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/raid1/www/Hosts/bankrupt/TCRLA_Public/021023.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 Wednesday, October 23, 2002, Vol. 3, Issue 210 Headlines A R G E N T I N A AT&T LATAM: Anticipates Funding Gap In 4Q02 DIVEO BROADBAND: SkyOnline Buys Argentine, Uruguayan Units B E R M U D A GLOBAL CROSSING: To Restate Financial Statements TYCO INTERNATIONAL LTD: Expects New Hampshire Regulator OK TYCO INTERNATIONAL: Belnick Claims Auditors Knew Of Bad Loans B R A Z I L CSN: Pays Part of $140M Debt, Refinances Remaining Balance CSN: Land-Debt Swap Proposal Still Undecided ELETROPAULO METROPOLITANA: Denies Sale Talks ELETROPAULO METROPOLITANA: BB Securities To Restructure Debt ENRON: Brazilian Investment Group Eyes Unit GILAT: Signs $23M Deal To Provide Satellite Services In Brazil * Fitch Cuts Brazil's Sovereign Ratings To 'B', Outlook Negative * Brazilian Officials Slam Fitch Decision To Cut Ratings C H I L E MANQUEHUE NET: National Grid Struggles to Sell Stake PETROPOWER ENERGIA: S&P Revises Outlook To Negative E C U A D O R PACIFICTEL: FS Head Clarifies Reports On Date Selection M E X I C O BITAL: Sells 5% Stake In Camesa At Public Auction P E R U BACKUS: Regulator Issues Rulings EDEGEL: Posts PEN18.6 Million Net Profit For 3Q02 T R I N I D A D & T O B A G O BWIA: Long Time Employees Clamor For Pension U R U G U A Y BANCO COMERCIAL: Attracts Two More Potential Bidders - - - - - - - - - - ================= A R G E N T I N A ================= AT&T LATAM: Anticipates Funding Gap In 4Q02 ------------------------------------------- AT&T Latin America Corp. (Nasdaq: ATTL), a facilities based provider of integrated business communications services in five Latin American countries, announced that it anticipates a funding gap commencing in the fourth quarter of 2002 and running through 2003 of up to approximately $40 million, assuming continued access to its senior secured vendor financing facility. This funding gap has arisen due to the following developments: 1. A more pessimistic view of economic conditions in South America, particularly Brazil, for the remainder of 2002 and into 2003. 2. The Company had anticipated entering into a tax sharing agreement with its majority shareholder, AT&T Corp., that it expected would provide at least $17 million in liquidity, commencing in the fourth quarter of 2002 and running through 2003. AT&T Corp. advised the Company on October 8, 2002 that such an arrangement will not be forthcoming. 3. Following a request from the Company for additional financing assistance, AT&T Corp. advised on October 10, 2002 that it will not provide additional financing or credit support to the Company. 4. AT&T Corp. has advised the Company that as it implements its global strategy, it intends to approach certain global multinational clients directly on a global basis, concentrating services through its own international facilities. The Company understands that, as to multinational customers with operations in Latin America, that strategy will involve a change in the Company's relationship with such customers from that of a full- service provider using its own international facilities to one of providing essentially last mile connections on a non-preferred basis over its local networks. The change is expected to result in a reduction in the growth of revenues and cash flow of the Company. 5. The Company is in litigation over obligations owed to one of its vendors, an affiliate of Siemens AG. As a result of an adverse decision, it now has assumed for purposes of its outlook that it will pay its obligations at earlier dates than originally anticipated. The Company is currently in settlement negotiations with this vendor. 6. The Company believes that it may have greater difficulty drawing on unused, and renewing, local lines of credit in Latin America as a result of the above. The Company also noted that it expects to be out of compliance with its revenue covenant set forth in its senior secured financing agreements when it reports its third quarter results on Form 10-Q. Its projected funding gap, as noted above assumes continued support from the three vendors who have provided these credit facilities. The Company is considering a number of measures with respect to its liquidity needs, including seeking additional third party financing. AT&T Latin America Corp. (Nasdaq: ATTL), headquartered in Washington, D.C., is a facilities-based provider of integrated high-bandwidth business communications services in five countries: Argentina, Brazil, Chile, Colombia and Peru. The company offers data, Internet, voice, video-conferencing and e- business services. For more information, visit AT&T Latin America's website at http://www.attla.com. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release includes "forward-looking statements" which are based on management's beliefs as well as on a number of assumptions concerning future events made by and information currently available to management. Readers are cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of performance. The statements involve known and unknown risks and uncertainties, many of which are outside of AT&T Latin America's control that may cause its actual results or outcomes to materially differ from such statements. The risks and uncertainties include but are not limited to AT&T Latin America's ability to raise additional financing and to maintain access to existing senior secured credit with its vendors and maintain access to or renew credit lines in the countries in which it operates on acceptable terms and conditions; whether economic and political conditions in the countries in which it operates improve or deteriorate from the company's current expectations; currency fluctuations; inaccurate forecasts of customer or market demand; changes in AT&T Corp.'s approach to MNC customers; its ability to implement its planned regionalization of key functions of its operations in the manner currently expected and in the time- frames currently contemplated; changes in communications technology and/or the pricing of competitive products and services; highly competitive market conditions; loss of one or more important customers; changes in or developments under laws, regulations and licensing requirements in the countries in which AT&T Latin America operates; volatility of its stock price; its ability to maintain compliance with the listing requirements of the Nasdaq Stock Market and other risks and uncertainties described in the company's filings with the Securities and Exchange Commission which readers are urged to read carefully in assessing the forward-looking statements contained in this press release. These statements are made as of the date of this press release, and AT&T Latin America undertakes no obligation to update or revise them, whether as a result of new information, future events or otherwise. CONTACT: AT&T Latin America Corp. Media: Jim McGann, +1-202-689-6337 Cell: +1-202-256-9972 Lydia Rodriguez, +1-202-689-6323 Cell: +1-305-613-6767 Investors: Catherine Castro, +1-202-689-6336 Cell: +1-202-320-7936 DIVEO BROADBAND: SkyOnline Buys Argentine, Uruguayan Units ---------------------------------------------------------- SkyOnline, a US-based regional telecoms holding, acquired the Argentine and Uruguayan subsidiaries of regional Internet Data Center (IDC) operator Diveo Broadband Networks, revealed SkyOnline corporate development VP Richard Estevez to Business News Americas. The value of the transaction wasn't disclosed, but sources familiar with the deal valued the acquisition at around US$7 million. That price tag would amount to less than 10% of the US$60 million that Diveo invested in Argentina since launching operations there in 1998. Diveo first announced in late July that it was selling its Argentine subsidiary. The unit has never seen a profit, which led the parent to cut funding and, ultimately, prompted the sale of the unit. Diveo provides broadband and corporate communications services in Argentina and Uruguay via the company's IDC in Buenos Aires. Its major investors include GS Capital Partners III, L.P. (an affiliate of Goldman, Sachs & Co), Texas Pacific Group/Newbridge Latin America, Alta Communications, Booth American, Columbia Management, Meritage Private Equity Fund L.P., Norwest Venture Partners, OneLiberty and the private equity arm of the Rothschild Family. CONTACT: DIVEO BROADBAND NETWORKS, INC. (Corporate Headquarters) 3201 New Mexico Ave., NW, Suite 320 Washington, DC 20016 TEL: (202) 274.0040 FAX: (202) 274.0050 E-mail: info@diveo.net URL: http://www.diveo.net ============= B E R M U D A ============= GLOBAL CROSSING: To Restate Financial Statements ------------------------------------------------ Global Crossing announced Monday that it will restate certain financial statements contained in filings previously made with the Securities and Exchange Commission ("SEC"). The restatements are expected to have the effect of reducing revenues reported for the nine months ended September 30, 2001, by approximately $19 million, reducing each of Net Income and Shareholders Equity by approximately $13 million, and reducing each of Total Assets and Total Liabilities on the September 30, 2001, balance sheet by approximately $1.2 billion. The details of these restatements, as well as more limited restatements applicable to financial statements filed with the SEC for periods in the year 2000, will be subject to the review of a new independent accounting firm which Global Crossing's board of directors expects to appoint shortly. Global Crossing's restatements will record exchanges between carriers of leases of telecommunications capacity at historical carryover basis, pursuant to Accounting Principles Bulletin No. 29 ("APB No. 29"), resulting in no recognition of revenue for such exchanges. Global Crossing had previously relied on guidance provided by Arthur Andersen, its independent accounting firm during the periods subject to restatement, and on an Arthur Andersen-authored industry white paper that set forth principles for accounting for sales and exchanges of telecommunications capacity and services. The SEC staff, however, has advised Global Crossing that its previous accounting for these exchanges did not comply with Generally Accepted Accounting Principles ("GAAP"), and that financial statements materially affected by accounting for the exchange transactions at historical carryover basis must be restated. Arthur Andersen has notified Global Crossing that it does not agree with the interpretation of APB No. 29 that requires the restatement. When Global Crossing reported these capacity exchanges at fair value, it recognized revenue in its GAAP financial statements over the lives of the relevant lease contracts, not "up front." Global Crossing had supplementally reported certain pro forma metrics derived from its GAAP financial statements, in which it included the entire fair value of the sales of capacity and services in the exchange transactions and which were used for, among other purposes, monitoring compliance with financial covenants applicable to the periods subject to restatement. As noted in previous filings, these pro forma metrics were not an alternative to any measure of performance as promulgated under GAAP, and should now be disregarded. Global Crossing also announced that, for exchanges that involve service contracts, it will continue to record revenue over the lives of the relevant contracts at fair values under APB No. 29, but that its balance sheet will not reflect the entire value of the contracts received or given in the exchanges. Accordingly, the revenue contributed by previous exchanges involving service contracts will not be restated, but the fair values of these exchanges involving services will be removed from the balance sheets previously filed. The SEC staff does not object to Global Crossing's conclusions regarding this new treatment of exchanges involving service contracts. Global Crossing estimated that the restatement of financial statements for the nine months ended September 30, 2001, contained in its Quarterly Report on Form 10-Q, would reduce previously reported revenue of $2.437 billion by approximately $19 million, and would increase the net loss of $4.772 billion by approximately $13 million. Total Assets and Total Liabilities and Shareholders' Equity of $25.511 billion would each be reduced by approximately $1.2 billion, and each of Net Cash Provided by Operating Activities and Net Cash Used in Investing Activities would be reduced by approximately $770 million, resulting in no change in net cash flow. Global Crossing has not yet filed its results for the full year 2001 and expects to utilize the accounting treatment described above for exchanges of telecommunications capacity and service contracts as it prepares that filing, and as it reports results in the future. Global Crossing will provide further information regarding its financial condition and results of operations as soon as practicable. With respect to financial statements filed for relevant periods in the year 2000, the net cash flow would not be affected by the revised accounting treatment and Global Crossing believes that the effects on the income statements and balance sheets would be immaterial. The revised accounting treatment of transactions that occurred in 2000 would, however, have material effects on Net Cash Provided by Operating Activities and Cash Used in Investing Activities, each of which would be reduced by approximately $230 million. Global Crossing intends to work with its new independent accountants, once they are appointed, to develop the details of restatements required for periods in 2000. Global Crossing noted that the Enforcement Division of the SEC is continuing its investigation into various matters relating to the transactions that are being restated. ABOUT GLOBAL CROSSING Global Crossing provides telecommunications solutions over the world's first integrated global IP-based network, which reaches 27 countries and more than 200 major cities around the globe. Global Crossing serves many of the world's largest corporations, providing a full range of managed data and voice products and services. Global Crossing operates throughout the Americas and Europe, and provides services in Asia through its subsidiary, Asia Global Crossing. On January 28, 2002, Global Crossing and certain of its affiliates (excluding Asia Global Crossing and its subsidiaries) commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court) and coordinated proceedings in the Supreme Court of Bermuda (Bermuda Court). On the same date, the Bermuda Court granted an order appointing joint provisional liquidators with the power to oversee the continuation and reorganization of the Bermuda- incorporated companies' businesses under the control of their boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court. On April 23, 2002, Global Crossing commenced a Chapter 11 case in the Bankruptcy Court for its affiliate, GT UK, Ltd. On August 4, 2002, Global Crossing commenced a Chapter 11 case in the United States Bankruptcy Court for the Southern District of New York for its affiliate, SAC Peru Ltd. On August 30, 2002, Global Crossing commenced Chapter 11 cases in the Bankruptcy Court for an additional 23 of its affiliates (as specified in the July Monthly Operating Report filed with the Bankruptcy Court) in order to coordinate the restructuring of those companies with its restructuring. Global Crossing has also filed coordinated insolvency proceedings in the Bermuda Court for those affiliates that are incorporated in Bermuda. The administration of all the cases filed subsequent to Global Crossing's initial filing on January 28, 2002 has been consolidated with that of the cases commenced in Bankruptcy Court on January 28, 2002. Global Crossing's Plan of Reorganization, which it filed with the Bankruptcy Court on September 16, 2002, does not include a capital structure in which existing common or preferred equity would retain any value. CONTACT: GLOBAL CROSSING Press Contacts Becky Yeamans +1 973-410-5857 rebecca.yeamans@globalcrossing.com Tisha Kresler +1 973-410-8666 Tisha.Kresler@globalcrossing.com Analysts/Investors Contact Ken Simril +1 310-385-3838 investors@globalcrossing.com TYCO INTERNATIONAL LTD: Expects New Hampshire Regulator OK ---------------------------------------------------------- An agreement between Tyco International Ltd. and New Hampshire securities regulators to settle their differences will be drawn up soon. According to Reuters, a US$5 million payment may likely be a part of the settlement on the allegation that Tyco violated state securities laws. The Bureau of Securities regulations in New Hampshire is one of the bodies investigating Tyco. The company has been in the limelight since the disclosure of allegations that the company's former top executives swindled about US$600 million from company funds. Tyco's former chief executive Dennis Kozlowski and former finance chief Mark Swartz are charged with enterprise corruption and grand larceny. Both pleaded innocence and are out on bail. Tyco's new CEO Edward Breen has been trying to gain investor confidence after stocks fell from US$60 in December to US$6.98 in July. CONTACT: Tyco International Ltd. Corporate Office The Zurich Centre, Second Floor 90 Pitts Bay Road Pembroke HM 08, Bermuda Phone: 441-292-8674 Home Page: http://www.tyco.com TYCO INTERNATIONAL: Belnick Claims Auditors Knew Of Bad Loans ------------------------------------------------------------- The former general counsel for Tyco International Ltd, Mark Belnick, says that the company's auditor, PricewaterhouseCoopers (PwC) were aware of the illegal loans the company's former executives awarded themselves. Belnick's discosure came Monday at Manhattan Court, reports CNN. The documents filed also claim that Tyco owes him more than what was calculated in the charges filed against him, and that the loans he took advantage of were fully disclosed to the company's compensation committee. Belnick is charged of falsification of documents to cover up loans worth US$14 million to himself. Prosecutors contend that Belnick falsified six internal director and officer questionnaires during his employment in Tyco as he omitted information on the relocation loans. Belnick used a US$14 million interest-free loan under the company's relocation program, despite being unqualified. Belnick's lawyers moved for a dismissal of the charges against him, as the auditors knew of what as going on in the company. They added that there was a regular disclosure of the said loans. Individual auditors from the PwC has been subjected to investigation to find out whether they should have released a proxy statement revealing the US$32 million bonus paid to Tyco's former CEO Dennis Kozlowski. Earlier, the case prosecutors told the auditors that legal action against them was not eminent. =========== B R A Z I L =========== CSN: Pays Part of $140M Debt, Refinances Remaining Balance ---------------------------------------------------------- Brazilian flat steel maker CSN paid off US$65 million of US$140 million in debt that matures this month, reports Business News Americas. The remaining US$75 million, with the approval of four of the Company's creditors, will be rolled over. The creditors gave Rio de Janeiro-based CSN apprval to refinance US$50 million and accepted US$25 million in export notes that are due to be paid October 25. "In the current climate, we consider the voluntary decision of these four creditors to be extremely positive," Antonio Ulrich, CSN's corporate director, said. Otavio Lazcano, CSN's CFO, said that the company plans to obtain a new one-year loan securitized with export revenue. "The idea is to continue to maintain our elevated liquidity," he said. After the recent payment of debt expiring this month, the steel maker has US$700 million in cash. This leaves CSN with a strong liquidity position since it faces no other liabilities maturing in the next six months. To see financial statements: http://bankrupt.com/misc/CSN.pdf CONTACT: Jose Marcos Treiger CSN - Investor Relations General Manager Tel. +55 21 2586 1442 Email: jmtreiger@csn.com.br URL: www.csn.com.br CSN: Land-Debt Swap Proposal Still Undecided -------------------------------------------- Brazilian flat steel maker CSN is yet to decide on a proposal that would help it reduce its debt, while promoting industrial development. According to a report by Business News Americas, the municipal government of Volta Redonda, where CSN has its integrated mill, proposed that state-owned development bank BNDES acquire land owned by CSN and knock off part of the steel maker's debt in return. The city council has already approved the measure. The land swap "will provide space and favorable conditions for the growth and development of the municipality, repairing an error in the process of privatization when the concern was insuring the rights of the workers and overlooking the unused land of CSN," said Joao Thomaz, a city council member and president of the engineering labor union. Thomaz said the steel mill does not even consider using the proposed land for future expansion. He believes the subject should be resolved before the planned merger between CSN and Anglo-Dutch steel group Corus is finalized in the first half of next year. "When CSN becomes a multinational it will become more difficult," he said. ELETROPAULO METROPOLITANA: Denies Sale Talks -------------------------------------------- Eletropaulo Metropolitana, the Brazilian unit of U.S.-based AES Corp., said there are no ongoing talks to sell the power distributor, relates Bloomberg. The announcement was made in a press release issued by the unit to counter a newspaper report that suggested AES Eletropaulo is in negotiations over a possible sale. Citing sources close to the negotiations, Valor Economico newspaper said in a report that Brazilian private equity fund GP Investimentos offered to buy Eletropaulo for US$200 million in cash and US$1.2 billion in assumed debt. GP Investimentos officials declined to comment on the report, said Helosisa Carvalho, the fund's spokeswoman. CONTACT: ELETROPAULO METROPOLITANA Avenida Alfredo Egidio de Souza Aranha 100-B, 13 andar 04726-270 San Paulo Brazil Phone: +55-11-548-9461, +55 11 5696 3595 Fax: +55-11-546-1933 URL: http://www.eletropaulo.com.br Contacts: Luiz D. Travesso, Chairman and President Orestes Gonzalves Jr., VP Finance/Investor Relations ELETROPAULO METROPOLITANA: BB Securities To Restructure Debt ------------------------------------------------------------ Eletropaulo Metropolitana contracted BB Securities to renegotiate US$100 million of debt expiring December 9, according to a Gazeta Mercantil report. The debt in question stems from Euro commercial paper placed through an operation led by BB Securities itself. Eletropaulo does not have enough cash, external credit or support of its U.S.-based parent, AES Corp., to pay off its debt. Over the past two months, the Company has been forced to delay debt payments to several banks including J.P. Morgan Chase & Co. due to the 41% plunge in the Brazilian currency against the U.S. dollar. In August, Standard & Poor's lowered Eletropaulo's corporate rating to selective default from CC. Shares in Eletropaulo, which reported a second-quarter loss of BRL132 million (US$33.8 million) compared with a profit of BRL86 million a year earlier, have plunged 68% this year. ENRON: Brazilian Investment Group Eyes Unit ------------------------------------------- A Brazilian investment group has offered to acquire a local electricity unit of bankrupt U.S. company Enron Corp, Bloomberg reports, citing Valor Economico newspaper. Opportunity Asset Management Ltda, through its private equity fund CVC Opportunity, made an undisclosed bid on Oct. 11 to buy control of Enron's Elektro Eletricidade e Servicos SA, the paper said, without citing a source. The Company is valued at BRL2 billion and holds BRL3 billion in debt, according to industry analysts, the paper said. Paulo Andreoli, a spokesman for Opportunity, and Enron officials in Brazil weren't immediately available for comment. CONTACT: ELEKTRO ELETRICIDADE E SERVICOS SA Rua Ary Antenor de Souza, 321 Jd Nova America 13053-024 Campinas - SP Brazil Phone: +55 19 3726 1098 Home Page: http://www.elektro.com.br Contact: Orlando Rufo Gonzalez, Chairman Britaldo Pedrosa Soares, Finance Director GILAT: Signs $23M Deal To Provide Satellite Services In Brazil -------------------------------------------------------------- Gilat Satellite Networks Ltd., a satellite networking technology company, signed a US$23-million contract with Brazil's Communications Ministry to provide a two-way satellite Internet service to 3,200 sites nationwide, reports Satellite News. The satellite communications network, based on Gilat's Skystar 360E VSAT product, will serve Brazil's new GESAC program designed to bridge the digital divide. Gilat recently announced that it, its largest banking creditor, and bondholders holding a majority of the US $350 million (face value), 4.25% Convertible Subordinated Notes due 2005, have agreed to commence negotiations to restructure the Company's debt to the Bank and the Bondholders. Yoel Gat, Chairman and CEO of Gilat, said that the restructuring is expected to reduce the Company's debt by approximately US$300 million by converting a substantial amount of debt to equity or options to acquire equity in the Company. "Post restructuring financing costs are expected to be relatively minimal (less than US$5 million cash per year) for the first few years", he added. Gilat investor relations director Tim Perrott indicated that the event positions Gilat for a post-restructuring scenario where the Company would be able to operate more actively in Latin America and other parts of the world where it has operations. Gilat, with its global subsidiaries Spacenet Inc. and Gilat Latin America, is a leading provider of telecommunications solutions based on Very Small Aperture Terminal (VSAT) satellite network technology - with nearly 400,000 VSATs shipped worldwide. CONTACT: GILAT Tim Perrott, VP, Investor Relations (USA) Tel: +703-848-1515 EMAIL: tim.perrott@spacenet.com * Fitch Cuts Brazil's Sovereign Ratings To 'B', Outlook Negative ---------------------------------------------------------------- Fitch Ratings announced Monday a downgrade of Brazil's sovereign long-term foreign and local currency (Brazilian Real) ratings to 'B' from 'B+'. The Rating Outlook is Negative. This rating action reflects a worsening of Brazil's credit fundamentals driven by persistent uncertainties about the continuity of economic policies and debt sustainability as a result of the political transition under way in Brazil. Fitch estimates that gross general government debt to GDP could approach 90% by year-end compared to 75% at the beginning of the year, while net public debt could rise by over ten percentage points to 65% of GDP. A further tightening of the primary budget surplus target from 3.75% of GDP to between 4.5%-5.0% in an effort to bolster investor confidence in public debt dynamics could be required. However, such a fiscal tightening against the backdrop of a stagnant economy poses its own political and economic risks, which represents a major challenge to the incoming administration. Nonetheless, Fitch views as encouraging recent statements by leaders of the main political parties regarding maintaining or tightening the current macroeconomic policy settings. The weakening of the exchange rate, in addition to increasing the public debt to GDP ratio, has increased inflationary pressures in Brazil. Further, uncertainty over the future conduct of monetary policy is putting upward pressure on inflation expectations. In response, the central bank last week raised the Selic rate by 300bps to 21%, which if sustained will further pressure the fiscal accounts. The uncertainty over the inflation outlook and public finances has meant that the government has had difficulty rolling over high levels of maturing domestic debt. Moreover, heightened global risk aversion, a continuing withdrawal of capital by international banks, and the closure of international capital markets to Brazilian borrowers continue to put downward pressure on the exchange rate despite the marked improvement in the trade balance. This has resulted in a steady, though not precipitous, decline in the central bank's gross and net international reserve position. Pressures in the domestic debt auctions continue. Nearly R$80 bln or roughly 6% of 2002 GDP in domestic debt maturities are due in the fourth quarter of this year. Against this, the treasury has at its disposal roughly R$60 bln in liquid assets with additional inflows expected from the primary surplus and a return on treasury assets, largely covering its rollover needs through year-end. Furthermore, first quarter 2003 rollover needs are modest at an estimated R$24 billion, though tightening maturities later this year could increase first quarter maturities. Maturing debt rises significantly in the second quarter of 2003 to an estimated R$65 billion, which if normalcy does not return to the domestic debt markets could create financing difficulties for the authorities. However, in the event of even more severe pressures in the domestic debt markets, the authorities may have tools at their disposal, such as expanded usage of the central bank overnight repo facility, which Fitch believes would only temporarily postpone the treasury's financing problems. Furthermore, in Fitch's view the scope for monetization is limited by the structure of the debt, with a heavy exposure to foreign currency denominated and dollar-indexed obligations. Should the treasury be unable to significantly increase rollover rates on maturing debt during the first half of 2003, then a domestic debt restructuring, swapping dollar-indexed and floating rate debt for longer-dated, lower-yielding securities, cannot be ruled out. On the external side, Brazil has come under substantial capital account pressures as private sector debt rollover has been constrained and certain capital outflows remain above average monthly rates. The sovereign has ample financial cushion to remain out of the international capital markets for some time. The central government has external financing needs of approximately US$24 bln through the end of 2003, of which approximately US$8 bln represents the IMF's SRF facility which could be postponed. Furthermore, Fitch estimates that external bond amortizations could be as much as US$5 bln lower due to a successful buyback policy. Against these needs, Brazil holds gross reserves of roughly US$35 bln (or approximately US$20 billion in international reserves net of liabilities to the IMF and other items) and is due to receive disbursements of US$27 bln from the IMF through year-end 2003 and US$3 bln from the other IFIs, should the government satisfy quarterly IMF reviews, the next one due in November. Failure to meet performance criteria in these reviews, which could include a tightening of the fiscal targets, could put public external debt service at risk. Given heavy U.S. dollar-denominated or dollar-indexed and floating interest rate debt, unfavorable market conditions if prolonged, negatively impact longer-term public debt dynamics. Fitch estimates that at an exchange rate of 3.87 Reais per US dollar, Brazil's general government debt burden could rise to 88.5% of GDP this year, from 75% in 2001, and that a primary surplus of 4.5%-5% of GDP would be needed to promote a virtuous cycle of exchange rate strength, lower interest rates, and a debt to GDP ratio converging close to 80% by 2006. Achieving such a fiscal tightening could be politically difficult for the incoming administration and could in fact deepen recessionary conditions. Furthermore, a strengthening of the Real is constrained by Brazil's heavy external financing needs, estimated at approximately US$40 billion next year. A narrowing of the current account deficit from over US$30 bln per year in the late 1990s to an expected US$13-15 bln this year, as a result of rising trade surpluses, is countered by heavy debt amortizations and this latest bout of capital account pressures. Only if the incoming president moves quickly to establish his credibility, by making sound appointments to key economic posts, affirming his commitment to prudent macroeconomic policies and reforms, and forging a workable coalition in Congress could Brazil get back on track to debt sustainability. Given the sensitivity of Brazil's public debt dynamics and balance of payments to market sentiment, Fitch believes that the time frame for establishing this credibility will be short. The Rating Outlook could revert to Stable should the new government's credibility with the capital markets be durably established. In addition to policy and politics, in the coming weeks and months, Fitch will continue to monitor the domestic debt auctions, the degree of capital flight, and the willingness of international financial institutions to restore credit lines to Brazilian borrowers in the wake of the elections. CONTACT: Fitch Ratings Roger M. Scher, 1-212-908-0240 Shelly Shetty, 1-212-908-0324 David Riley, +44 (0)20 7417 6338 James Jockle, 1-212-908-0547 (Media Relations) * Brazilian Officials Slam Fitch Decision To Cut Ratings -------------------------------------------------------- Officials from Brazil's finance ministry and central bank believe that the decision by Fitch Ratings to downgrade the country's sovereign debt and local currency ratings was poorly-timed and mistaken, according to a Dow Jones Newswires report. "Fitch's argument takes into account the country's political transition," Brazilian officials said. "It is based, therefore, on what might or might not happen. In its declaration, however, the agency itself recognized its incapacity to form a judgment regarding the situation." They added: "Any serious evaluation would postpone judgment some weeks to then reconsider the risk associated with the country's sovereign debt." The officials claimed that the agency used incorrect and outdated information to arrive at its conclusions. According to them, the agency wrongly evaluated the central government's 2003 financing needs at US$24 billion rather than US$21 billion. Moreover, they said that the agency ignored presidential candidates' repeated commitments to honoring the terms of a US$30-billion loan agreement with the International Monetary Fund and disregarded the country's rapidly improving current account deficit. In addition, they complained that Fitch ignored a recent increase in demand for public sector debt in its evaluation of the country's prospects for rolling over upcoming maturities. ========= C H I L E ========= MANQUEHUE NET: National Grid Struggles to Sell Stake ---------------------------------------------------- U.K.-based National Grid has put its 30% stake in embattled Chilean local exchange provider Manquehue Net on the block for US$12 million. However, according to an Estrategia report, not one company has come forward to express an interest in buying the stake. National Grid is looking to dispose of its stake in Manquehue Net by the end of October leaving uncertainties to its partners Metrogas (25.6%), Rabat family (21%), Williams Communications (16.4%), and Xycom (7%). Prospects for Manquehue are not bright, despite the restructuring of debts worth US$23 million. It has total debts of US$100 million, from which US$15 million with suppliers, US$55 million in bonds, and US$30 million with banks. CONTACT: MANQUEHUE NET S.A. Av. Condor 796, Enterprise City, Huechuraba Santiago Chile Phone: 00 562 243 8800 Fax: 00 562 248 7292 EMAIL: info@manquehue.netl Home Page: http://www.manquehue.net/ http://www.manquehue.cl Contact: Mr. Miller Williams, President Sr.Jos, Luis Rabat Vilaplana, Vice President PETROPOWER ENERGIA: S&P Revises Outlook To Negative --------------------------------------------------- Standard & Poor's on Monday revised its outlook on Petropower Energia Ltda.'s (Petropower) US$162 million trust certificates to negative from stable, reflecting the links between Petropower and its majority owner, Foster Wheeler (single-'B'/Negative/--). Foster Wheeler's credit quality has shown persistent signs of deterioration. Petropower's triple-'B' foreign currency rating is affirmed. The credit agreements for the certificates contain certain events of default relating to the financial condition of Foster Wheeler including filings for bankruptcy or reorganization, material adverse judgments, and failure to pay obligations in excess of US$25 million, among others). While none of these terms and conditions are currently in default, Foster Wheeler's credit quality has deteriorated since the project was originally rated, making those occurrences more likely. However, even if a condition relating to Foster Wheeler were to be in default, the acceleration of the certificates is not automatic and has to be called by the certificate holders. Given that the project is performing well, both financially and operationally, Standard & Poor's believes that there are sufficient economic incentives so that certificate holders would not choose to request acceleration of the debt. "Even when the project's operating and financial record reduces the likelihood of the project needing credit support from Foster Wheeler, the existence of terms and conditions related to Foster Wheeler in the credit agreements pose a potential risk for the certificates," said credit analyst Pablo Lutereau. "We will continue to monitor Foster Wheeler's creditworthiness in order to evaluate the need of a rating action," continued Mr. Lutereau. Petropower was formed as a special-purpose entity to develop, design, construct, and operate a delayed coker, hydrotreater, and net 59 MW cogeneration facility now integrated with Empresa Nacional del Petr�leo's (single-'A'-minus/Positive/--; ENAP) Petrox refinery, located about 500 kilometers south of Santiago, Chile. Foster Wheeler, through wholly owned subsidiaries, has an 85% majority interest in Petropower. Petrox S.A. Refiner�a de Petr�leo (Petrox), which is 99.95% owned by ENAP, has a 7.5% interest, and ENAP has the remaining 7.5% interest. ANALYST: Pablo Lutereau, Buenos Aires (54) 114-891-2125; Sergio Fuentes, Buenos Aires (54) 114-891-2131 ============= E C U A D O R ============= PACIFICTEL: FS Head Clarifies Reports On Date Selection ------------------------------------------------------- Fondo de Solidaridad chairman Alejandro Ribadeneira added additional detail to reports as to which the date for selecting a foreign administrator for Ecuador's second-largest fixed-line operator Pacifictel depends on. In a Business News Americas report, Ribadeneira said that the date for selecting a foreign administrator for Pacifictel depends on the state-run company's board of directors. The board was expected to send Tuesday, October 22, to Ecuador's telecoms regulator Conatel a plan detailing the strategy for meeting various financial and operational goals. A firm date for prequalifying Pacifictel administration applicants would follow that, he said. Although the plan carries no direct relationship to the effort to select a foreign administrator, Ribadeneira said Conatel's reaction to the plan is important for the potential administrators, because the regulator has the power to intervene the telco if it fails to meet its stated objectives. "Nobody would want to enter into an agreement to administrate Pacifictel if there were uncertainty about possible intervention from the regulator," he said. The board will probably hear back from Conatel at the end of next week, and by Monday, October 28, at the latest, he added. Ribadeneira confirmed the six parties participating in the process: Spain's Telefonica, Mexico-based regional mobile holding America Movil; Bell Canada; Swedtel and Andrade Gutierrez (AG) Telecom, consultancies linked to Swedish operator Telia and Brazilian operator Telemar, respectively; and a consortium between US carrier Sprint and Washington-based telecoms management and technical consulting firm Taylor McKenzie. =========== M E X I C O =========== BITAL: Sells 5% Stake In Camesa At Public Auction ------------------------------------------------- Grupo Financiero Bital SA, Mexico's fifth-largest bank, sold a 5% stake in local mining and metals concern Grupo Industrial Camesa SA in a private deal on October 18, says Dow Jones Newswires. Bital, in a filing with the Mexican Stock Exchange, revealed that 23.7 million Camesa shares were sold at MXN2.13 each in an off- market deal worth about MXN50.5 million. The name of the buyer was not disclosed. In April, Bital announced it was going to divest its 12% stake in Camesa at a public auction as part of the group's capitalization plan and the divestment of its assets not related to its core financial services business. Bital is about to be acquired by HSBC Holdings Plc, Europe's biggest bank by market value. According to Jonathan Davis, president of the National Banking and Securities Commission, if everything goes well, HSBC would launch a tender offer for the outstanding Bital shares by the end of this month and the purchase could be finalized by mid-November. HSBC in August said it was buying Bital for US$1.14 billion in cash and would fully capitalize the Mexican bank in the next two years. According to Davis, the European bank may need to inject between US$550 million and US$600 million of additional capital into Bital. Earlier, Bital executives had estimated that HSBC would have to inject at least another US$450 million into the local concern to comply with tougher bank requirements set to be in place next year. Davis said that regulators are defining with HSBC executives the amount needed to boost capital ratios of Bital. Bital has about 1,400 branches and six million customers. After a wave of foreign bank takeovers in the last two years, Mexico's No. 4 banking group Banorte is now the only major bank left in Mexican hands. CONTACT: GRUPO FINANCIERO BITAL Paseo De La Reforma No. 243, Cuauhtemoc, 06500, Mexico ,D.F. Phone: 57.21.52.86 Fax: 57.21.57.83 Home Page: www.bital.com.mx Contact: Investor Relations Act. Ricardo Garza Galindo Salazar Phone: 57.21.26.40 Fax: 57.21.26.26 E-mail: ricaggs@bital.com.mx ======= P E R U ======= BACKUS: Regulator Issues Rulings -------------------------------- Peru's bourse regulator Comision Nacional Supervisora de Empresas y Valores del Peru (Conasev) has presented its rulings concerning the issue on the control of Union de Cervecerias Peruanas Backus y Johnston SA (Backus). Empresas Polar, the Venezuelan shareholder in Backus, which has a market capitalization of US$1.53 billion, accused Bavaria and Cisneros of cooking up an illegal deal when the two companies acquired shares in Backus. In July this year, Bavaria bought 24.5 percent of Backus for US$420 million, which is double the market price. A few days later, Cisneros bought 16 percent for US$200 million an announced an intention to buy 7.32 percent more. Backus voting shares are currently valued at PSS56 (US$15.5). Local daily EL Comercio reported Conasev has issued a ruling that there were evidences of an illegal collusion Bavaria and Grupo Cisneros in the acquisition of Backus' shares. Bavaria and Cisneros were given until Saturday to present evidences and rebuttals to the charges. In return to Polar's accusations, Bavaria alleged that Polar has raised its stake in Backus to more than 25 percent without launching a full bid, in violation of Peruvian rules. An earlier ruling from Conasev said that are signs that Bavaria's accusations on Polar may be true. Polar was given five days to explain. Backus chairman Elias Bentin Peral contends that the issue was just a "dispute between shareholders." He defended Cisneros' saying that the group's interest in Backus is from Cisnero's desire for a new market. Reuters quoted Peral saying, "...the arrival of Cisneros was a salvation. We were in a tough position and if someone else came along ready to buy under our asking terms, we would have sold." Peral also said that Bavaria, which is present in Panama, Colombia and Ecuador was attracted to Backus as it was planning to expand in the region. According to Peral, Polar had the intention to take control of Backus, and that the charges filed were just Polar's "frustrated reaction" after they were left hanging due to the entry of Bavaria and Cisneros. Analysts Backus' monopoly of the Peruvian market became a major attraction to foreign companies, as it holds big potential. Backus is maker of top beers Cristal, Pilsen and Cusquena. CONTACT: Union de Cervecerias Peruanas Backus y Johnston SA Head Office No 594 Jiron Chiclayo Rimac Lima, Peru Tel +51 1 311 3000 Fax +51 1 311 3059 Web http://www.backus.com.pe Contacts: Elias Bentin Peral - Chairman Atty. Victor Montori Alfaro - Vice Chairman Catalina Bentin Grande - Director EDEGEL: Posts PEN18.6 Million Net Profit For 3Q02 ------------------------------------------------- Peruvian generator Edegel informed the Lima stock exchange that it posted PEN18.6 million (US$5.1 million) in net profits for the third quarter of 2002. The figure, according to Business News Americas, brings net profit for the first nine months of this year to a total of PEN94.6 million, 34% down from the same period last year. Sales revenue during the third quarter of this year fell 4.6%, to PEN140.1 million, against the figure registered in the same quarter last year. Lower power generation in the quarter resulting from maintenance work at the Chimay hydroelectric plant during July and August affected performance, the Company said in a statement. For the year-to-date, sales revenue increased 0.7% from 2001 to PEN423.2 million, on the strength of higher spot prices in 2002 compared to 2001; the low availability of hydro-power and the maintenance program impacted the spot price, the statement said. Edegel's third-quarter 2002 sales costs - comprising fuel costs, transmission fees and production costs - rose 14.1% to PEN50.5 million. For the year-to-date, Edelgel's sales costs were PEN141 million, 6% higher than the corresponding period 2001. The rise was due mainly to a PEN5.4-million charge for maintenance work at Chimay and a PEN1.10-million insurance premium increase. Edegel recently proposed to sell to the Colombian ISA (Interconexion Electrica S.A) part of its share in its power transmission lines in order to pay off part of its debt with its Chilean parent, Endesa Chile, which is looking to prop up its ailing finances. Endesa Chile is controlled by Enersis S.A., which recently revealed plans to sell some of its assets to help ease debts of US$10.8 billion. That sum includes a US$1.4 billion loan payment to Enersis' parent, Spain's largest power group, Endesa. Edegel's total current debt stands at US$275 million, while Endesa's stands at US$4.5 billion. Edegel declined to comment on how much the Company hoped to net from the sale of the transmission lines. According to Edegel Managing Director Jose Griso, the Company was doing well despite economic woes across Latin America. "Edegel has a phenomenal (financial) position and very low debt. But we are a unit of another company and ... that company (Endesa Chile) has a high debt level," he said. To see financial statements: http://bankrupt.com/misc/Enersis.pdf CONTACT: ENERSIS Investor Relations: Ricardo Alvial Chief Investments & Risks Officer of Enersis Email: ram@e.enersis.cl Phone: (562) 353-4682 Contacts: Susana Rey, srm@e.enersis.cl Ximena Rivas, mxra@e.enersis.cl Pablo Lanyi-Grunfeldt, pll@e.enersis.cl ================================= T R I N I D A D & T O B A G O ================================= BWIA: Long Time Employees Clamor For Pension -------------------------------------------- Former BWIA employees who received payment from the company's surplus are now demanding that they receive their pension. According to the Trinidad Guardian, forty-eight employees claim that they had presented the matter to a lawyer, an industrial relations person, a financial accountant, a union rep, all of whom said that they have a case. They added that they are seriously considering the feasibility of taking the case to court. However, these former employees clarify that their claim is not related to the present problems BWIA is facing. The dispute has been going for quite some time now. One of the forty-eight said that the dispute started when the company was divested in 1995. They were told that they would not be entitled to the 1971 Pension Fund. Some of their colleagues who thought that they had lost their pensions took Voluntary Separation Payments. They soon learned that the Old BWIA, as the company before the divestment was called, had a surplus and will be distributing ex- gratia payments. Forty-eight of them claimed their payments. The same forty-eight are now asking for their pensions, after they learned that the company was given court orders to distribute money from the 1971 Pension Fund. Jerry Hospedales, chairman of the fund's divestment secretariat, however, said that what the forty-eight called as "ex-gratia payment" was actually their pension. In a letter, Hospedales said to the employees, "The effect of your receipt of the payment offered in 1996 meant that you no longer had any interest in the surplus. Accordingly, you are not entitled to participate in the Net Residue payout since any liability to you has been extinguished by your election and your receipt of the cash payment in 1996." An irate member of the 48 claimants said that the court order mentioned "all members" of the fund, adding that Hospedales is implying that they are not members of the fund by virtue of the "refund" they received. BWIA is currently trying to reorganize its operations, aiming to save at least US$1 million per month for the following months. The restructuring and reorganization plan includes rationalizing the fleet and drafting new rules. However, if the plan fails, BWIA would be at the mercy of its creditors, according to Lawrence Duprey, BWIA's chairman. Nevertheless, the company's president and chief executive officer Conrad Aleong expressed his confidence that BWIA would survive the slump in the airline industry, saying that the airline had been through worst and has the capacity to stay alive. CONTACTS: BWIA West Indies Airways Phone: + 868 627 2942 E-mail: mailto:mail@bwee.com Home Page: http://www.bwee.com/ Contacts: Conrad Aleong, President and CEO (Trinidad) Beatrix Carrington, VP Marketing and Sales (Barbados) Paul Schutz, Chief Financial Officer (Trinidad) ============= U R U G U A Y ============= BANCO COMERCIAL: Attracts Two More Potential Bidders ---------------------------------------------------- Uruguayan bank Banco Comercial, which is owned by international banks J.P. Morgan Chase & Co., Credit Suisse First Boston and Dresdner Bank AG, draws more bidders. According to Business News Americas, international investor George Soros and a large New York-based insurance firm are interested in acquiring the suspended Uruguayan bank. Sources revealed that last week, Soros and the insurance firm met with representatives from Comercial and the Uruguayan government to discuss the details of a potential takeover. The deal could be closed this week in order to reopen the bank as soon as possible, the sources added. Brazilian financial group Brazilinvest Emprendimentos e Participacoes earlier said it was also looking to takeover Comercial. Previous reports revealed that Brasilinvest has already handed a takeover proposal to the Economy Ministry and the central bank. Brazilinvest representatives and Uruguayan authorities are also expected to meet in Montevideo to discuss a potential deal. Comercial, and three other local banks Banco de Credito, Banco Montevideo and Banco Caja Obrera were all intervened and suspended in July and August due to liquidity and capital problems caused by the Uruguayan financial system's vulnerability to Argentina's financial crisis. The Uruguayan government and the different parties are trying to beat the time, as there are only a few days left before the banks go into liquidation and the central bank has said it will not prolong the negotiations. Investment group St George is still negotiating the take over of Banco de Credito and Greek group Tsakos is eyeing Montevideo and Caja Obrera. CONTACT: BANCO COMERCIAL Cerrito No. 400, 11100 Montevideo Phone: 960-394/97 Fax: 963-569 Home Page: www.bancocomercial.com.uy *********** 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, Edem Psamathe P. Alfeche and Ma. Cristina Canson, Editors. Copyright 2002. 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 * * *