/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/040816.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 Monday, August 16, 2004, Vol. 5, Issue 161 Headlines A R G E N T I N A AGUAS ARGENTINAS: House OKs Interim Contract Freezing Rates AMPRI S.A.: Court Orders Liquidation BANCO GALICIA: Posts 1H04 ARP98.3M Net Loss of CABLEVISION: Viewed as Potential Telmex Target in Argentina CENTRAL PUERTO: Ends 1H04 With $13M Losses COINTEL: Fitch Withdraws Ratings Following Notes Repayment ELECTRONICA: Liquidates Assets to Pay Debts ESTACION DE SERVICIO: Court Resolves Case to Reorganization GRUPO LIDER: Enters Bankruptcy on Court Order LOMA NEGRA: Seeks $1Billion Buyer MERCE RAMON: Prepares for Reorganization PARAFINA DEL PLATA: Reorganization Plan Authorized PARMALAT FINANZIARIA: Contemplates LatAm Sale RIO ALTO: Shareholders Approve Sale of Argentine Assets SCP: Triples Gross Profit in 1H03 TOWER RECORDS: Creditors Approve Debt Offer B E R M U D A GLOBAL CROSSING: NASDAQ OKs Extension Plea B R A Z I L BRASKEM: Releases Board of Directors Meeting Resolutions VARIG: Government Outlines Rescue Plan * BRAZIL: Could Terminate IMF Debt Accord in December E C U A D O R PETROECUADOR: Oil Export Revenue Up 29% Through July 2004 * ECUADOR: IMF Concludes Article IV Consultation J A M A I C A C&WJ: Cuts Access Rates by 30% M E X I C O ALESTRA: Signs Optical Gear Accord With Lucent AXTEL: Revenue Up 24% in 2Q04 on Expanding Lines CYDSA: EBITDA Surges 97.2% From 1H03 EMPRESAS ICA: Panama Unit Expects $25.2M From Government GRUPO MEXICO: Effectively Negotiates Contract Terms With Workers ISSSTE: Government Seeks Solution to Alleviate Financial Crisis V E N E Z U E L A RCTV: Seniat Denies Closure Talks - - - - - - - - - ================= A R G E N T I N A ================= AGUAS ARGENTINAS: House OKs Interim Contract Freezing Rates ----------------------------------------------------------- Argentina's Lower House approved Wednesday an interim contract with water provider Aguas Argentinas SA, ensuring that it passed into law, says Dow Jones. The transitional agreement was signed in May by Argentine President Nestor Kirchner and Aguas Argentinas President Yves-Thibault de Silguy. The agreement is retroactively effective from Jan. 1, 2004, and is supposed to remain in effect until year's end. After that, the two sides are due to negotiate a new, multi-year contract. Under the agreement, water rates, which were converted from dollars into devalued pesos and then frozen in early 2002, will remain unchanged this year. Meanwhile, Suez, Aguas' principal shareholder, will have to spend ARS242 million on waterworks investments during 2004. The deal also requires Suez to suspend its claim against Argentina in the World Bank's arbitration tribunal, or ICSID. However, Suez wasn't asked to drop its complaint altogether. The French utility is among several foreign-owned companies with Argentine operations that have filed claims against Argentina for the so-called "pesification" of rates converted from dollars into devalued pesos. AMPRI S.A.: Court Orders Liquidation ------------------------------------ Court No. 17 of Buenos Aires' Civil and Commercial Tribunal ruled affirmatively on the liquidation of Ampri S.A. after the company defaulted on its obligations, Infobae reveals. The liquidation pronouncement will effectively place the company's affairs as well as its assets under the control of Mr. Hugo Alberto Trejo, the court-appointed trustee. Mr. Trejo will verify creditors' proofs of claims until September 27, 2004. The verified claims will serve as basis for the individual reports to be submitted in court on November 9, 2004. The submission of the general report follows on December 21, 2004. Clerk No. 17 assists the court on this case, which will end with the disposal of the company's assets in favor of its creditors. CONTACT: Ampri S.A. Avda Medrano 184 Buenos Aires Mr. Hugo Alberto Trejo, Trustee Avda Cordoba 744 Buenos Aires BANCO GALICIA: Posts 1H04 ARP98.3M Net Loss of ---------------------------------------------- Banco de Galicia y Buenos Aires S.A., a subsidiary of Grupo Financiero Galicia, suffered a net loss of ARP98.3 million for the first half of 2004, says Dow Jones Newswires. Net assets totaled ARP1.29 billion at the end of June. Meanwhile, parent company Grupo Galicia also remains in the red with an ARP0.8 million net loss for the second quarter. However, this figure is a significant improvement from a year ago's net loss of ARP67.8 million. Banks across the county are slowly seeing the results of Argentina's economic recovery. Healthy credit activity enabled Grupo Galicia to lower its provision for loan loss to ARP41 million this period compared with ARP64.3 million last year. The Company's brokerage margin surged from last years ARP34.6 million loss to end at ARP214.4 million for the period. Loan Stock and Deposits also showed modest gains ending at ARP11.56 billion and ARP6.02 billion, respectively. Grupo Galicia is also making headways in the restructuring of its debt. Last May, the International Finance Corporation authorized the restructuring of US$310 million in outstanding loans. Also, an estimated 50 percent of the preferred rights issue involving 149 million shares went to Banco Galicia's creditors. CABLEVISION: Viewed as Potential Telmex Target in Argentina ----------------------------------------------------------- Telmex's buying spree in South America could extend to troubled Argentine company Cablevision, says Dow Jones Newswires. Like Brazil, where it recently acquired cable TV outfit Net Servicos, Telmex is on the road towards creating a comprehensive telecommunications infrastructure in Argentina. With the purchase of Metrored, a local data transmission and Internet service provider, the company now needs cable facilities to make the last mile connection into the country's households. Telecommunications consultant Enrique Carrier said that Cablevision is Telmex's best option if it is looking for such a facility. Unamed sources cited by local daily El Cronista say that Telmex's Carlos Slim is already in talks to buy into Cablevision. The report adds that Mr. Slim could take in US$400 million of Cablevision's US$725 million debt as part of the deal. However, officers from Cablevision have denied rumors of negotiations with Telmex. Telmex spokesman Arturo Elias also said that he was not aware of any ongoing talks with Cablevision. CONTACT: Cablevision Sociedad Anonima Mr. Santiago Pena: spena@cablevision.com.ar Mr. Martin Pigretti: mpigretti@cablevision.com.ar Cuba 2370 Buenos Aires Argentina Web Site: www.cablevision.com.ar CENTRAL PUERTO: Ends 1H04 With $13M Losses ------------------------------------------ Argentine thermo generator Central Puerto reported losses of ARS38 million (US$12.8mn) in the first half of 2004, reversing profits of ARS72 million in the same period of 2003. According to Business News Americas, the Company blames its negative financial performance for the 1H04 on non-operating losses of ARS55.3 million, which resulted from higher provisions and interest payments. In the 1H03, the Company posted non-operating profits of ARS5.4 million. Operating profit increased 72.9% to ARS18.5 million in the 1H04 due to a 78% increase in sales that in turn resulted from increased generation in the 2Q04 because of liquid fuel imports from Venezuela. Central Puerto is 63.9% controlled by France's Total. COINTEL: Fitch Withdraws Ratings Following Notes Repayment ---------------------------------------------------------- Fitch Ratings affirmed and simultaneously withdrawn the 'CC' international scale foreign and local senior unsecured ratings, as well as the 'CCC(arg)' national scale ratings of Compania Internacional de Telecomunicaciones S.A. (Cointel) following the repayment of all of its outstanding public debt at their maturity date. On Aug. 2, 2004, Cointel made the last coupon payment and paid down the principal amount of its two public bonds (Series A notes due 2004 and series B notes due 2004), with outstanding principal amounts of US$36.7 million and AR$175 million. The last coupon payment made by Cointel was US$1.6 million for the series A notes and AR9.1 million for the Series B notes. Cointel is a holding company whose primary asset is a 64.8% equity stake in Telefonica de Argentina S.A. (TASA), an operating company that provides local-exchange, long-distance, residential Internet access and directory publishing services in Argentina. Telefonica S.A. of Spain indirectly controls close to 100% of Cointel. ELECTRONICA: Liquidates Assets to Pay Debts ------------------------------------------- Buenos Aires-based Electronica E.C. S.A. will begin liquidating its assets following the pronouncement of the city's Court No. 20 that the company is bankrupt, reports Infobae. The bankruptcy ruling places the company under the supervision of court- appointed trustee, Ms. Susana Graciela Roiter. The trustee will verify creditors' proofs of claims until August 24, 2004. The validated claims will be presented in court as individual reports on November 8, 2004. The trustee will also submit a general report, containing a summary of the company's financial status as well as relevant events pertaining to the bankruptcy, on December 21, 2004. The bankruptcy process will end with the disposal company assets in favor of its creditors. CONTACT: Ms. Susana Graciela Roiter, Reuters Marcelo T de Alvear 1430 Buenos Aires ESTACION DE SERVICIO: Court Resolves Case to Reorganization ----------------------------------------------------------- Estacion de Servicio El Cruce S.H. will proceed with reorganization after Court No. 1 of Olavarria's Civil and Commercial Tribunal converted the Company's ongoing bankruptcy case into a "concurso preventivo", states Infobae. Under insolvency protection, the Company will be able to draft a proposal designed to settle its debts with creditors. The reorganization also prevents the Company's outright liquidation. Ms. Norma Edit Stancati, the court-appointed trustee, will verify creditors' proofs of claims until August 31, 2004. After the verification period, the trustee will submit individual reports on October 13, 2004. The court also requires the trustee to prepare a general report and submit it on November 25, 2004. CONTACT: Estacion de Servicio El Cruce S.H. Ruta 226 Km. 285,5 Olavarria Olavarria Ms. Norma Edit Stancati, Trustee Fassina 3157 Olavarria GRUPO LIDER: Enters Bankruptcy on Court Order --------------------------------------------- Grupo Lider Asesores de Seguros S.A. (Antes Grupo Lider de Seguros y Mandatos S.A.) enters bankruptcy protection after Buenos Aires Court No. 8, with the assistance of Clerk No. 15, ordered the company's liquidation. The bankruptcy order effectively transfers control of the company's assets to the court-appointed trustee who will supervise the liquidation proceedings. Infobae reports that the court selected Mr. Pedro Mazzola as trustee. He will be verifying creditors' proofs of claims until the end of the verification phase on September 28, 2004. Argentine bankruptcy law requires the trustee to provide the court with individual reports on the forwarded claims and a general report containing an audit of the company's accounting and business records. The individual reports will be submitted on November 10, 2004 followed by the general report, which is due on December 12, 2004. CONTACT: Mr. Pedro Mazzola, Trustee Cerrito 1136 Buenos Aires LOMA NEGRA: Seeks $1Billion Buyer --------------------------------- Loma Negra, Argentina's largest cement company, is putting itself on the block with J.P. Morgan Chase & Co. as adviser to the transaction, reports Dow Jones. The Company, which is controlled by Argentina's richest woman, Amalia Lacroze de Fortabat, is talking about a preliminary sale figure of US$1 billion, bankers say. The deal is likely to attract interest from global cement groups such as France's Lafarge SA and Mexico's Cemex SA - respectively the world's No. 1 and No. 3 cement makers - and companies such as Portugal's Cimpor and Brazil's Camargo Correa and Votorantim Cimentos. Swiss giant Holcim Ltd., the world's second-largest cement maker, is seen as an unlikely bidder because it already controls 34% of the local market through Minetti SA, Argentina's second- largest cement group. A Loma Negra takeover would raise the issue of market concentration. MERCE RAMON: Prepares for Reorganization ---------------------------------------- Court No. 2 of Mercedes' Civil and Commercial Tribunal, with assistance from Clerk No. 3, issued a resolution opening the reorganization of Merce Ramon y Merce Abelardo Ramon S.H., reports Infobae. The pronouncement authorizes the Company to begin drafting a settlement proposal with its creditors in order to avoid liquidation. The reorganization further allows the Company to retain control of its assets subject to certain conditions imposed by Argentine law and the oversight of the court appointed trustee. Ms. Clorinda Paula Donato will serve as trustee during the course of the reorganization. She will be validating creditors' proofs of claims until August 30, 2004. CONTACT: Merce Ramon y Merce Abelardo Ramon S.H. Libertad 740 Salto Ms. Clorinda Paula Donato, Trustee Calle 23 Nro. 540 Mercedes PARAFINA DEL PLATA: Reorganization Plan Authorized -------------------------------------------------- The settlement plan proposed by Parafina del Plata S.A. for its creditors acquired the number of votes necessary for confirmation. As such, the plan has been endorsed by the court and will now be implemented by the company. Court No. 3 of Buenos Aires' Civil and Commercial Tribunal, assisted by Clerk No. 5, has jurisdiction over this case. CONTACT: Parafina del Plata S.A. Buenos Aires PARMALAT FINANZIARIA: Contemplates LatAm Sale --------------------------------------------- After revealing a plan to sell its unit in Argentina, scandal- ridden Italian dairy giant Parmalat is now mulling the sale of other assets in Latin America, according to a Europe Intelligence Wire report. Mr. Enrico Bondi, who has been appointed by the Italian government to oversee Parmalat's bankruptcy process, has created a plan, which would see the sale of Parmalat's inactive facilities in Tenio and Paipa, in Colombia; land in Rivas, Nicaragua; and four inactive factories in Venezuela. According to the restructuring plan, the Company's strategy in Latin America will be modified "in accordance with the implementation of the industrial plan." Mr. Bondi plans to reduce the Company's debt from EUR14.8 billion (US$18.1 billion) to less than EUR500 million ($612 million) by the end of 2007. CONTACT: Parmalat Finanziaria piazza Erculea 9, 20122 Milano (MI), ITALIA. Phone: +39 02 8068801 Fax: +39 02 8693863 Parmalat Partecip. Do Brasil Ltda Rua Gomes de Carvalho 1629 - CEP 04547-005 Sao Paulo, SP. Web Site: www.parmalat.com RIO ALTO: Shareholders Approve Sale of Argentine Assets ------------------------------------------------------- Rio Alto Resources International Inc. held its Annual and Special Meeting of shareholders on August 11, 2004. It convened to approve the previously announced "Plan of Arrangement" transaction whereby: (1) shareholders are to provide their approval to the previously announced dispositions of Rio Alto Resources' Canadian and Argentine assets, and (2) approximately 99.4% of each shareholder's Rio Alto Resources shares are to be acquired by the Company for cash consideration. In addition, further to the previously announced agreement entered into by Rio Alto Resources with West Energy Ltd., Rio Alto Resources' shareholders approved an ordinary resolution to issue common shares of Rio Alto Resources to acquire all of the issued and outstanding shares and special warrants of West allowing West to complete their "reverse takeover", the details of which are outlined in the information circular mailed in respect of the Rio Alto Resources Plan of Arrangement. Rio Alto Resources' shareholders also approved the special resolution to change the name of Rio Alto Resources to "West Energy Ltd." or such other name as is approved by Rio Alto Resources' board of directors and is acceptable to the Toronto Stock Exchange. Rio Alto's shareholders also approved the appointment of Mssrs. Richard T. Cones, Robert M. Shaunessy, Lloyd C. Swift, R. James Brown and John A. Brussa as the directors of the company and PricewaterhouseCoopers LLP as the auditors of the company. On August 11, 2004, the Court of Queen's Bench of Alberta granted a Final Order approving the Rio Alto Arrangement. Rio Alto Resources expects to complete the share repurchase transaction on or about August 30, 2004, upon closing the Canadian and Argentine asset dispositions. CONTACT: Rio Alto Resources International Inc. Ian J. Towers, President & CEO (403) 716-2253 Robert M. Shaunessy, Chairman, Special Committee (403) 770-2504 SCP: Triples Gross Profit in 1H03 --------------------------------- Argentine diversified holding company Sociedad Comercial del Plata more than tripled its gross profit to ARP16.6 million in the first half of this year from AES4.5 million a year ago, reports Dow Jones Newswires. The Company also reported a significant cut in its net loss from ARP568.4 million for the first half of 2003 to ARP2.9 million this year. At the same time, operating loss is down to ARP749,000 from last year's ARP29.5 million. Sales for the period totaled ARP57.1 million, a modest increase from ARP44.1 million in 1H03. However, the increase was offset by a weak peso, which had slid 1.2 percent against the dollar in 1H04. 1H04 further saw a rise in income tax expense from ARP7,000 last year to ARP2 million. Financial holding loss also shaved ARP11 million off the company's bottom line. A year earlier, SCP recorded a financial holdings gain of ARP151 million. SCP stated that the effects of its ongoing restructuring negations as well as a recent judgment concerning its oil and gas arm, Compania General de Combustibles, are not factored in the 1H04 statements. The Company's restructuring case is still pending, after some creditors appealed the approval issued by a local court last March. Meanwhile, CGC, 19 percent owned by SCP, is set to pay U.S. company Reef Explorations Inc. US$175 million once it completes bankruptcy proceedings. CONTACT: Sociedad Comercial Del Plata Av. Davila 350 Buenos Aires Argentina Phone: 54 1 310-0490 Fax: 54 1 310-0493 TOWER RECORDS: Creditors Approve Debt Offer ------------------------------------------- The Mouse Company, the firm that holds the license to manage music store chain Tower Records in Argentina, has managed to obtain the necessary backing from creditors for its Ps. 3.8 million formal debt restructuring offer. The company proposes to apply a 50% haircut in the total amount of debt and to pay the other 50% within five years, after a 2-year grace period. The approval of the debt offer will pave the way for the sale of the company. ============= B E R M U D A ============= GLOBAL CROSSING: NASDAQ OKs Extension Plea ------------------------------------------ Global Crossing (NASDAQ: GLBCE) announced Thursday that the NASDAQ Listing Qualifications Panel granted the company's request for an extension until September 10, 2004 to return to full compliance with NASDAQ listing and SEC filing requirements. Global Crossing provides telecommunications solutions over the world's first integrated global IP-based network. Its core network connects more than 300 cities and 30 countries worldwide, and delivers services to more than 500 major cities, 50 countries and 6 continents around the globe. The company's global sales and support model matches the network footprint and, like the network, delivers a consistent customer experience worldwide. Global Crossing IP services are global in scale, linking the world's enterprises, governments and carriers with customers, employees and partners worldwide in a secure environment that is ideally suited for IP-based business applications, allowing e- commerce to thrive. The company offers a full range of managed data and voice products including Global Crossing IP VPN Service, Global Crossing Managed Services and Global Crossing VoIP services, to more than 40 percent of the Fortune 500, as well as 700 carriers, mobile operators and ISPs. CONTACTS: Press Contacts Ms. Becky Yeamans + 1 973-937-0155 PR@globalcrossing.com Ms. Tisha Kresler + 1 917-270-0079 PR@globalcrossing.com Ms. Fernanda Marques + 55 21-3820-4712 LatAmPR@globalcrossing.com Ms. Kirstie Phimister Europe + 44 (0) 1256-734063 EuropePR@globalcrossing.com Analysts/Investors Contact Ms. Mitch Burd +1 800-836-0342 glbc@globalcrossing.com Web Site: www.globalcrossing.com =========== B R A Z I L =========== BRASKEM: Releases Board of Directors Meeting Resolutions -------------------------------------------------------- On July 28, 2004, at 2:00 p.m, at the Company's headquarters located at Avenida das Nacoes Unidas, No. 4777, 05477-000, Sao Paulo, SP, the 490th (four hundred and ninetieth) Meeting of the Board of Directors of BRASKEM S.A. was held, and the undersigned members of the Board of Directors were in attendance. The member of the Board of Directors, Mr. Francisco Teixeira de Sa, was absent and was replaced by his alternate, Mr. Lucio Jose Santos Junior. Also attending the meeting were the President Jose Carlos Grubisich Filho, executive officers Mr. Mauricio Roberto de Carvalho Ferro, Mr. Rogerio Affonso de Oliveira and Mr. Jayme Fonseca, as well as Ms. Marcela Drehmer, Ms. Isabel Figueiredo and Ms. Ana Patricia Soares Nogueira and the Secretary of the Board of Directors, Mr. Nelson Raso. The Chairman of the Board of Directors, Mr. Pedro Augusto Ribeiro Novis, acted as chairman of the meeting, and Ms. Ana Patricia Soares Nogueira acted as secretary. AGENDA: I) Matters for deliberation: DELIBERATION PROPOSALS: 1) upon review of the respective subjects, the following Deliberation Proposals ("PD") were unanimously approved, having been previously submitted by the Board of Executive Officers to the members of the Board of Directors, as provided in its Internal Rules, copies of which have been duly filed at the Company's headquarters: A. PD.CA/BAK-15/2004 - Transaction of Securitization of Export Receivables, authorizing the Board of Executive Officers to: (i) enter into the Export Prepayment transaction between the Company, as borrower and debtor, NN Chemical Corporation and the UFJ Bank Limited, in the amount of US$50,000,000.00 (fifty million U.S. dollars); and (ii) execute all documents related to the transaction, including the "Credit Agreement" and the Commercial Agreement, as provided in the terms and conditions described in the respective PD; B) PD.CA/BAK-16/2004 - Financing Transaction for Naphtha Imports, authorizing the Board of Executive Officers to: (i) enter into the financing transaction with the ING Bank N.V., Curacao Branch, as described in the respective PD, in the amount of US$100,000,000.00 (one hundred million U.S. dollars); (ii) perform all acts required for entering into the above- described financing transaction; C) PD.CA/BAK-19/2004 - Investment - Re-potentializing of the Pyrolysis Furnaces, approving the investment of R$106,402,900.00 (one hundred and six million, four hundred and two thousand, nine hundred reais) over a period of 4 years, as described in the respective PD; 2) PD.CA/BAK-17/2004 - Election of Executive Officer, (Board member Mr. Andre Tapajos Cunha abstained from voting), in order to: (i) acknowledge the request for resignation submitted by executive officer Mr. Rogerio Affonso de Oliveira, having been recorded the appreciation of the Company's Board of Directors to the resigning executive officer, for his dedication and contributions during the period in which he performed his duties in the Company; and (ii) elect Mr. Roberto Lopes Pontes Simoes to perform all duties as the Company's executive officer for the remaining period of the mandate, which will end at the time of the first meeting of the Board of Directors following the General Shareholders' Meeting to be held in 2006. The executive officer now elected assumed his position on this date, and has presented written statements, as provided in art. 37, sub-paragraph II, of Law No. 8,934 of 11/18/94, under script provided by Law No. 10,194 of 02/14/01, and as provided in the 1st paragraph of article 147 of Law No. 6,404 of 12/15/76, to the effect that he is not precluded by special law or sentenced for bankruptcy crimes, prevarication, bribery or subornation, embezzlement, speculation, crimes against the public economy, public faith or property, or by a criminal sentence that would preclude, even temporarily, his access to public functions, and has further submitted, in compliance with the provision in CVM Instructions Nos. 358 of 01/03/02 and 367 of 05/29/02, written statements as provided in the above-mentioned CVM Instructions, which statements have been filed at the Company's headquarters. II) Matters for Acknowledgement: The matters of Item II were presented by the respective executive officers and managers responsible for the subjects contained in this Item, as follows: 1) Company's results for the 1st Semester of 2004, having been recorded that the members of the Company's Auditing and Financial Committees had previously analyzed the subject; 2) Conclusion of the follow-up on the Synergies Program and information concerning the "Braskem + Program"; 3) Report by the Finance and Investments Committee concerning the follow-up on investments approved by the Board of Directors; III) Matters of Interest to the Company: None to be recorded; IV) CLOSING OF THE MINUTES - With no other matters to discuss, these minutes were drafted and, after being read, discussed and found conforming, were signed by all members of the Board of Directors in attendance, the Chairman and the Secretary. Sao Paulo/SP, July 28, 2004. (Signatures: Pedro Augusto Ribeiro Novis - Chairman; Ana Patricia Soares Nogueira - Secretary; Alvaro Fernandes da Cunha Filho - Vice President; Alvaro Pereira Novis; Andre Tapajos Cunha; Carlos Alberto de Meira Fontes; Fernando de Castro Sa; Jose de Freitas Mascarenhas; Lucio Jose Santos Junior; Luiz Fernando Cirne Lima; Margareth Feijo Brunnet; Newton Sergio de Souza). CONTACT: Braskem S.A. Rua Eteno, 1561 Polo Petroquimico de Camacari Camacari, 05477 Phone: (212) 688-5144 Fax: (212) 688-5213 Web Site: www.braskem.com.br VARIG: Government Outlines Rescue Plan -------------------------------------- Brazil's Viacao Aerea Rio-Grandense SA (Varig) has been notified of the federal government's plan to rescue the ailing airline transportation company, says Valor Economico. The Troubled Company Reporter - Latin America earlier reported about Brazilian President Luiz Inacio Lula da Silva's intention to bail out the country's biggest airline. According to the report, the Brazilian National Development Bank (BNDES) has been engaging in talks with five foreign and Brazilian investors over a rescue plan for Varig. Under the plan, Varig, would swap BRL3 billion of its BRL6- billion debt into equity, which would account for two-thirds of the Company's capital. In addition, the Company would have to abandon up a lawsuit against the government in order to renegotiate payment on another BRL3 billion of debt owed the government. The president wants to bail out Varig because its bankruptcy could damage the country's image abroad. In the meantime, Varig awaits a ruling from the Brazilian Administrative Council for Economic Defense, Cade, for the creation of a joint venture with TAM, namely Voa Brasil. CONTACT: VARIG (Viacao Aerea Rio-Grandense, S.A.) Rua 18 de Novembro No. 800, Sao Joao 90240-040 Porto Alegre, Rio Grande do Sul, Brazil Phone: (51) 358-7039/7040 (51) 358-7010/7042 Fax: +55-51-358-7001 Home Page: www.varig.com.br/english/ Contacts: Dorival Ramos Schultz, EVP Finance and CFO E-mail: dorival.schultz@varig.com.br Investor Relations: Av. Almirante Silvio de Noronha, n 365-Bloco "B" - s/458 / Centro Rio de Janeiro, Brazil * BRAZIL: Could Terminate IMF Debt Accord in December ----------------------------------------------------- Continued economic growth will likely wean Brazil from a US$14.8 billion Loan Agreement with International Monetary Fund that expires in December, reports Bloomberg. Ms. Lisa Schineller, director of sovereign ratings at Standard and Poor's says that the country can attract enough financing from foreign markets to give up its accord with the IMF. In fact, Finance Minister Antonio Palocci and Treasury Secretary Joaquim Levy have said that the government will not be renewing the IMF credit line agreement, which it had not touched since September 2003. However, some analysts contend that such a decision could be premature. Mr. Christian Stracke of CreditSights Inc. said: ``Brazil has $17 billion in external debt coming due in the last five months of the year, so it can't sustain another few months of limited access to foreign capital.'' ============= E C U A D O R ============= PETROECUADOR: Oil Export Revenue Up 29% Through July 2004 --------------------------------------------------------- Petroecuador revealed Wednesday that oil export revenue in July totaled US$113.76 million, 3% higher than the US$110.28 registered in the same month last year, reports Dow Jones. In terms of volume, Ecuador exported 3.49 million barrels of crude oil in July, down 17% from 4.23 million barrels registered in July of 2003. In the first seven months of the year, Petroecuador's oil export revenue totaled US$831.76 million, a 29% increase from US$645.28 million registered in the same period of last year. Petroecuador exported 26.49 million barrels of crude oil up 9% from 24.23 million barrels registered in the same period of 2003. * ECUADOR: IMF Concludes Article IV Consultation ------------------------------------------------ On July 26, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ecuador.(1) Background: Ecuador's macroeconomic performance over the past year has been generally positive, aided by a favorable external environment, the completion of the new oil pipeline, and the implementation of the new Fiscal Responsibility and Transparency Law. The opening up of the new pipeline in October 2003 has boosted oil production by private companies by almost one half. As a result, overall real GDP grew by 2.7 percent in 2003 and 5.9 percent in the first quarter of 2004, even as non-oil GDP growth slowed to below 2 percent. Inflation has continued to decline, falling below 3 percent in June 2004. The external current account deficit declined sharply in 2003, reflecting high international oil and commodity prices, a reduction in the real effective exchange rate related to the depreciation of the U.S. dollar, and the end of imports related to construction of the pipeline. Oil and non-oil exports grew by 27 percent and 14 percent, respectively, while imports increased by 1 percent. In the capital account, foreign direct investment increased to just under 6 percent of GDP reflecting mainly pipeline-related investments. However, net capital flows to the public sector remain negative, mainly on account of amortizing debt to official creditors and continued lack of access to international credit markets. Financial intermediation increased significantly in the 12 months ended May 2004. Deposits and credit to the private sector increased by 20 percent and 14 percent, respectively. The fastest growing segments of the lending market in the last six months have been housing and microenterprise lending, albeit from a very low base. Nonperforming loans as a proportion of total loans decreased between end-2002 and April 2004. Domestic lending rates declined by 150 basis points to 10 percent during the year ended May 2004. High oil prices and restraint by the central government on nonwage spending helped improve fiscal performance in 2003. The primary surplus of the nonfinancial sector (NFPS) rose to 4.7 percent of GDP in 2003, compared with 4.5 percent in 2002. At the same time, however, the non-oil primary deficit rose from 1.2 percent of GDP in 2002 to 1.4 percent of GDP. Real primary expenditure of the central government fell by 5 percent in relation to 2002, reflecting declines in both capital and nonwage current spending, but such spending increased by 14 percent in the rest of the NFPS, including a real increase in pension benefits of over 50 percent. Helped by a doubling of lending by multilateral agencies, the government was able to clear external arrears and reduce its large stock of domestic payments arrears. The central government experienced liquidity problems in the first half of 2004, including an accumulation of domestic nondebt arrears. The liquidity problems are related to the structural cash flow problem faced by the central government arising from the large earmarking of revenues and subsidies, which amount to almost 11 percent of GDP, or about 60 percent of gross central government revenue. The problem has been exacerbated by the reallocation of oil revenues to the oil stabilization fund (FEIREP) that previously accrued to the central government (equivalent to 1.2 percent of GDP). In April, the authorities implemented measures to ease the cash flow problem and to achieve a primary surplus target of around 5 percent of GDP for the NFPS. They announced spending cuts at the central government level of about US$150 million and a plan to use the 20 percent of the FEIREP assets reserved for emergencies for financing in 2004. However, in July, a decision to increase pension benefits by about � percent of GDP has made the attainment of the fiscal target more difficult. Progress on the structural agenda has been mixed. In the fiscal area, new customs legislation approved by congress created a stronger and more effective board of directors but failed to exclude customs workers from the civil service, which has made it difficult to carry out much needed personnel changes. A civil service reform that was implemented this year has brought more clarity to the wage structure and made it more coherent but has put upward pressure on the wage bill. On public enterprise reform, attempts to auction rights for increased private sector participation in specific PetroEcuador oil fields failed in the absence of a new hydrocarbons law to provide a clear and adequate legal framework. In the electricity and telecommunication sectors, efforts to introduce private sector management to the sectors have made little progress for a similar reason. In the financial sector, the authorities sent to liquidation five of 18 closed financial institutions. However, among those left are two of the largest banks, with deposits of more than US$70 million still to be returned to depositors. The process of bringing Banco del Pacifico, the only remaining publicly-owned commercial bank, to the point of sale has been delayed. Executive Board Assessment Directors welcomed indications that growth is accelerating, particularly in the oil sector, inflation is declining, confidence in the financial sector is broadening, and fiscal performance is strengthening, aided by higher international oil prices and export volumes and the ongoing global recovery. At the same time, Directors noted that important challenges remain to reduce existing vulnerabilities in the context of a dollarized economy and to raise long-run growth potential, particularly in the non-oil sector. They called on the authorities to take the opportunity presented by the current favorable external environment to accelerate the implementation of reforms to address the economy's persistent structural weaknesses, in particular in the fiscal accounts, financial sector, and the public enterprises. Directors concurred with the authorities' plans to run substantial primary surpluses in the nonfinancial public sector, which will bring down the public debt-to-GDP ratio and help Ecuador regain access to international capital markets. They noted that the adoption of the Fiscal Responsibility and Transparency Law (FRL) and the FEIREP oil stabilization fund provided a framework for controlling expenditure and reducing the non-oil deficit and overall debt. Pressures to weaken the FRL should be resisted, and resources in the FEIREP should begin to be used for external debt buybacks, as intended. Directors expressed concern about the ongoing cash flow problems in the central government, which seemed to have contributed to further increases in domestic arrears. They stressed the importance of controlling spending on pensions and public sector wages, both of which had increased rapidly in recent years. Directors commended the authorities' intention to present a 2005 budget fully compliant with the FRL. Successful implementation of such a budget will be crucial to reduce the stock of domestic payments arrears, increase transparency about spending in the public sector, and build confidence in the authorities' ability to sustain prudent fiscal policies. Directors emphasized the need to further strengthen the fiscal policy framework over the medium term. They welcomed the authorities' initiatives to upgrade their public expenditure management, including plans to implement the recent fiscal Report on the Observance of Standards and Codes (ROSC) recommendations. They urged the authorities to phase out widespread revenue earmarking, reduce tax exemptions and central government subsidies to the social security system, and take measures to place the pension system on an actuarially sound basis. Poorly targeted subsidies for oil derivatives should be replaced with better-focused poverty reduction measures. It will also be crucial to implement the planned public sector wage realignment in a prudent way, and to develop a coherent civil service reform strategy. Directors recommended that, to support economic diversification and private sector employment growth, the authorities take further actions over the medium term to improve the business climate. These should include, in particular, strengthening the legal system and the rule of law, resolving conflicts in regulations, fighting corruption, and laying the basis for a more efficient financial system. Directors called for the authorities to make faster progress in strengthening the performance of the public enterprises. The authorities were encouraged to persevere with their plans to modernize and restructure PetroEcuador, and to liberalize the domestic petroleum derivatives markets. Directors supported the authorities' efforts to implement a new legal framework to increase private sector participation in the oil sector. They stressed the need for reforms in the electricity sector, to reduce costs and to attract much-needed private investment to increase capacity. Toward this end, the electricity tariff- setting framework should be depoliticized, stronger sanctions should be imposed on delinquent customers, and the cross-debts in the sector should be resolved. Directors were encouraged by the growing confidence in the financial sector, as shown by increased intermediation through the banking system, and commended the authorities' intention to follow up on the recommendations of the recently completed Financial Sector Assessment Program (FSAP). They observed that enforcement of creditor rights and enhanced corporate sector transparency could encourage more lending by banks, and help lower the current high interest rates on loans. Directors urged the authorities to move expeditiously to complete the process of liquidating closed banks. They welcomed the authorities' plans to lower the real estate transfer tax, which would facilitate the sale of assets of closed banks by the Deposit Guarantee Agency, and speed up the removal of the deposit freeze in these banks. Directors considered that preserving competitiveness in a dollarized economy such as Ecuador's will continue to present the authorities with policy challenges. They urged the authorities to implement fiscal and structural reforms that would help control costs and invigorate the non-oil economy. They welcomed the authorities' efforts to negotiate a free trade agreement with the United States, and encouraged them to participate in the multilateral trade liberalization process. Directors recognized the political difficulties facing the authorities in advancing reforms, but encouraged them to prioritize the reforms and persevere with them. Indications that the government was galvanizing support for its reform agenda across Ecuadoran society, and thereby strengthening the likelihood of its success, could lay the groundwork for closer collaboration with the international financial institutions. Directors noted that Ecuador has subscribed to the Special Data Dissemination Standard (SDDS), but its statistical base still needs improvement. They urged the authorities to address shortcomings in the quarterly national accounts and the nonfinancial public sector data in order to enhance the ability to monitor policy effectiveness. To view financial indicators: http://bankrupt.com/misc/Ecuador.htm CONTACT: IMF External Relations Department Public Affairs Phone: 202-623-7300 Fax: 202-623-6278 Media Relations Phone: 202-623-7100 Fax: 202-623-6772 ============= J A M A I C A ============= C&WJ: Cuts Access Rates by 30% ------------------------------ Telecommunications services provider Cable & Wireless Jamaica (C&WJ) reduced by 30% its high-speed dedicated Internet access (DIA) rates, the Jamaica Observer reports, adding that the rate cuts are retroactive and begin on August 1. Moreover, the Company introduced term discounts offering customers 10% and 15% off if they sign service contracts for two and three years respectively. For the month of August, C&WJ is offering free installation and waiving upgrade fees for customers who sign up for DIA service or upgrade to a higher bandwidth on a minimum one-year contract. Both offer savings to consumers of up to US$1,000, according to the company. DIA is a broadband Internet service ideally suited for corporate entities which require constant, high-speed connection to the Internet to support business operations. "This latest reduction in rates is in keeping with the company's continuing commitment to pass on to our customers, the benefits of improved efficiencies and investment in new technologies in order to facilitate savings, growth and enhanced productivity," says Lloyd Distant, C&W's vice-president of corporate affairs and business. =========== M E X I C O =========== ALESTRA: Signs Optical Gear Accord With Lucent ---------------------------------------------- Lucent Technologies (NYSE: LU - News) announced Thursday that Alestra has selected Lucent's next-generation optical networking solutions to improve its network capacity and launch new revenue generating services in Mexico. Under the terms of the agreement, Lucent will supply the Metropolis(R) ADM MultiService Mux, a next-generation multiplexer to help Alestra support new high-speed service offerings including Ethernet private lines, local area networks (LANs), as well as other data services for its Transport Backbone Network. This is the first deployment of the advanced Metropolis(R) ADM (universal shelf) in Latin America. "Our clients require us to provide the highest quality and most reliable service for their voice, data and video transmission requirements," said Alejandro Irigoyen, vice president of Network Operations and Systems, of Alestra. "The Lucent solution allows us to seamlessly integrate our Transport Backbone and metro-optical networks enabling us to provide more capacity to our customers, roll out new services more quickly and manage our network more efficiently." The new multi-service platform will support business and residential customers' growing demand for data and IP applications, which require dramatically more bandwidth. "We're delighted to have the opportunity to work with Alestra in expanding the capacity of their network and service offerings in this increasingly sophisticated market," said Osvaldo di Campli, Lucent Technologies' regional vice president for Mexico, the Caribbean and Central America. "This contract signals Lucent's commitment to bring the latest technology to the Mexican market and support our growing customer base." The Metropolis(R) ADM MultiService Mux is part of the Lucent Metropolis(R) family of metro optical solutions designed to eliminate bottlenecks in existing metro networks. It serves as an integrated Ethernet over SDH metro access multiplexer, which enables service providers to migrate seamlessly from existing time-division multiplexed (TDM) networks to data-aware packet networks -- avoiding the need for an overlay network. The Metropolis(R) ADM integrates seamlessly into a carrier's existing infrastructure, and its low power consumption and small footprint helps carriers save on operating expenses. The Metropolis(R) ADM (universal and compact shelves) currently have more than 1,500 systems deployed with more than 90 customers. For more information: http://www.lucent.com/adm Lucent will also expand Alestra's embedded base of high-capacity WaveStar(R) OLS 80Gs to interconnect all Alestra Backbone Rings across the country. This DWDM backbone will support a wide range of optical and data-formatted channels simultaneously, and will provide efficient, low-cost transport of data between multiple regional and metro sites by interworking with multi-vendor IP and storage equipment using universal broadband and muxing transponders. The WaveStar(R) OLS 80G supports in-service upgrades from 16 to 32 wavelengths, enhancing the operator's service capabilities while reducing network downtime. Lucent Worldwide Services will provide systems integration and installation services. Lucent Technologies de Mexico, a subsidiary of Lucent Technologies, will provide the products and services outlined in this agreement. About Lucent Technologies Lucent Technologies designs and delivers the systems, services and software that drive next-generation communications networks. Backed by Bell Labs research and development, Lucent uses its strengths in mobility, optical, software, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for its customers, while enabling them to quickly deploy and better manage their networks. Lucent's customer base includes communications service providers, governments and enterprises worldwide. For more information on Lucent Technologies, which has headquarters in Murray Hill, N.J., USA, visit http://www.lucent.com. About Alestra Alestra offers in Mexico broadband, IP and value added services with the backing of the AT&T brand. Alestra's network in Mexico, with a core optical network based in state-of-the-art technology, provides seamless access to the AT&T global intelligent network carrying over 250 million voice and data messages every day in more than 280 countries and territories. Alestra is the first telecommunications operator in Mexico to obtain ISO 9002 certification for all of its processes. AXTEL: Revenue Up 24% in 2Q04 on Expanding Lines ------------------------------------------------ AXTEL, S.A. de C.V., a Mexican telecommunications company, announced Wednesday its non-audited financial results for the second quarter of 2004. HIGHLIGHTS: - Increases revenues in 24% as compared to the second quarter of 2003. - Earning from operation goes from $14 million pesos to $65 million pesos. - Reports 388 thousand lines in service at the end of June. The company reported that its revenues increased in 24% with respect to the second quarter of 2003, reaching $894.4 million pesos. Likewise, the revenues for the last 12 months at June 30, 2004 were $3,333.4 million pesos, 24% more than the revenues for the same period last year. Accordingly, the earning from operation reported a significant increase, going from $14 million pesos in the second quarter of 2003 to $65 million for the same period in this year. AXTEL also reported 388 thousand lines in service, that is, 25% more than those reported for the same period in 2003, which represents a considerable increase. Patricio Jimenez Barrera, AXTEL Director of Finance, Administration, and Human Resources, said: "The financial results for the second quarter show a consistently favorable trend that confirm that the company is going in the right direction. This has been possible thanks to the excellent condition of our financial structure and to our flexibility and promptness to serve our customers always with quality and attention to detail, which has laid solid foundations for a successful outset of our growth plan started this year." AXTEL started operations in the cities of Queretaro and San Luis Potosi in last July, and now it has expansion plans that include the cities of Aguascalientes, Juarez, Saltillo, and Tijuana for the last quarter of this year, as part of its aggressive growth plan. AXTEL is a Mexican telecommunications company that provides local telephone services, national and international long distance services, data, internet, virtual private nets, and value added services. AXTEL has provided Mexico with a basic telecommunications infrastructure through an intelligent net that offers wide coverage to all markets. At present, it is operating in Mexico City, Monterrey, Guadalajara, Puebla, Leon, Toluca, and Queretaro. AXTEL has brought to the market various access technologies that include fixed wireless telephony, point-to-point radio links, point-to-multipoint radio links, and fiber optics, all of which are offered to match the communication solutions that its customers require. Fifty eight percent of AXTEL capital is Mexican. The remaining 42% belongs to foreign investors, among which are, mainly, AIG- GE Capital Latin American Infrastructure Fund (LAIF); AIG Latin American Equity Partners; Blackstone Group; American International Underwriters Overseas Ltd., and Soros Group. CONTACT: Mr. Jose Manuel Basave Corporate Communication Director contacto@axtel.com.mx Web Site: www.eng.axtel.com.mx CYDSA: EBITDA Surges 97.2% From 1H03 ------------------------------------ Comments on operations for the first half of 2004 (Figures in constant pesos as of June 30, 2004 unless otherwise indicated) Domestic and International Economic Environment: Domestic Economic Environment During the first quarter of 2004, Mexico's Gross Domestic Product (GDP) grew 3.7% compared to the same period of 2003, thus reaching the highest increase in the past thirteen quarters. Analyses of Mexico's Central Bank show an estimated growth rate of 3.9% for the second quarter of 2004, meaning a recuperation of the Mexican economy based on the economic growth of the USA. Inflation has remained under control, in spite of the fact that as of June 2004, the National Consumer Price Index increased slightly with an annual rate of 4.4%, compared to the 4.0% reported in December 2003. The exchange rate of the Mexican peso against the US dollar averaged $11.19 pesos per dollar during the first half of 2004, a depreciation of 5.2% with respect to the average rate of $10.64 pesos reported for the same period of the prior year. International Economic Environment The dynamism of the US economy during the first quarter of 2004, with a reported annualized GDP growth rate of 3.7% is projected to continue, since the expected growth rate is 4.3% for the second quarter. Insofar as energy costs are concerned, international oil prices have continued the upward trend observed since 2003. As a reference, during the first half of 2004 the West Texas Intermediate (WTI) crude oil price registered an average price of US$36.84 per barrel, 17.1% higher than the US$31.47 reported for the same period of the previous year. (Source: US Energy Department). Likewise, natural gas prices in the USA continue in high levels, despite the end of the winter season when consumption rises. Due to the fact that these rates are used as reference to establish the price of this energy source in our country, prices of natural gas in Mexico during the first six months of 2004 averaged $5.54 dollars per million BTU's. Although this level is lower than the US$5.70 per million BTU's observed during the first half of 2003, it is higher than the US$4.58 average estimated for the second half of 2003, and represents an 83% higher price when compared to the average of US$3.03 reported for 2002 (Source: PEMEX). Due to the facts described in the preceding paragraphs, international prices of petrochemical products have maintained relatively high levels. This situation combined with high natural gas prices added to its effect on electric power rates, have decreased or at least limited the recovery of margins on sales in several important CYDSA businesses like Acrylic Fiber, Salt, PVC Resins, Chlorine and Caustic Soda. Impact on CYDSA of the Domestic and International Economic Environment During the first half of 2004, the weighted average of CYDSA's sales volumes increased by 7.8%, when compared with those of the first six months of 2003. Products reporting volume increases in the first half of 2004 compared to the same period of 2003 follow: salt, PVC resins, PVC pipes and fittings and acrylic fiber. On the other hand, businesses reporting volume reductions include Chlorine, Caustic Soda, Refrigerant Gases, Polypropylene Films and Yarns. Prices of the majority of CYDSA products have increased during the first six months of 2004, compared with the same period of the prior year. As part of CYDSA's portfolio restructuring process, oriented towards the consolidation of its operations in products with higher value added, during 2003 and 2004 the following divestitures and shut-downs were carried out: 1) Industrias Cydsa-Bayer. On February 27, 2003, CYDSA reached an agreement with Bayer, A.G. to terminate the joint venture they had in Industrias Cydsa-Bayer. This firm located in Coatzacoalcos, in the state of Veracruz, produced toluen di-isocyanate, TDI, a raw material used in the manufacture of polyurethane foams. 2) Home Textiles. On May 3, 2004, CYDSA started the shut-down process of San Marcos Textil S. A. de C.V. a plant located in Aguascalientes, Ags. Dedicated to the manufacture of blankets. This company constituted CYDSA's Home Textiles Business Unit. In spite of capital expenditures in new process technologies and new products, this shut-down derives from lack of competitiveness and positive cash flows in recent years, as well as what could be foreseen for the medium and long-term horizons. 3) Printed and Laminated Film. On May 26, 2004, Masterpak S.A. de C.V., a CYDSA subsidiary, concluded the sale of assets and operations of its Printed and Laminated Film business (Tultitlan Plant), to Bemis Flexible Packaging de Mexico S.A. de C.V., a subsidiary of Bemis Company, Inc., a company located in Minneapolis, Minnesota in the USA. In accordance with generally accepted accounting principles in Mexico, for comparability purposes, when a Business Segment is discontinued it must be excluded from the consolidated Operating Income. Therefore, Operating Income, as well as Sales, Cost of Sales and Operating Expenses for the years 2003 and 2004, do not include the results of Discontinued Operations. Restructuring of Bank Debt and Euro-Medium-Term-Notes (EMTN's) As informed in the First Quarter, 2004 Report, on March 16, 2004, CYDSA signed a Restructuring Agreement with Banco Nacional de Mexico; BBVA Bancomer; California Commerce Bank; Citibank and Comerica Bank, comprising US$192.6 million of CYDSA's operating subsidiaries Bank Debt. This restructuring involves CYDSA's Chemicals and Plastics, Flexible Packaging as well as Fibers and Home Textiles as of that date. In addition, on June 7, 2004 CYDSA signed a Tem Sheet with Fintech Advisory Inc., as representative of the Euro-Medium- Term-Note Holders. The Issue's face value amounts to US$158,997,000.00, carries an annual coupon rate of 9.375% with original maturity in 2009. According to the Term Sheet, subject to certain conditions, including the negotiation and execution of the final documentation, the authorization of the Mexican Securities and Exchange Commission and the approval of the Creditor Banks, CYDSA will request the consent of the required majority of the Note Holders to exchange all outstanding Euro-Medium-Tem-Notes (US$158,997,000.00) for: a) New shares of stock issued by Cydsa, representing 60% of its capital stock, and b) A convertible floating rate promissory note with a principal amount of US$25.5 million with maturity date May 1, 2007, subject to extension, under certain conditions, until May 1, 2008. Under the Agreement, the new shares will represent a combination of common stock and shares without voting rights and if the convertible floating rate promissory note should not be paid, will be converted into shares representing up to an additional 20% of the company's capital stock. CYDSA's Board of Directors approved this transaction. In addition, Mr. Tomas Gonzalez Sada shall remain as Chairman of the Board and Chief Executive Officer. Results: Total Sales CYDSA's Total Sales during the first half of 2004, amounted to 3,258 million pesos, an increase of 17.9% when compared, in constant pesos, to the figure reported for the same period of the prior year. In dollar terms, Sales for the January-June period of 2004 reached an equivalent to US$290 million, a 16.0% growth when compared to those of the same period of the previous year. As discussed in the section "Impact on CYDSA of the Domestic and International Economic Environment" (page 2 of this Report), the increase in CYDSA's Total Sales in pesos during the first six months of 2004, resulted from the fact that sales in units, as well as the great majority of the product's prices grew in comparison with the levels reported for the same period of 2003. Domestic Sales During the January-June period of 2004, unit sales to the Domestic Market grew an average of 2.5%, compared to those reported for the same period of the previous year. Measured in constant pesos, Sales to the Domestic Market during the first half of 2004 reached 2,270 million, an increase of 8.1% against those of the first semester of 2003. Export Sales Units sold to export markets during the first six months of 2004, grew 23.0% when compared to those of the same period of the preceding year. Exports for the first half of 2004 amounted to US$88 million, an improvement of 41.9% over the US$62 million reported for the first six months of 2003. Sales for Chemicals and Plastics added to 2,120 million pesos during the first half of 2004, a 17.1% growth when compared to those of the first six months of the previous year. This Segment's Sales benefited from an increase in units sold mainly of Salt, PVC Resins and PVC Pipes and Fittings. Likewise, the great majority of this Segment's products registered significant price increases when compared to the same period of the preceding year. During the first six months of 2004, Total Sales for Fibers and Textile Products reached 975 million pesos, an amount 25.6% higher than those reported for the same period of 2003. The sales increase in this Segment is explained by volume and price increases in Acrylic Fiber, compensated by decreases in Yarns, the latter negatively affected in exports due to the decrease in demand for Mexican textiles in USA, as well as by competing imports in the domestic market, mainly of Asian products frequently using unfair market practices. Finally, Total Sales of Flexible Packaging amounted to 163 million pesos during the first six months of 2004, a drop of 7.9% when compared to those reported for the same period of the prior year. Operating Income CYDSA's Gross Profit during the first half of 2004, increased by 10.7% going from 568 million in the January-June period of 2003 to 629 million during the same period of 2004. The austerity plans implemented by CYDSA, continue. These plans have allowed Operating Expenses to drop 7.3% in real terms during the first six months of 2004, reaching the sum of 587 million in the first half of 2004 while during the same period of the previous year they amounted to 633 million. During the first six months of 2004 CYDSA registered an Operating Income (EBIT) in the amount of 42 million pesos, a sum that compares favorably with the Operating Loss of 65 million reported for the first half of 2003. Operating Cash Flow Operating Cash Flow (EBITDA)1, added up to 237 millions of current pesos during the January-June period of 2004, an improvement of 112% when compared to the 112 million obtained in the same period of 2003. In dollar terms, EBITDA reached the sum of US$21.1 million, a 97.2% increase against the US$10.7 million reported for the first six months of the previous year. Total Financing Cost Total Financing Cost for the first half of 2004 amounted to 257 million pesos, a figure that compares to 119 million reported for the first six months of 2003. A breakdown follows: 2004 2003 Change (millions of pesos) Net Financial Expenses (170) (174) 4 Financing Allowances to Clients (20) (22) 2 Net Exchange Loss (135) (3) (132) Net Monetary Gain 68 80 (12) Total Financing Cost (257) (119) (138) As can be noted in the preceding table where the main variables integrating the Total Financing Cost are analyzed, the Exchange Loss represents the most significant line item. During the first half of 2004, an Exchange Loss in the amount of 135 million resulted from a 2.6% devaluation of the Mexican peso, whereas in the course of the first six months of 2003 an Exchange Loss for 3 million derived from a 0.02% currency revaluation. Other Income, Net In the first six months of 2004 other expenses and products have been registered. A 20 million pesos net result is reported in Other Income, net. Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing When Total Financing Cost of 257 million is subtracted from the Operating Income of 42 million, and after adding Other Income, Net in the amount of 20 million, a 195 million Loss results from Continuous Operations before Taxes and Employee Statutory Profit Sharing. Taxes and Employee Statutory Profit Sharing Following the methodology of Bulletin D-4 of the Mexican Institute of Public Accountants, the Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing in the amount of 195 million, generated a Deferred Tax benefit. During the first half of 2004, the line item of Taxes and Employee Statutory Profit Sharing shows an accrued benefit of 59 million. Loss derived from Discontinued Operations (Net of Income Tax) In the first half of 2004, a Loss derived from Discontinued Operations (Net of Income Tax) in the amount of 376 million resulted, generated mainly from the sale of assets of the Printed and Laminated Film business and the asset write-off derived from the shut-down of Home Textiles. Net Loss By subtracting from the 195 million Loss derived from Continuing Operations before Taxes and Employee Statutory Profit Sharing, the 59 million benefit from Deferred Taxes, and adding the 376 million Loss derived from Discontinued Operations (Net of Income Tax), during the January-June 2004 period a Net Loss in the amount of 512 million resulted, a figure that compares with the net loss for 183 million reported for the same period of the prior year. Financial Condition A summary of the relevant items of the Balance Sheets as of June 30, 2004 and 2003 follows: June 30 June 30 Change 2004 2003 Current Assets 2,567 2,570 (3) Fixed and Deferred Assets 6,703 7,764 (1,061) Total Assets 9,270 10,334 (1,064) Current Liabilities 4,624 5,899 (1,275) Long-term Liabilities 2,246 881 1,365 Total Liabilities 6,870 6,780 90 Shareholders' Equity 2,400 3,554 (1,154) An explanation of the main changes in the Balance Sheet accounts is presented below, comparing June 2004 with June 2003: Assets Current Assets dropped 3 million pesos, going from 2,570 million in June 2003 to 2,567 million in June 2004. On the other hand, Fixed and Deferred Assets amounting to 6,703 million on June 30, 2004 decreased 1,061 million when compared with the amount reported on June 30, 2003. This reduction is mainly explained by a charge derived from the write-off of obsolete and unused fixed assets in the Packaging and Textiles businesses carried out during the last quarter of 2003, and the asset's sale of the Printed and Laminated Film business and the shut-down of Home Textiles brought about during the second quarter of 2004. Liabilities Due to the Debt Restructuring agreed upon with the Creditor Banks dated March 16 2004, Short-Term Bank Debt in the amount of 1,393 million pesos reclassified into Long-Term Bank Debt. These liabilities belong to the subsidiaries of the Sub-Holding Company Valores Qu�micos, S.A. de C.V. For this reason Short-Term Bank Debt dropped from 3,914 million as of June 30, 2003 to 2,611 million at the close of June 2004. On the other hand, Long-Term Bank Debt grew from 327 million to 1,637 million during the same period. Shareholders' Equity Shareholders' Equity as of June 30, 2004 reached 2,400 million. Comparing this figure with the 3,554 million reported as of June 30, 2003, a 1,154 million decrease results. The drop in Shareholder's Equity is due mainly to the Accumulated Net Loss of the last 12 months in the amount of 1,109 million, derived largely from write-down of obsolete or unused Fixed Assets carried out during the last quarter of 2003, as well as from the shut-down of several businesses during the second quarter of 2004, mentioned in the "Assets" section (page 10 of this Report). Treasury Policies It is a CYDSA policy to manage from a central treasury all Temporary Investments of Excess Cash both in pesos and in dollars. These Investments are carried on account of each one of the Companies integrating the Group, using modules for cash centralization, debt centralization and cash forecasts. Temporary investments are made both in Mexican Pesos as well as in Dollars of the United States of America Internal Control CYDSA has an Internal Audit department, whose objective is to inform Management on the Compliance with Corporate Policies and Practices, Financial Information Quality and Asset Care, both of the Holding Company as well as its Subsidiaries. This function is carried out through an Annual Internal Audit Program. In the course of this process, the companies' compliance is thoroughly reviewed and appraised. In addition, opportunity areas for improvement of effectiveness of control systems as well as the application and follow-up of action plans, are determined. In addition, the Company's Board of Directors has an Audit Committee. The Chairman of this Committee and the majority of its members are Independent Board Members. The Company's Examiners attend the Committee meetings and have voice, but no voting rights. The Audit Committee meets periodically in order to review the status of the Internal Audit Program. It also meets to examine the External Auditors' Report on the Financial Statements. To view financial statements, please visit: http://bankrupt.com/misc/Cydsa_2Q04.pdf CONTACTS: CYDSA, S.A. de C.V. (BMV: CYDSASA) Ave. Ricardo Margain Zozaya # 565 Parque Corporativo Santa Engracia, Edificio B, 66267 Garza Garc�a, Nuevo Leon Mexico Mr. Oscar Casas Kirchner Financing Manager Direct Phone: (52) (81) 81-52-46-04 Fax: (52) (81) 81-52-48-13 E-mail: ocasas@cydsa.com Mr. Alberto Balderas Calderon Administrative Information Manager Direct Phone:(52) (81) 81-52-46-08 Fax: (52) (81) 81-52-48-13 E-mail: abalderas@cydsa.com Web Site: www.cydsa.com EMPRESAS ICA: Panama Unit Expects $25.2M From Government -------------------------------------------------------- The Panama Chamber of Commerce and Industry ruled that the government must pay the local unit of Mexican construction company Empresas ICA Sociedad Controladora SA (ICA) US$25.2 million in relation to a dispute over a highway contract. ICA filed a formal arbitration demand against Panama's government in December of last year to cover "additional investment" and "higher costs" related to a 30-year concession to build, maintain and operate Corredor Sur, a 19.5-kilometer, four-lane highway. The concession, which was awarded in August 1996 to ICA's Panamanian subsidiary, had a book value of US$207.4 million at the end of June. CONTACT: Empresas ICA Sociedad Controladora SA de CV Mineria No. 145, Edificio Central 11800 Mexico, D.F., Phone: (212) 688-6840 Email: jose.guerrero@ica.com.mx Web Site: http://www.ica.com.mx/ GRUPO MEXICO: Effectively Negotiates Contract Terms With Workers ---------------------------------------------------------------- The National Mining, Metallurgical and Similar Workers Union voted to accept Grupo Mexico's labor contract terms, eliminating the threat of a strike scheduled for Friday, reports Dow Jones Business News. In a press release, the union said it managed to negotiate a profit-sharing agreement and other benefits for the workers. Cananea is Grupo Mexico's largest copper mine, having turned out about 65,000 metric tons of the metal in concentrate in the first six months of this year. It also has an SX-EW facility that produced 25,000 metric tons of refined copper in the same period. CONTACT: Mr. German Larrea Mota Velasco Chairman & CEO GRUPO MEXICO Av. Baja California No. 200 Colonia Roma Sur 06760 Mexico, D.F. Tel. Conm. 52 (55) 5080-0050 ISSSTE: Government Seeks Solution to Alleviate Financial Crisis --------------------------------------------------------------- The Mexican government is now working on a reform to the Social Security and Services Institute for State Workers (ISSSTE) to reduce the burden of its financial situation and to deal with the country's labor liabilities, reports El Economista. Without providing any details of the proposals, National Action Party (PAN) Senator Fauzi Hamdan Amad, president of the Treasury Commission of the Senate, said that a bill would be sent to Congress by President Vicente Fox by October at the latest. The government's goal is to stop the economic deterioration of ISSSTE and continue modifying the pension system. Hamdan also said that with the attitude shown by Senator Joel Ayala Almeida, president of the Federation of Unions of Workers in the Service of the State (FSTSE), it would be easier to carry out a reform to ISSSTE. Hamdan Amad also clarified that the bill is not intended to affect the current contract rights of workers. ================= V E N E Z U E L A ================= RCTV: Seniat Denies Closure Talks --------------------------------- Venezuelan tax authority Seniat (Integrated National Customs and Tax Administration Service) denied reports that it plans to close Radio Caracas Television (RCTV), says El Universal. A group of journalists from the TV station has filed an appeal at the Supreme Court of Justice to counter the supposed closure. RCTV Counsel Pedro Pereira claims that they have sufficient proof showing Seniat's intentions to close the station because of unpaid taxes. However, Tax Superintendent Jose Vielma Mora said: "Seniat works in close relationship with businessmen, owners of small businesses and tax payers. We have no intention to close anybody." Seniat is seeking RCTV's payment for taxes on donations of spaces to opposition group Democratic Coordinator. The donations were allegedly given during the two-month oil strike that started in December of 2002. *********** 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 America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. John D. Resnick, Edem Psamathe P. Alfeche and Lucilo Junior M. 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