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       T R O U B L E D   C O M P A N Y   R E P O R T E R

                   L A T I N   A M E R I C A

            Wednesday, May 30, 2001, Vol. 2, Issue 105

                           Headlines



A R G E N T I N A

AEROLINEAS ARGENTINAS: Negotiations With Spanish Govt. Futile
AEROLINEAS ARGENTINAS: Unknown Attackers Assault Executive
PARMALAT: To Shut Down Argentinean Branches


B R A Z I L

BAMERINDUS: FGC To Take Charge Of Debts
CEMIG: Performs Well Under 2001 Pressures
CVRD: To Wrap Deal With Chinese Steelmaker Within Three Months
LIGHT/ELETROPAULO: S&P Changes Outlooks to Negative


C H I L E

COLOWALL: Bankruptcy Process To Continue, SC Says
INVERRAZ: To Conclude Cosayach Sale Shortly
TELEX-CHILE: Gets Board Approval To Sell-Off Assets


M E X I C O

BANCRECER: IPAB To Establish Conditions For Reprivatization
GRUPO GIGANTE: Foresees 8-Percent Increase In Sales This Year
GRUPO TRIBASA: Can't Expect Help From Banobras


V E N E Z U E L A

GRAFFITI: Venezuelan Court Approves Debt Moratorium Application


     - - - - - - - - - -


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A R G E N T I N A
=================

AEROLINEAS ARGENTINAS: Negotiations With Spanish Govt. Futile
-------------------------------------------------------------
Talks with Spain over the future of debt-laden Argentinean
carrier Aerolineas Argentinas proved to be futile as it ended
without an agreement, Bloomberg reported Monday. Accordingly, the
airline's majority shareholder asked unions to call of protests
and meet again Tuesday.

Argentina earlier refused to spend more money to prop up its
flagship airline after it pledged to pay $16.2 million in past-
due salaries to avert a second labor strike this month. Spain
said it would not budge on plans to sack 500 workers.

"Neither government will solve the problem with money coming from
the budgets," Economy Minister Domingo Cavallo said in a press
conference in Madrid following a meeting with his Spanish
counterpart Rodrigo Rato.

Argentine officials plan to meet again with Spain's Sepi
investment holding company, the airline's controlling
shareholder, in Madrid Tuesday. Argentine Labor Minister Patricia
Bullrich and Ricardo Cirielli, head of the airline mechanics
union, met with Sepi president Pedro Ferreras on Monday with an
aim to convince the shareholder not to fire more airline workers
for at least two years as part of its plan to keep the airline
afloat.


AEROLINEAS ARGENTINAS: Unknown Attackers Assault Executive
----------------------------------------------------------
Last week, unknown attackers threw fire-bombs at the home of
Aerolineas Argentinas' technical operations manager Roberto
Rolli, causing damage but no injuries, police related in an
Airwise News report Saturday edition. According to Deputy Police
Superintendent Ricardo Garcia, two bombs were hurled at the house
in a drive-by attack in the Buenos Aires suburb of La Matanza.
One of the devices hit the door and the other struck Rolli's car.
According to Rolli, he had received threatening phone calls prior
to the incident. Rolli attributed the attack to the conflict
between Aerolineas Argentinas and domestic affiliate Austral and
their unions regarding an austerity plan to improve the firms'
ailing financial situation.


PARMALAT: To Shut Down Argentinean Branches
-------------------------------------------
Italian dairy company Parmalat announced plans to close five of
its branches in Argentina, leaving only one shop open. The one
operation located in Unicenter shopping center in the city of
Buenos Aires will continue to function, according to a South
American Business Information report Monday. The remaining shop,
which will be left open for another two months, is said to be the
only branch at which operations are profitable. The action is
reportedly part of the company's restructuring. The hand made ice
cream business turns over US$100 million annually. The total
market, including industrial ice cream, sells approximately
US$600 million annually.

Parmalat, in March, also decided to close down its unit in
Itamonte in Minas Gerais, Brazil until late 2001, citing a 40-
percent decrease in the production of milk in the region over the
last three months.



===========
B R A Z I L
===========

BAMERINDUS: FGC To Take Charge Of Debts
---------------------------------------
Talks between the Central Bank of Brazil and credit warranty fund
FGC regarding its task of administering Bamerindus' debts are now
underway, South American Business Information reported Monday.
The central bank is planning to use the R$850 million in cash
left in Bamerindus to pay down debts. To date, Bamerindus debts
with FGC stand at R$3.855 billion, while debts with the Central
Bank amount to R$2.54 billion. In addition, CEF is owed R$350
million and BNDES R$230 million. Bamerindus' accounts receivable
amount to R$2.3 billion. FGC aims to receive R$460 million of
that over a 4-year term.

Subsequently, the Central Bank will transfer Bamerindus assets
and liabilities to FGC, which would become its only creditor.

Previously, in a TCR-LA report, an 18-month investigation by the
Central Bank found proof that there was indeed fraud committed by
the management during the bank's renegotiation. Bamerindus bank
was in the process of being liquidated since 1997, when its
assets were spun off to be sold to HSBC.


CEMIG: Performs Well Under 2001 Pressures
-----------------------------------------
Companhia Energetica de Minas Gerais -- CEMIG -- (OTC: CEMCY /
BOV: CEMI3), one of Brazil's largest electricity companies, today
reported EBITDA of R$ 266.6 million, a 5.9% growth over the same
period 2000. Energy sold to final consumers increased by 7.58%
over the First Quarter 2000, with 10% growth in the industrial
class, marking the particularly strong industrial production in
the State of Minas Gerais. The number of consumers served in the
period grew by 4.31%, or 44,000 new connections, compared with
the same period of the prior year. Total consumer base is now 5.2
million.

Djalma Bastos de Morais, Chief Executive Officer of Cemig said,
"The Company's performance was good in the First Quarter,
particularly in sales to final consumers, which reflects not only
the State's strong economy, but also the Company's successful
efforts to attract new consumers. This growth reinforces Cemig's
strategy of increasing its generation capacity by means of
building new plants."

The Company reported a net loss of R$ 12.5 million in the First
Quarter of 2001, representing a loss of R$ 0.08 per lot of 1000
shares. This loss is mainly due to exchange rate devaluation,
provisions made for a voluntary retirement program, and increase
in price of energy purchased. Cemig's Chief Financial Officer,
Cristiano Correa de Barros, commented: "Once again, the exchange
rate devaluation had negative effects on our profitability.
However, we feel that Cemig is responding effectively to the
challenges posed this year, and that the Company is proving
itself to be capable of sustaining growth and generating more
value to its shareholders' investments."

Net Operating Revenues increased by 14.17% over First Quarter
2000, reaching R$ 929 million, of which 94% resulted from
electricity sales to final consumers and other electricity
companies. Volume of energy sold to final consumers showed growth
of 5.38%, however, there was a reduction of 89.96% in wholesale
energy volume sold, resulting from the billing process in First
Quarter 2001.

Net Operating Expenses increased by 15.70% year on year to R$
106.6 million, reflecting the 23.29% increase in purchased energy
expenses, principally in the Igarape Thermal Plant, and the 8%
readjustment to Itaipu's dollar-based tariffs. The R$ 140 million
of investments made during the period were geared towards
expansion of the generation and distribution system, principally
the Porto Estrela power plant, which will be operational by
September 2001. Cemig continued to focus on rolling over its
debt. In the First Quarter it renegotiated debt in the amount of
US$ 41 million, reducing the overall debt burden from 10.01% to
9.55%.

In conformance with a December 2000 ruling by the CVM (SEC
equivalent), Cemig recognized the debt with its FORLUZ pension
plan. Adjustments to the actuarial liabilities, net of income tax
and social security, will be recognized directly in Net Equity
under the heading "adjustment from prior years." Mr. Barros
added, "This step will bring our accounting statements closer in-
line with international standards, and will allow a truer
comparison with other companies that have already made this
adjustment."

565 employees participated in the voluntary retirement program,
which ended in May 2001. Mr. Barros concluded, "While expenses
related to the voluntary retirement program were high, in the
future personnel costs will be lower, which will translate into
shareholder value."


CVRD: To Wrap Deal With Chinese Steelmaker Within Three Months
--------------------------------------------------------------
An agreement between Brazil's Companhia Vale do Rio Doce (CVRD)
and Shanghai Baosteel Group is expected to be reached within two
or three months, Liu Yongsheng, assistant manager of Baosteel
revealed in report Tuesday in Bloomberg. The deal will see CVRD,
Brazil's No. 1 iron ore exporter, getting several million tons of
coal from China, while Baosteel will also get assistance in
buying a controlling interest in a Brazilian iron ore mine. The
swap with Rio de Janeiro-based CVRD will help Baosteel gain
access to a reliable supply of iron ore, a key raw material for
making steel, nearly all of which it imports.

"Baosteel itself doesn't have much coal to sell," said Fang
Shunbiao, head of Baosteel's public communications unit. "So
instead, Baosteel will act like a matchmaker to link CVRD
together with Chinese coal mines" which are open to foreign
investments.


LIGHT/ELETROPAULO: S&P Changes Outlooks to Negative
---------------------------------------------------
May 24, 2001--As a direct response to the energy crisis in
Brazil, and the goal to reduce electricity usage by about 20%,
Standard & Poor's today revised its local currency rating
outlooks of electricity distributors LIGHT-Servicos de
Eletricidade S.A. (LIGHT; foreign currency rating double-'B'-
minus/Stable/--, local currency rating double-'B'/Negative/--)
and Eletropaulo Metropolitana Eletricidade de Sao Paulo
(Eletropaulo; foreign currency rating double-'B'-minus/Stable/--,
local currency rating double-'B'/Negative/--) to negative from
stable.

This action reflects the preliminary assessment that financial
ratios for these utilities, while currently adequate, are weak
within the rating category compared to their peers. Thus, a
material reduction in sales, combined with other potential
negative economic developments, could result in financial
erosion. The quota system imposed, with the threat of rationing
and/or blackouts, is expected to occur primarily in the
southeast, midwest, and center-west grids. The other rated
distributors in the region, Companhia de Eletricidade do Rio de
Janeiro (CERJ: foreign currency rating double-'B'-minus/Stable/--
, local currency rating double-'B'/Stable/--) and Espirito Santo
Centrais Eletricas S.A. (Escelsa: foreign currency rating double-
'B'-minus/Stable/--, local currency rating double-'B'/Stable/--),
are starting this period of uncertainty from a position of
greater financial strength. Some of the rated utilities are in
the north or south, where water is not at critical levels and
rationing is not anticipated at this time.

Importantly, Standard & Poor's views this situation as evolving,
and thus, may take other ratings actions as the situation
develops. The expectation is that at a minimum, sales will be
reduced by 10% (with a lesser impact on profit margins for half a
year's sales) and that the real will loose about 10% of its value
against the dollar for the year. Most of the rated Brazilian
utilities have a substantial portion of their debt in dollar-
denominated securities. Also for Brazilian entities, tenors are
short and thus most face some level of refinancing risk during
2001.

The federal government's proposal, issued on May 18, 2001, has
called for rationing for a six-month period (June-November). As
the subsequent summer (rainy) season begins, the hope is that the
reservoirs will be somewhat replenished. However, although the
energy crisis is exacerbated by the drought, the more critical
issue is the failure to encourage the entrance of new, and
important thermal, power into the country. This has resulted in a
very tight capacity position, assuming even normal hydro
conditions. A risk-sharing mechanism (relocation of energy
mechanism-MRE) for all hydro plants in the nation to minimize the
risk of poor hydro conditions occurring in any one hydrological
basin has worked well in the past. However, the severity of the
water shortage in the southeast, midwest and northeast regions,
combined with limited transmission interconnection, has resulted
in an inability to import sufficient energy to the above-
mentioned regions to alleviate the problem. Thus, distributors
could face further reductions in sales. The ramifications of
rationing (whether voluntary or forced) will take some toll on
the economy, and local press releases already site economists'
downward revisions to prior GDP estimates for the year. This will
have a nationwide, as opposed to regional, impact.

In terms of the ramifications for generators, Standard & Poor's
believes that its two rated generators, Companhia Energetica de
Sao Paulo (CESP: single-'B'-plus/Watch Developing/--) and ITA
Energetica S.A., may be insulated from the crisis in the near
term. While CESP may be unable to sell power into the secondary
markets (it has typically generated an excess of 20% above
"assured energy"), the company has indicated that it will be able
to generate enough energy to meet its contractual commitments.
Profit margins are largely a function of assured energy sales
under contract. ITA's water levels have not been currently
affected by drought.

Before imposing power cuts, Brazil will try to accomplish a 20%
reduction in demand on a quota basis, through financial rewards
and penalties for those who conserve or freely use electricity,
respectively. Residential consumers with usage of up to 200 kWh
per month will not pay fines or surcharges. The premium for usage
of 201-500 kWh per month is 50% extra, while greater than 501 kWh
will result in a stiff 200% increase for that increment.
Alternatively, low usage consumers (up to 100 KWh per month) who
reduce consumption by more than 20% will receive a BrR2 discount
in their bills for every BrR1 saved, while the discount for
consumers of over 100 kWh per month that cut consumption 20% will
be BrR1 for every BrR1 saved. Consumers that exceed their quota
(a mandatory 20% reduction) will be subject to a three-day cut
off in service, which could increase to six days for repeat
offenders. Residential customers provide the highest profit
margins to distributors.

Commercial and industrial customers (low-tension networks) are
required to reduce consumption during the May-July period by 20%
from the average demand of the corresponding months last year.
High-tension customers must reduce consumption by 25%-15%.

While the threat of fines and blackouts has already spurred
voluntary reductions in usage (one distributor reported a 13%
falloff), logistical issues have already arisen regarding the
June 1, 2001, anticipated starting date. Distributors said they
could not, technically and legally, begin switch offs before
August, at which time they only will be able to punish
outstanding quota-breakers. By law, the companies require between
30 and 45 days to notify their clients of a switch-off, and
furthermore, claim to lack the needed manpower to carry out power
cuts to individual consumers if there are many offenders.
Customer benchmarks for usage are also unclear, as not all
consumers have bills for the previous year. As a result of
inability to target individual customers, utilities may have no
choice but to impose rolling blackouts to conserve energy.
Additionally, regardless of the validity of any challenges, the
fact remains that there is not enough water to generate needed
electricity. Standard & Poor's will continue to monitor the
situation as it evolves, and take rating action as warranted.

OUTLOOK: NEGATIVE

The negative outlooks for LIGHT and Eletropaulo's local currency
ratings and Eletropaulo's national scale rating reflect concern
that ramifications of the crisis, such as an economic downturn,
could reduce demand over a more protracted timeframe. Thus, the
improvement in debt protection ratios may fall short of
expectations for maintenance of current ratings, Standard &
Poor's said.---CreditWire

OUTLOOK REVISED
                                       TO           FROM

LIGHT-Servicos de Eletricidade
S.A.

Local currency rating              BB/negative    BB/stable


Eletropaulo Metropolitana
Eletricidade de Sao Paulo

Local currency rating              BB/negative    BB/stable



=========
C H I L E
=========

COLOWALL: Bankruptcy Process To Continue, SC Says
-------------------------------------------------
The Supreme Court rejected the defense of Colowall and ruled that
the bankruptcy process of the paper company shall continue, South
American Business Information reported Monday. According to the
report, the company's defense, which was rejected, was based on
the fact that the notification on the insolvency wasn't submitted
personally to a representative of the group. The next step would
be to make a bid for the company, likely to happen in
approximately 45 days. The proceeds from this process, which is
estimated to be around US$6.5 million, will be used to pay the
company's debts. The company reportedly has already canceled
labor debts totaling 120 million pesos.

Out of the 109 branches Colowall has in Chile, only 2 of which
are wholly owned, with the others managed by franchises.


INVERRAZ: To Conclude Cosayach Sale Shortly
-------------------------------------------
Errazuriz Investments (Inverraz), which is owned by businessman
Francisco Javier Errazuriz, is about to complete the sale of its
Nitrate and Iodine Company of Chile (Cosayach) to Soquimich
(SQM), Santiago Times reported Friday. SQM, which is owned by
businessman Julio Ponce Lerou, has already carried out due
diligence on the shares included in the sale and only a few
details remain before the deal is concluded. The Cosayach sale
has been stalled due to Inverraz's $100 million debt. Inverraz,
under the terms of the original contract, was forbidden to sell
any of its assets (including Cosayach) unless it settles its
debts. Moreover, Inverraz is also facing legal action from its
creditors after it defaulted on a number of repayments.

However, recent talks between Inverraz and its creditors ended
positively, with Inverraz agreeing to repay $75 million in cash
immediately on condition that its lenders did not block the sale
of Cosayach. Once the $140-million deal has gone through,
Inverraz will use the money generated by the sale to pay off its
remaining debts.


TELEX-CHILE: Gets Board Approval To Sell-Off Assets
---------------------------------------------------
Telex-Chile President Jorge Awad announced that the company's
board has unanimously approved on Friday a plan to sell its
entire assets portfolio, Business News Americas reported Monday.
He didn't indicate however, whether the assets will go on the
auction block as a whole or individually. Now, the sell-off plan
must be put to an extraordinary shareholder meeting within 45
days. The company's charter stipulates that the sale of strategic
assets requires the approval of at least 90 percent of its
shareholders.

Just recently, Telex's long distance carrier and network operator
Chilesat informed the Santiago stock exchange that it would  
dismiss 184 employees as part of a restructuring plan aimed at
improving profitability. Chilesat defaulted on an US$8.9-million
credit facility that expired April 5.

In October 1999, investment banks and creditors took over 51
percent of Telex from the Ibanez and Radic families as part of a
series of measures designed to recoup their investments. Telex
debts then reached US$220 million, forcing it to sell its mobile
and local telephony subsidiaries as part of the financial
restructuring.



===========
M E X I C O
===========

BANCRECER: IPAB To Establish Conditions For Reprivatization
-----------------------------------------------------------
Mexican bank bailout agency IPAB is likely to set special
conditions for the buyer of government-intervened bank Bancrecer
regardless of who emerges as the winner in the bank's upcoming
auction, according to a Reforma/Infolatina report Monday. Due to
U.S.-based Citigroup's planned $12.5 billion acquisition of Grupo
Financiero Banamex Accival, IPAB was forced to analyze more
carefully ways of defending Mexican taxpayers' interests, unnamed
agency sources said. According to them, the agency would seek to
reduce its liabilities incurred in the rescue of Bancrecer if the
bank's new owners subsequently decided to sell. On the other
hand, Bancrecer's buyer could also be required to expand lending
at a rate determined by the agency, in order to generate some
form of benefit for Mexican taxpayers, who funded the bank's
rescue.


GRUPO GIGANTE: Foresees 8-Percent Increase In Sales This Year
-------------------------------------------------------------
Despite the weak results shown in the first quarter of this year,
Grupo Gigante, Mexico's fourth-largest supermarket retailer, is
confident it will be able to increase its total sales by around 8
percent, Reforma/Infolatina reported Monday. According to Gigante
CFO Ignacio Toussaint, the company's first-quarter sales
performance appeared weak due to the high bases of comparison set
last year. Gigante's first-quarter total sales were down 1
percent from the year-ago period, with same-store sales down 7.2
percent; during first-quarter 2000, total sales were up 14
percent and same-store sales were up 8.4 percent.

"But we're going well. We think we're going to improve. We're
going to enter into a process of improving on our own
comparisons," he said. He predicted 2001 same-store sales growth
would be 2 percent.

Earlier, the supermarket retailer revealed that it is going to
announce the entry of a new partner soon. However, it's still not
clear whether this major foreign company has acquired a full or
partial control of the Gigante.


GRUPO TRIBASA: Can't Expect Help From Banobras
----------------------------------------------
Mexican state-owned development bank the National Public Works
Bank (Banobras) said it has no plans of bailing out the country's
debt-ridden leading construction firms, including Grupo Tribasa,
Reforma/Infolatina reported Monday. Tribasa, which shares were
suspended by the Mexican Stock Exchange (BMV) for failure to
submit a quarterly financial report, is one of the two firms
recently have been in talks with Banobras in the hope of winning
the bank's assistance to pay down major tax liabilities. Mexico's
Finance ministry was informed of the construction firms'
proposal, but Banobras has rejected it. Tribasa has been in debt-
restructuring talks with creditors since late last year.



=================
V E N E Z U E L A
=================

GRAFFITI: Venezuelan Court Approves Debt Moratorium Application
---------------------------------------------------------------
The Venezuelan court has approved the Venezuelan fashion store
chain Graffiti's application for a debt moratorium, according to
a report Thursday in South American Business Information.
Additionally, the court has also appointed a creditors'
committee, which consists of the Grupo Santander banks Banco de
Venezuela and Banco de Caracas as well as Graffiti suppliers
Grupo 35 Milimetros and Acuatica. The recent event, as well as
the possible sale to the creditors of the Venezuelan textile
group Distribuidora Al Galope's assets, which owns Graffiti,
should alleviate its liquidity problems.




S U B S C R I P T I O N   I N F O R M A T I O N

Troubled Company Reporter Latin American is a daily newsletter
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and Beard Group, Inc., Washington, DC. John D. Resnick, Edem
Psamathe P. Alfeche and Janice Mendoza, Editors.

Copyright 2001.  All rights reserved.  ISSN 1529-2746.

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