestic pump prices rather than burdening sovereign balance sheets. Consequently, corporates have managed to preserve healthier cash flow profiles compared to historical patterns.

On oil volatility: reforms in an all-weather environment 

Contrary to previous oil boom cycles where high prices typically discouraged reform efforts, several oil exporters have leveraged a favourable environment to implement structural changes within their energy sectors. Nigeria exemplifies this shift, as evidenced by feedback from private sector participants such as a leading independent oil and gas exploration and production company [Seplat Energy], who reported witnessing a meaningful corporate governance shift at the state oil company [NNPC] - their joint venture partner in field development. These improvements include a new technocratic board, replacing political appointees, a shift in composition of the executive management team to former Shell/Chevron professionals rather than civil servants, and enhanced transparency under the new PIA legislation requiring NNPC's conversion to LLP status with mandatory financial disclosures. These developments represent meaningful progress toward creating a more attractive environment for both domestic and international private sector engagement.

On new opportunities: the Venezuelan sugar rush

Perhaps the most animated discussion topic was getting corporate feedback on opportunities in Venezuela. There is a lot of interest in the country’s transformation into what one participant described as, “a huge sugar rush…feels like the Soviet Union just after it fell apart”, to convey the sense of magnitude of the opportunity for direct investment. The enthusiasm is palpable but measured. Some issuers observe that transportation bottlenecks could be an issue and that neighbouring Colombia might serve as a helpful infrastructure hub. Others observe that the additional cost of bringing oil production online could be relatively modest given that “while on the surface, infrastructure is terrible, just one field is equivalent to the size of neighbouring country reserves”. Corporates also exhibited interest in aviation infrastructure investments in Venezuela. The buzz around potential opportunities highlighted the paradox where commercial prospects surpass governmental stability.

Corporate vs sovereign: the team dynamics

While corporates have generally navigated sovereign vulnerabilities effectively, their strategies and growth models nevertheless remain susceptible to sovereign risks.

Operating amid elevated real rates, currency volatility, and political shifts can present significant challenges.

The significance of taking into account the sovereign economic backdrop was exemplified over the past twelve months in Brazil, where exceptionally high real rates approaching 10% resulted in select corporates - including some investment-grade entities - undergoing debt restructuring. However, unlike defaults historically, typically caused by poor business fundamentals, these cases involve sound underlying operations where liquidity constraints or prohibitive debt costs necessitate debt reprofiling. Consequently, we anticipate recoveries reaching 60-70 cents on the dollar versus the historical 40-cent average. Meanwhile, other sectors like aviation remain under pressure, with operators requiring near-term deleveraging. Some may access equity capital markets for solutions, while others depend on government assistance - creating a point of vulnerability.

However, as countries' institutions mature, corporates find navigation of the political landscape more manageable. For example, the largest independent oil and gas exploration and production company in Colombia, [SierraCol] benefits from "strong institutions where the president really doesn't have all that much power", allowing for corporate planning despite broader fiscal challenges in the country. As management noted: "There are so many checks and balances on the president that it's very difficult to get something crazy done". Nevertheless, the prospects for substantial progress remain in place, and accessing equity markets plus lowering benchmark rates could provide additional corporate momentum. This must accompany fiscal consolidation - a formidable challenge in high-yield rated democracies.

Brazil's tactical masterclass

Just as Brazil's 3-0 victory demonstrated that individual brilliance (corporate excellence) and tactical discipline (institutional sophistication) can overcome any opponent, EM corporates have developed certain capabilities and resilience that transcend traditional sovereign risk constraints. They have learned to play on any pitch, in any weather, against any opposition.

As investors, this means the macro narrative must evolve beyond the traditionally assumed sovereign-corporate correlation dynamics. We are witnessing the emergence of institutionally mature corporate sectors that are determined to deliver sustained performance, even when faced with sovereign volatility. Like Brazil's systematic dominance in Miami, the shift toward this decoupling is not a consequence of luck or commodity pricing - rather, it is the result of years of tactical evolution and institutional learning.

The beautiful game continues, but the rules have fundamentally changed. Corporate champions are no longer passengers on the sovereign bus – they are driving their own tactical evolution toward sustained excellence.