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/raid1/www/Hosts/bankrupt/TCRLA_Public/011004.mbx 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 Thursday, October 4, 2001, Vol. 2, Issue 194 Headlines A R G E N T I N A AEROLINEAS ARGENTINAS: SEIP Selling To Spanish-Argentine Group B R A Z I L 360NETWORKS INC.: Seeks $19M Recovery From Brazilian Subsidiary CVRD: Likely To Face Competition On Caemi Bid EMBRAER: Shares Take Steep Plunge On Announced Cutbacks GLOBO CABO: Shares Drop In Anticipation Of Lower Earnings MOULINEX: Authorities Consider SEB's Offer "Unacceptable" VARIG: S&P Appraises Downside Performance Risk On Receivables M E X I C O AHMSA/GAM: Debt-Payments Suspension Likely To End Early 2002 BANCO ALTANTICO: IPAB, Bital To Wrap Up Sale Next Week BANRURAL: Teeters On Edge Of Bankruptcy, Official Says BUFETE INDUSTRIAL: To De-List Stocks From Mexican Bourse GAM: Foreign Bondholders File Suit Against Federal Government GRUPO DESC: Shares Up On Debt Payment, Liquidity News GRUPO DINA: Files Suit Against Canadian Firm Over Broken Contract SANLUIS CORPORACION: May Face Lawsuit For Damages From Default XEROX CORP.: Transfers Mexican Manufacturing Ops to Flextronics XEROX CORP.: Flextronics Deal Won't Result In Mexican Job Losses P A R A G U A Y ANTELCO: Labor Groups Seen Responsible For Sabotage - - - - - - - - - - ================= A R G E N T I N A ================= AEROLINEAS ARGENTINAS: SEIP Selling To Spanish-Argentine Group -------------------------------------------------------------- After holding a board meeting Tuesday, Spain's state holding company SEPI announced it would sell its 91.9 percent stake in Aerolineas Argentinas to a Spanish-Argentine group, including Airplus Argentina and its subsidiary, Air Comet, according to an Associated Press report. Terms of the deal were not immediately disclosed. The purchasing group is linked to Spanish tour operator Viajes Marsans, which owns charter airline Airplus Argentina and has ties with Scandinavian Airline Systems through its joint ownership of Spanair. The remaining bidders included Juan Carlos Pellegrini, a former Aerolineas manager; Enrique Pescarmona, an Argentine businessman whose holding company controls Impsat Fiber Networks Inc.; and a U.S.-based investment fund. Spain, which took over the Argentine carrier as part of a bailout of Spanish airline Iberia Lineas Aereas de Espana SA, has been trying to sell Aerolineas for five years. SEPI's plan to find a buyer was the only way to avoid bankruptcy after racking up more than $1.8 billion in losses and almost $1 billion in debt. =========== B R A Z I L =========== 360NETWORKS INC.: Seeks $19M Recovery From Brazilian Subsidiary --------------------------------------------------------------- Vancouver-based fiber-optics company 360networks Inc., currently restructuring under court protection, is attempting to recover a payment of $19 million from a Brazilian subsidiary, according to court-appointed monitor PricewaterhouseCoopers. In a summary of post-filing operations for the company, PwC states that the funds were frozen in August by a court order obtained in Brazil by a Brazilian telecommunications service provider. Accordingly, an application concerning those funds was scheduled to take place in B.C. Supreme Court October 2. 360networks, headed by former Microsoft Corp. chief financial officer Greg Maffei, filed for protection from its creditors in Canada and the United States in June, and since then has been attempting to restructure. As a part of its bankruptcy filing, the company reported $1.2-billion in secured debt and $1.45- billion of unsecured bond debt. CVRD: Likely To Face Competition On Caemi Bid --------------------------------------------- The European Commission, the regulatory arm of the 15-nation European Union, may block the current bid by Brazil's Cia. Vale do Rio Doce (CVRD) for Caemi Mineracao e Metalurgica SA, the world's fourth-largest iron ore miner, according to an article in the Australian Financial Review published Tuesday. Widespread speculation now suggests that BHP Billiton, the world's largest mining company, may revive its failed $332-million bid for 60 percent of Caemi. BHP made an unsuccessful attempt to purchase Caemi, earlier this year. That bid was blocked by Mitsui & Co., who used its preemptive rights to buy the 60 percent of Caemi it didn't already own, then agreed to sell half the company to CVRD. CVRD is seeking to buy Caemi to expand its share of sea-borne shipments of iron ore at a time when the commodity's price is rising. For BHP, buying Caemi would give it increased access to European steel mills. EMBRAER: Shares Take Steep Plunge On Announced Cutbacks ------------------------------------------------------- The shares of Brazilian jetmaker Empresa Brasileira de Aeronautica SA (Embraer) took a nose dive Monday as analysts perceived a grim view on the company's outlook following an announcement of dismissals, according to Nicholas Winning of the National Post Online. The company's share price fell 7.8 percent, to 7.74 reais ($4.53) by midday, leaving them almost 58 percent lower year to date. On Friday, Embraer announced it would fire 1,800 people, or 14 percent of its workforce, and delay jet deliveries worth $1.9 billion over the next two years due to the airline industry slump. Embraer disclosed it had begun the planned 1,800 job cuts Monday. "Shares at Embraer are reflecting the announcement of dismissals," suggested Felipe Monaco, portfolio manager at Deutsche Bank AG's Brazilian investment unit. "There is no positive news to motivate investors to buy the shares. There's still too much uncertainty and risk surrounding the sector." The firm tempered the gloomy news by saying it had not received any order cancellations. However, some analysts took that to mean there could be more bad news further down the line. "The scenario for Embraer will depend on the clients, the airlines, and they are not well financially," said Rafael Quintanilha, a BES Securities analyst. He said he was revising down his expectations for the shares. Embraer shares have lost half their value since the Sept. 11 terrorist attacks, as investors bet the worst travel slump in a decade will force airlines to cancel orders, threatening development of a new family of jets that Embraer is counting on for future growth. GLOBO CABO: Shares Drop In Anticipation Of Lower Earnings --------------------------------------------------------- Shares of Brazil's No. 1 cable television provider Globo Cabo SA fell Tuesday on lower earnings expectations, according to a report in Bloomberg. Globo Cabo's shares fell 1.6 percent to 61 centavos, after Monday's 6.1 percent decline on earnings disappointment. "Since the beginning of the year, we have been increasingly conservative on Globo Cabo, both because of expected lower growth and because of its dollar exposure," Credit Suisse First Boston said in a report. "However, with the Sept. 11 events in the U.S. there has been a radical worsening of the scenario." The bank is not expecting growth in Globo Cabo's earnings in 2002. Globo Cabo has lost almost 70 percent of its stock value this year due to swelling debt ratios and energy rationing. Just recently, it registered a 285.3-percent increase in losses during the first-half of this year, to R$389.2 million, against the comparable period of last year. MOULINEX: Authorities Consider SEB's Offer "Unacceptable" --------------------------------------------------------- The future of Moulinex's Brazilian holdings remains unclear. French electrical appliances group SEB's offer for French rival Moulinex has been deemed "unacceptable" by the regional authorities in the Calvados area of France, according to a report Tuesday in La Tribune. The council has requested the government to establish emergency discussions including all the parties concerned to "examine all takeover options." Additionally, the regional authorities have also demanded "financial transparency" in the accounting management of Moulinex and the terms of its merger with Brandt. The union CFTC has said it is "enormously disappointed" and has called for a judicial inquiry into past management at Moulinex, together with a "comprehensive plan for continuation". VARIG: S&P Appraises Downside Performance Risk On Receivables ------------------------------------------------------------- As part of its ongoing surveillance efforts of companies and sectors impacted by the terrorist attack on America, Standard & Poor's this past week held discussions with the management of Viacao Aerea Rio-Grandense S.A. (Varig) regarding the performance of an outstanding structured transaction, RG Receivables Co. Ltd. $100 million 9.6% credit card-backed notes due 2005 (single-'B'- plus/Watch Neg). The RG Receivables transaction is secured with the proceeds of U.S. dollar credit and charge card receivables generated by the sale of airline tickets in the U.S. to Varig customers flying between Brazil and the U.S. and between the U.S. and Tokyo, Japan. Standard & Poor's earlier this year increased its monitoring of the RG Receivables transaction, and of Varig's financial condition generally, after declining earnings caused the airline to violate an interest coverage covenant in the RG Receivables transaction. The potential consequence of this covenant breach, an early amortization of the principal balance of the transaction, was averted with the approval by investors of a limited-duration waiver valid until Oct. 15, 2001. Although the waiver and continued high coverage levels (exceeding 3 times scheduled debt service) in the first half of the year indicated that the transaction was not in imminent danger of significant credit impairment, Standard & Poor's remained concerned about the impact that Varig's deteriorating financial condition could potentially have on the level of receivables generation. As a result, Standard & Poor's placed the rating on CreditWatch with negative implications on Aug. 3, 2001. The concerns articulated by Standard & Poor's last month have deepened as a result of terrorist attacks on the U.S. In its discussions with Standard & Poor's, Varig's management indicated that the impact of the attacks to date on the airline's load factors on flights to the U.S. and Japan had been modest, dropping from 74% to 70%. The company also announced that it had abandoned recent plans to increase its weekly flight frequency to the U.S. (although it has not yet reduced those flight frequencies from the current 38), would reduce staff by about 10%, and would attempt to negotiate more favorable terms with its aircraft lessors. Varig does not at this time anticipate undertaking any restructuring measures that would negatively impact the airline's ability to generate sufficient receivables to service the transaction. Nevertheless, downside performance risk for both the airline and the RG Receivables transaction has clearly increased in the aftermath of the terrorist attack. Standard & Poor's remains concerned that the likely difficult operating conditions that Varig will face over the next several months could negatively impact the transaction. In particular, investors' willingness to continue the early amortization waiver beyond its Oct. 15, 2001 expiration is a concern, as are the potential restructuring steps that Varig might take in response. Going forward, Standard & Poor's will continue to monitor closely the airline's financial condition, its response to the more negative operating outlook, and the potential impact of these on the RG Receivables transaction. Standard & Poor's expects to resolve the CreditWatch listing in the next several weeks. CONTACT: Standard & Poor's, New York Kevin Kime, 212/438-6223 Rosario Buendia, 212/438-2410 Philip Baggaley, CFA, 212/438-7683 Reginaldo Takara, (55) 11-5501-8932 (Sao Paulo) =========== M E X I C O =========== AHMSA/GAM: Debt-Payments Suspension Likely To End Early 2002 ------------------------------------------------------------ The debt-laden Mexican iron and steel giant Altos Hornos de Mexico SA (Ahmsa) and its parent company, Mexican steel and industrial conglomerate Grupo Acereros del Norte (GAN), are likely to lift their suspensions on debt payments at the beginning of 2002, according to a report Tuesday in Mexican financial daily El Economista. GAN signed a debt-restructuring agreement in the later part of September, and is now awaiting the acceptance of the company's bank creditors. Both companies finalized plans to submit restructuring plans to the U.S. Securities Exchange Commission (SEC) at recent board meetings and are expected to complete their restructuring processes during the first quarter of 2002. According to sources, the companies' plans have been delayed by two weeks because of the terrorist attacks against the United States. BANCO ALTANTICO: IPAB, Bital To Wrap Up Sale Next Week ------------------------------------------------------ The agreement between Mexican bank bailout agency IPAB and Bital for the purchase of Banco del Atlantico is expected to be concluded this week, or next week at the latest. According to a report Tuesday in Mexico City daily El Universal, the agreement will include the injection of between 13 billion and 14 billion pesos to reorganize its finances. Bital will contribute close to 20 percent of the funds, while IPAB will assume the remaining 80 percent, revealed sources from the bank bailout agency. At this point, the two parties are still wrapping up minor details. Bital and IPAB have been negotiating the sale of Banco del Atlantico, which has been under the administration of Bital for nearly four years now. BANRURAL: Teeters On Edge Of Bankruptcy, Official Says ------------------------------------------------------ The National Rural Credit Bank (Banrural) is now at risk of technical bankruptcy due to a 490-million-peso loss in the first half of this year, as well as an 85-percent decline in its reserves, revealed senior official of the National Farmers' Confederation, Hector Padilla, in a report Tuesday in Mexico City daily Reforma. "Although the official line paints the figures to hide the serious economic crisis in the country and its main financial instrument, Banrural's report for the last six months leaves no doubts," Padilla said. "The institution has spent 841 million pesos on remunerations and benefits to its personnel, a quantity similar to the 863 million dollars that went toward loans for farmers," he added. Banrural has only 106 million pesos left for new loans, and has a capitalization index of 3.1 percent, according to financial regulator the National Banking and Securities Commission (CNBV). BUFETE INDUSTRIAL: To De-List Stocks From Mexican Bourse -------------------------------------------------------- Analysts revealed that the Mexican construction company Bufete Industrial is going to de-list its stock from the Mexican bourse (BMV), as part of a plan to restructure its debt, Mexican financial daily El Economista reported Tuesday. The official decision was made during a September 27 shareholders' meeting. Trading in the company's shares is currently suspended, as its main subsidiary has suspended all debt payments. GAM: Foreign Bondholders File Suit Against Federal Government ------------------------------------------------------------- Foreign investors, who hold close to US$75 million in bonds issued by sugar producer Grupo Azucarero Mexicano (GAM), are suing the Mexican federal government for the expropriation of the company's sugar refineries, under the regulations of the North American Free Trade Agreement (NAFTA). According to a report released Tuesday Mexican financial daily El Economista, the free trade clause being cited refers to equal treatment of investors based on the principal of international reciprocity. It is also possible that foreign investors with equity ownership in the refineries might launch a similar legal action. Late last month, GAM launched a suit to have the expropriation of its refineries reversed, on the grounds that its installations did not match the criteria in the federal government's expropriation decree. GRUPO DESC: Shares Up On Debt Payment, Liquidity News ----------------------------------------------------- Desc SA, an industrial conglomerate with businesses in chemicals, auto parts and real estate, saw its shares rise 26 centavos, or 8.4 percent, to 3.4 pesos, Bloomberg reported Tuesday. The increase in share price follows an announcement by the company on Monday that it paid $60 million to creditors during the third quarter, reducing its total debt to $960 million. The company has $100 million in debt payments coming due by year-end, and $150 million in cash on hand, according to Desc Chief Financial Officer Arturo D'Acosta. GRUPO DINA: Files Suit Against Canadian Firm Over Broken Contract ----------------------------------------------------------------- Grupo Dina has presented officially before the International Chamber of Commerce a claim of $123.161 million against Western Star Trucks, the company said in a report Tuesday in Mexican financial daily El Economista. Dina's complaint is based on the Canadian company's cancellation of a contract, which caused Dina financial problems over the following months, eventually leading to the closure of its Dina Camiones plant in Sahagun, Hidalgo, said Dina Legal Director Mauricio G. Mendoza Silva. Western Star has until 2002 to reply to Dina's claim, said Mendoza. SANLUIS CORPORACION: May Face Lawsuit For Damages From Default --------------------------------------------------------------- Shares of auto parts and mining company Sanluis Corporacion SA fell 50 centavos, or 7.5 percent, to 6.2 pesos, according to a report Tuesday in Bloomberg. Sanluis last month defaulted on a $200 million bond even though the company had the cash to pay its debt. "There could be a lawsuit for damages caused by the default," said Alejandro Gonzalez, Bursametrica's industrial groups analyst. The company recently denied it is struggling financially, saying that its annual operating cash flow has reached $106 million and annual sales have surpassed $522 million. The decision to temporarily suspend interest payments was necessary in order to preserve the financial health of its two subsidiaries, Rassini and Luismin. XEROX CORP.: Transfers Mexican Manufacturing Ops to Flextronics --------------------------------------------------------------- Taking another major step forward in its turnaround plan to reduce costs, improve productivity and increase competitiveness, Xerox Corporation (NYSE: XRX) announced Tuesday a manufacturing agreement with Flextronics (NASDAQ: FLEX), a $12 billion global electronics manufacturing services (EMS) company. The agreement includes payment to Xerox of approximately $220 million and assumption of certain liabilities for the sale of inventory, property and equipment and a five-year contract for Flextronics to manufacture certain Xerox office equipment and components, at a modest premium over book value. Xerox will sell to Flextronics office manufacturing operations including manufacturing assets and inventory in Toronto; Resende, Brazil; Aguascalientes, Mexico; and Penang, Malaysia. The approximately 3,650 current Xerox employees in these operations are expected to transfer to Flextronics. "Our agreement with Flextronics will redefine our office manufacturing strategy through significantly improved asset utilization, greater supply chain flexibility and cost savings as well as generating cash from the asset sales," said Anne M. Mulcahy, Xerox president and chief executive officer. The company also said that it will stop production by the end of the second quarter 2002 at its printed circuit board factory in El Segundo, Calif., and its customer replaceable unit plant in Utica, N.Y. The operation in El Segundo currently employs 425; Utica's employment is 265. When these plants close, Flextronics will build the work into its global network of manufacturing plants. In addition, Xerox will begin consultations with European works councils regarding the sale of its office manufacturing operations in Venray, The Netherlands, and the transfer to Flextronics of some production work currently performed at Xerox's site in Mitcheldean, England. As a result of these actions, Xerox expects to incur cash restructuring charges that will approximately equal the premium over book value from the asset sales. Xerox and Flextronics expect that the first in a series of closings on the asset sales will occur in the fourth quarter, beginning a one-year transition period for Flextronics to assume manufacturing of Xerox-designed office products and related components. Flextronics will also begin the manufacturing of Xerox's electronic parts and subsystems during the first half of 2002. Xerox will continue to strengthen its manufacturing competencies in high-end production printing and publishing equipment, toner and imaging supplies through its remaining global manufacturing plants. In total, the agreement with Flextronics represents in excess of $1 billion in annual manufacturing costs, approximately 50 percent of Xerox's overall manufacturing operations. "This agreement exemplifies the type of business that we have built Flextronics to handle and is further evidence that the trend towards virtual manufacturing continues," said Michael E. Marks, chairman and chief executive officer of Flextronics. "This is also an opportunity to expand our customer base and product portfolio through the acquisition of these sites in addition to gaining valuable knowledge through the Xerox people." "Our partnership with Flextronics ensures that all Xerox office products and components will continue to be produced under the high quality standards that customers rely on from Xerox," said Ursula Burns, president, Xerox Worldwide Business Services. "At the same time, Xerox will benefit from Flextronics' commitment to significant annual productivity improvements, maximizing its large-scale purchasing and technological efficiencies." Today's announcement with Flextronics is the latest in a series of Xerox turnaround-related actions that are restoring Xerox's financial strength and positioning the company for a return of profitability. For example, Xerox announced last month a framework agreement with GE Capital's Vendor Financial Services to become the primary equipment-financing provider for Xerox's U.S. customers. The two companies also agreed to the principal terms of a financing agreement under which Xerox will receive from GE Capital approximately $1 billion secured by Xerox's lease receivables in the United States. Xerox's agreement with Flextronics is expected to close in stages subject to the completion of global regulatory requirements. Xerox will receive cash proceeds from the agreement in phases as the companies close on the individual worldwide asset sales. Deutsche Banc Alex. Brown served as Xerox's advisor on this agreement. To see company's latest Balance Sheet: http://www.bankrupt.com/misc/Xerox.pdf CONTACTS: Christa Carone, Xerox Corporation, 716-423-5074, christa.carone@usa.xerox.com Bill McKee, Xerox Corporation, 716-423-4476, bill.mckee@usa.xerox.com Manuella Solomon, Flextronics, 408-576-7867, manuella.solomon@flextronics.com Cheryl Scritchfield, Flextronics, 43 1 602 4100 26, cheryl.scritchfield@at.flextronics.com XEROX CORP.: Flextronics Deal Won't Result In Mexican Job Losses ---------------------------------------------------------------- Xerox Corp.'s $220-million deal with Flextronics International Ltd. will not result to job losses in Mexico, Reuters reported Tuesday. The deal will see Flextronics taking over Xerox's plant in the central Mexico state of Aguascalientes that has some 2,300 employees, and in other assets changing hands. "Basically the operation (in Aguascalientes) will remain the same, just with another owner," revealed Xerox Mexicana director general Rick Dauval. According to him, additional jobs could be generated by Flextronics in Aguascalientes as it adds new production lines to the plant. Xerox will maintain some 1,000 employees in Mexico, mainly in sales, maintenance and client-support, working out of its Mexico City headquarters, Dauval said. It also has a small plant manufacturing cartridges for Xerox machines in the border city of Nogales. =============== P A R A G U A Y =============== ANTELCO: Labor Groups Seen Responsible For Sabotage --------------------------------------------------- Executives at Paraguay's state-run telephone company National Telecommunications Administration (Antelco) revealed that sabotage on the company's Asuncion facilities left 20,000 customers without service, reported EFE Friday. According to Antelco chief Oscar Stark, the saboteurs severed a fiber-optic cable in Asuncion's Villa Morra neighborhood cutting off communication with the rest of the capital and outlying cities. Officials see the attacks as the work of labor groups opposed to the company's privatization as it coincides with an executive order setting strict limits on the sale of preferred stock to ANTELCO workers interested in vying to acquire the company. Some union leaders claimed they were in a position to get outside partners to join with ANTELCO's 5,500 employees in buying up all of the company's stock. However, the government only wants to sell a maximum of 10 percent of the stock to current employees. Antelco is in the process of being sold to the private sector and the process is expected to be completed by the end of the year. 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 co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ, and Beard Group, Inc., Washington, DC. John D. Resnick and Edem Psamathe P. Alfeche, Editors. Copyright 2001. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is $575 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *