TCRLA_Public/041230.mbx         T R O U B L E D   C O M P A N Y   R E P O R T E R

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

          Thursday, December 30, 2004, Vol. 5, Issue 258



AGROINSUMOS: Debt Payments Halted, Set To Reorganize
BASTONE S.R.L.: Court Favors Creditor's Bankruptcy Petition
CABLEVISION: Court Starts APE Approval Process
COMPANIA LACTEA: Files Petition to Reorganize
EXPRESS SAC: Declared Bankrupt by Court

IBB SERVICE: Liquidates Assets to Pay Debts
LUICAR SRL: Seeks Court's Permission to Reorganize
NEGOCIOS S.A.: Court Issues Bankruptcy Ruling
PETROBRAS ENERGIA: S&P Puts Ratings on WatchPos
PRESTACIONES S.A.: Halts Debt Payments, Seeks To Reorganize

RADIO REMIS: Initiates Bankruptcy Proceedings
TEC-SIN: Judge Approves Bankruptcy
TRANSENER: Another Bondholder Files Bankruptcy Petition
* ARGENTINA: U.S. SEC Says Base Prospectus "Effective"
* ARGENTINA: Signs $500M Loan Agreement With IDB


EMSA: Continues to Operate Amid Bankruptcy Threat


CEMIG: Board Decides to Make Equity Interest Payment
CEMIG: Summarizes Deliberations from 346th Board Meeting
TELEMAR: S&P Issues Report on Ratings
USIMINAS: S&P Releases Report on Ratings


ENDESA CHILE: Seeks to Nullify Government Resolution

D O M I N I C A N   R E P U B L I C

SMITH-ENRON: Resumes Service

E L   S A L V A D O R

BANCO CUSCATLAN: S&P Releases Report on Ratings


ELECTRICITY OF HAITI: Technically Bankrupt Says Director


PEMEX: Environmental Prosecutors File Oil Spill Complaint

P U E R T O   R I C O

CENTENNIAL COMMUNICATIONS: Completes Puerto Rico Cable TV Sale


PDVSA: Moves Closer to New Collective Labor Contract With Unions

     -  -  -  -  -  -  -  -


AGROINSUMOS: Debt Payments Halted, Set To Reorganize
Judge Uzal of Buenos Aires Court No. No. 26 is now analyzing
whether to grant Agroinsumos del Norte S.R.L. approval for its
petition to reorganize. La Nacion recalls that the Company filed
a "Concurso Preventivo" petition following cessation of debt
payments since Jan. 20, 2004. Clerk No. 51, Dr. Dermardirossian,
is assisting the court on the Company's case.

CONTACT: Agroinsumos del Norte S.R.L.
         Parana 378, piso 2 "4"
         Buenos Aires

BASTONE S.R.L.: Court Favors Creditor's Bankruptcy Petition
Ms. Maria Dillon successfully sought for the bankruptcy of
Bastone S.R.L. after Court No. 7 declared the latter "Quiebra,"
reports La Nacion.

As such, Bastone S.R.L. will now start the bankruptcy process
with Mr. Guillermo Ickowicz as trustee. Creditors of the Company
must submit their proofs of claim to the trustee before April
12, 2005 for authentication. Failure to do so will mean a
disqualification from the payments that will be made after the
Company's assets are liquidated.

Ms. Dillon sought for the Company's bankruptcy after the latter
failed to pay debts amounting to US$5,700. Dr. O'Reilly, Clerk
No. 13, assists the court on the case, which will culminate
in the liquidation of all of its assets.

CONTACT: Bastone S.R.L.
         Andres Arguibel 2813
         Buenos Aires

         Mr. Guillermo Ickowicz, Manager
         Talcahuano 768, piso 9
         Buenos Aires

CABLEVISION: Court Starts APE Approval Process
The court overseeing Argentine cable operator Cablevision's debt
restructuring process -which is being carried out through an
out-of-court settlement (APE)- considered that all the necessary
requirements for the opening of the approval process have been
fulfilled. After several months of talks, Cablevision obtained
backing from 66.7% of its creditors holding 95.8% of its debt.
Cablevision has around US$797 million in debt.

CONTACTS: Mr. Santiago Pena
          Phone: (5411) 4778-6520

          Mr. Martin Pigretti
          Phone: (5411) 4778-6546

          Web Site:

COMPANIA LACTEA: Files Petition to Reorganize
Compania Lactea del Sur S.A. filed a "Concurso Preventivo"
motion, reports La Nacion. The Company's case is pending before
Court No. 25, under Judge Astorga, who is assisted by Clerk No.
50 Dr. Soto.

CONTACT: Compania Lactea del Sur S.A.
         Marcelo Torcuato de Alvear 684, piso 2
         Buenos Aires

EXPRESS SAC: Declared Bankrupt by Court
Buenos Aires Court No. 19 declared Express Florida SAC bankrupt,
says La Nacion. The ruling comes in approval of the bankruptcy
petition filed by the Company's creditor, Norberto Poletti, for
nonpayment of US$40,881.97 in debt.

Clerk No. 37, Dr. Mazzoni, assists the court on the case, which
will conclude with the liquidation of the Company's assets.

The Company's trustee, Ms. Mabel Herrera, will examine and
authenticate creditors' claims until March 18, 2005. This is
done to determine the nature and amount of the Company's debts.
Creditors must have their claims authenticated by the trustee by
the said date in order to qualify for the payments that will be
made after the Company's assets are liquidated.

CONTACT: Express Florida S.A.C.
         Santa Maria del Buen Ayre 1025
         Buenos Aires

         Ms. Mabel Herrera, Trustee
         Rodariguez Pena 694, piso 7 "E"
         Buenos Aires

IBB SERVICE: Liquidates Assets to Pay Debts
IBB Service S.R.L. will begin liquidating its assets following
the pronouncement of the city's Court No. 10 that the Company is
bankrupt, Infobae reports.

The bankruptcy ruling places the Company under the supervision
of court-appointed trustee, Mr. Salvador Lamarchina. The trustee
will verify creditors' proofs of claim until Feb. 18, 2005. The
validated claims will be presented in court as individual
reports on April 1, 2005.

Mr. Lamarchina 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 May 13, 2005.

The bankruptcy process will end with the disposal Company assets
in favor of its creditors.

Clerk No. 19 assists the court on the case.

CONTACT: Mr. Salvador Lamarchina, Trustee
         Esmeralda 847
         Buenos Aires

LUICAR SRL: Seeks Court's Permission to Reorganize
Luicar S.R.L., a tourist service Company, has requested for
reorganization after failing to pay its liabilities since

The reorganization petition, once approved by the court, will
allow the Company to negotiate a settlement with its creditors
in order to avoid a straight liquidation.

The case is pending before Judge Hualde of Court No. 9. Dr.
Raisberg de Merenzon, Clerk No. 17, assists on this case.

CONTACT: Luicar S.R.L.
         Suipacha 871, piso 1
         Buenos Aires

NEGOCIOS S.A.: Court Issues Bankruptcy Ruling
N.G. Negocios Gastronomicos S.A. will now enter bankruptcy after
Buenos Aires Court No. 22 declared it "Quiebra," reports

With assistance from Clerk No. 44, the court named Mr. Julio
Jorge Surenian as trustee. He will verify creditors' claims
until March 16, 2005.

Following claims verification, the trustee will submit the
individual reports, which were prepared based on the
verification results, to the court on April 29, 2005. The
general report is due for submission on June 10, 2005.

The Company's bankruptcy case will close with the liquidation of
its assets to pay its creditors.

CONTACT: Mr. Julio Jorge Surenian, Trustee
         Tucuman 1657
         Buenos Aires

PETROBRAS ENERGIA: S&P Puts Ratings on WatchPos
Standard & Poor's Ratings Services placed its 'B-' foreign
currency long-term corporate credit rating on Petrobras Energia
S.A. (PESA) on CreditWatch with positive implications.

The rating action follows our analysis of Petroleos Brasileiros'
(Petrobras) announcement to consolidate most of its Argentine
operations under PESA. "Although we will continue to analyze the
actual effect of the new operation, the most significant credit
impact comes from the increasing economic incentives in light of
the existence of cross-default clauses between Petrobras and
PESA that will broaden the latter's financial flexibility. In
our opinion, the merger implies a higher level of commitment
from Petrobras to its Argentine subsidiary," said Standard &
Poor's credit analyst Pablo Lutereau. The ratings will likely be
raised after the completion of the legal approval process.

On Nov. 12, 2004, PESA's board of directors approved the
transaction by means of which PESA will absorb the equity of the
Argentine refining and marketing EG3, Argentine upstream
Petrolera Santa Fe and Argentine upstream Petrobras Argentina.
The assets to be merged include a 31,000-barrels-per-day
refinery in Buenos Aires, approximately 700 service stations in
Argentina, 18,100 barrels of oil equivalent (boe) per day of
production and reserves for 70 million boe. After the merger,
Petrobras' direct and indirect stake in PESA will increase to
approximately 67.25% compared to 57.58% before the merger. This
transaction is subject to legal approvals of the Argentine
authorities, which are expected to take place in the first half
of 2005. Although we believe that these assets will somewhat
strengthen PESA's Argentine business position by proving further
integration between upstream and downstream while increasing
crude oil production and economies of scale, the cash flows
derived from these assets would not significantly change credit
metrics of the Company. We believe the most significant credit
impact will come from the broader financial flexibility provided
by the higher perception of Petrobras' commitment to its

The ratings on PESA reflect its relatively aggressive financial
profile, significant need for capital expenditures (to develop
its large reserve base and increase production levels), high
exposure to the Republic of Argentina's uncertain and rapidly
changing economic and regulatory rules, and the uncertainties
surrounding the utility business in which the Company
participates. The ratings also incorporate the potential support
from its main shareholder, Petrobras, which contributed to
improved financial flexibility, and geographic diversification.

PRESTACIONES S.A.: Halts Debt Payments, Seeks To Reorganize
Judge Tevez of Buenos Aires Court No. 13 is now analyzing
whether to grant Prestaciones Odontologicas S.A. approval for
its petition to reorganize. La Nacion recalls that the Company
filed a "Concurso Preventivo" petition following cessation of
debt payments since August 2003. Clerk No. 26, Dr. Cardama, is
assisting the court on the Company's case.

CONTACT: Presentaciones Odontologicas S.A.
         Alicia Moreau de Justo 740, 1 "1"
         Buenos Aires

RADIO REMIS: Initiates Bankruptcy Proceedings
Buenos Aires Court No. 26 declared Radio Remis JR. S.R.L.
"Quiebra," reports Infobae. Clerk No. 51 assists the court on
the case, which will close with the liquidation of the Company's
assets to repay creditors.

Mr. Ricardo Luis Bonifatti, who has been appointed as trustee,
will verify creditors' claims until March 11, 2005, and then
prepare the individual reports based on the results of the
verification process.

The individual reports will then be submitted to court on April
26, 2005, followed by the general report on June 8, 2005.

CONTACT: Radio Remis JR. S.R.L.
         Misiones 22
         Buenos Aires

         Mr. Ricardo Luis Bonifatti, Trustee
         Avda Corrientes 123
         Buenos Aires

TEC-SIN: Judge Approves Bankruptcy
Tec-Sin S.R.L. was declared bankrupt after Judge Fernandez of
Court No. 19 endorsed the petition of Sebastian Buono and others
for the Company's liquidation. Argentine daily La Nacion reports
that Tec-Sin S.R.L. has debt claims totaling $22,455.03.

The court assigned Mr. Aldo Markman to supervise the liquidation
process as trustee. He will validate creditors' proofs of claim
until March 7, 2005.

         Paz Soldan 4834
         Buenos Aires

         Mr. Aldo Markman, Trustee
         Alsina 1441, piso 3 "307"
         Buenos Aires

TRANSENER: Another Bondholder Files Bankruptcy Petition
Another disgruntled bondholder of Argentine high-voltage power
transporter Transener (TRAN.BA) filed a bankruptcy petition
against the ailing utility.

The latest petition comes from the holder of US$70,000 worth of
Transener bonds, Dow Jones Newswires reports without providing
further details.

Transener has about US$520 million in debt but hasn't made any
significant advances with its creditors on a debt restructuring
deal, leaving it vulnerable to lawsuits and bankruptcy petitions
from disgruntled creditors.

The Company's finances have suffered immensely since 2002
because of the pesification and a freeze on utility rates.

CONTACT:  Paseo Colon 728 6th Floor
          (1063) Buenos Aires
          Republica Argentina
          Tel: (54-11) 4342-6925
          Fax: (54-11) 4342-7147
          Web site:

* ARGENTINA: U.S. SEC Says Base Prospectus "Effective"
The U.S. Securities and Exchange Commission has approved
Argentina's upcoming US$103 billion debt swap, allowing U.S.
bondholders with defaulted Argentine notes to participate in the
debt restructuring in the U.S., Dow Jones Newswires reports,
citing an Argentine Economy Ministry spokesman.

"The SEC has declared the base prospectus effective," spokesman
Armando Torres said.

The SEC hasn't yet apparently afforded the same status to the
prospectus supplement - the document that includes the terms of
the new bonds to be issued in the swap.

"Argentina is waiting for commentaries about the prospectus
supplement from European regulatory agencies," Torres said.
"Once received, these comments will be provided to the SEC."

Argentina's debt swap, which is slated to open on Jan. 17, seeks
to impose real losses of an estimated 70% on bondholders - a
deal that has made it unpopular with many.

Argentina rehired Bank of New York earlier this month to be its
exchange agent.

* ARGENTINA: Signs $500M Loan Agreement With IDB
Argentina signed Tuesday a US$500-million loan agreement with
the Inter-American Development Bank (IDB), reports Dow Jones

IDB financing will support Argentina's transition from emergency
programs to a more permanent social inclusion policy, grounded
in universal access to health and education, improved employment
training and placement, and streamlined income support.

IDB President Enrique Iglesias, who signed on behalf of the
Washington-based lender, said the loan is for 20 years and
carries a 66-month grace period.


EMSA: Continues to Operate Amid Bankruptcy Threat
Bolivian sanitation provider EMSA continues to operate despite
the threat of bankruptcy, according to Business News Americas.

The Company's tight financial situation springs from the fact
that it hasn't been able to increase its rates since it began
operations in 1997.

"For each boliviano (US$0.12) that a Cochabamba resident pays
for service, in Santa Cruz they pay 8 bolivianos; in La Paz, 5;
in El Alto and Oruro, 4. These last cities, despite being
smaller, collect more than us and have more resources to
reinvest in the Company and improving the service that they
provide," general manager Mauricio Munoz said.

At current rates, EMSA generates income of 11.8mn bolivianos/y
although its operating budget is 30mn.

Rate increases over the past two years have come to naught as
the local population reacted against planned increases of up to
100% in some areas. The financial situation has prevented EMSA
from paying into employee pension funds or health insurance


CEMIG: Board Decides to Make Equity Interest Payment
Companhia Energetica De Minas Gerais (CEMIG) informed its
stockholders that the Board of Directors, in a meeting held on
27 December 2004, decided to pay interest on equity in respect
of the year 2004, under Article 9 of Law 9249/95 of 26 December
1995, in the amount of R$40,000,000.00 (forty million Reais),
equal to R$0,2467845 per thousand shares. This will be
considered as part of the calculation of the obligatory
dividend, in the terms of Paragraph 1 of Clause 30 of the
Bylaws. The manner and date of payment shall be set forth in the
Ordinary General Shareholders' Meeting to be held by April 30,

All stockholders whose names are on the Company's Nominal Share
Register on 10 January 2005 will have the right to this payment,
on which tax at 15% will be withheld at source of payment, other
than for stockholders that are exempt from this withholding
under current legislation.

The shares will trade with the exclusion of this benefit on 11
January 2005.

The Company reminded stockholders to update their registration
information by visiting any branch of Banco Itau S.A. (the
institution, which administers Cemig's system of registered
nominal shares), taking their personal documents with them.

CONTACT: Companhia Energetica De Minas Gerais - Cemig
         Av. Barbacena 1200
         Bairro Santo Agostinho - CEP: 30190-131
         Belo Horizonte - MG
         Fax: (0XX31)3299-4691
         Phone: (0XX31)3349-2111

CEMIG: Summarizes Deliberations from 346th Board Meeting
Decisions taken by the Meeting of the Supervisory Board on 27
Dec. 2004 include:

The Board of Directors approved:

1. Payment of interest on equity, in the amount of R$ 40
million, to be calculated as part of the minimum obligatory

2. Budget Proposal for 2005.

3. Contract for construction of the Vespasiano 2 substation, and
its three amendments.

4. Two amendments to the contract for construction of the Irap‚
hydroelectric plant.

TELEMAR: S&P Issues Report on Ratings

  Local currency                             BB/Stable/--
Foreign currency                             BB-/Stable/--

Major Rating Factors

    * Very strong and sheltered business position
    * Growing vertical integration
    * Consistently strong internal cash generation

    * Operating and financial results that depend on the
      performance of the volatile Brazilian market
    * Potential risks related to the regulatory environment
    * Fierce competition, especially in the wireless segment

The local currency rating on TNL reflects its exposure to the
volatile economic and operating environment of Brazil, the
challenges of a very competitive environment, especially in the
wireless segment, and the potential regulatory risks that may
affect its business profile. These negatives are partially
offset by TNL's dominant market position in fixed-line local
services within its concession area, allowing strong cash-flow
generation, its ability to offer integrated solutions to its
client base and gradual diversification of revenue mix, and wide
access to domestic capital and bank debt markets.

While certain risks related to operating a regulated business in
the telecommunications industry in Brazil have improved, these
risks continue to weigh heavily on the ratings on TNL. The
Company remains subject to the country's growth and income
levels, volatility of the local currency and interest rates, and
sometimes limited access of Brazilian entities to local and
international capital markets. As a regulated entity, the
Company remains exposed to a fairly new and evolving regulatory
environment. Issues that are still to be defined by regulators
concern local-number portability, new quality and
universalization targets, and the implementation of the new
tariff model as from 2006. Partially offsetting these risks,
Standard & Poor's incorporates a better macroeconomic operating
scenario for the remainder of 2004 and during 2005, and also
sees positively the decision by the Brazilian Supreme Court that
recognized the tariff adjustment mechanism defined in the
concession contracts. Besides, TNL's strong liquidity,
profitability, and cash-flow measures represent an important
cushion to country risks and are therefore key elements in the

With 15 million wireline customers and 6 million mobile
subscribers, TNL is Brazil's largest telecommunications Company.
The Company anticipated the universalization targets set by the
regulatory agent, and by doing so it was able to offer wireless
services within its concession area from 2002, as well as
nationwide long distance. While TNL does not face significant
competition in the wireline segment-holding a market share of
96% in local telephony-it faces an increasingly competitive
environment both in wireless and long-distance services.

TNL continued to show strong profitability and cash flow. The
Company's EBITDA margin for the last 12 months (LTM) ended
September 2004 reached 43%, in line with the previous two years.
The Company has maintained good EBITDA interest coverage, at
4.6x, and its cash-flow generation has been solid. The more
stable revenue and profitability from the fixed-line operation
has been mitigating the lower margin in the mobile segment.

TNL exhibits strong liquidity and financial flexibility. The
Company has uncommitted bank lines with several banks in Brazil.
BNDES is its most important source of financing, representing
approximately 23% of total debt at September 2004. Additional
sources of financing include other international development
banks such as the Japan Bank for International Cooperation and
Kreditanstalt fur Wiederaufbau. Nevertheless, as is the case
with other Brazilian companies, TNL is subject to potential
stress factors related to the sovereign creditworthiness of
Brazil. As such, it is vulnerable to a potential reduction in
(uncommitted) credit lines, higher costs, and shorter tenor.

TNL's total debt amounted to $4.1 billion in September 2004,
with maturities concentrated mostly in 2005 (24% of total debt)
and 2006 (30%). This is viewed as manageable by the Company,
which had a cash position of $1.7 billion in September 2004, and
its funds from operations in the LTM ended September 2004
reached approximately $2 billion. The combination of its cash
generation and cash position allows the Company to handle both
the debt management and capital expenditures of approximately
$700 million, or up to 13% of net revenues in 2004. The ratings
on TNL incorporate the expectation that the Company will
distribute a significant portion of its results as dividends
because of the need of its controlling shareholders to serve
their debt obligations. Therefore, the reduction in net debt
levels is expected to be gradual.

The stable outlook on the local-currency rating reflects our
expectation that TNL should continue benefiting from its
competitive business position anchored in its dominance of
fixed-line services in its concession area, its strong financial
flexibility, and generation of free operating cash flow. These
positive features should mitigate the volatility related to
Brazil's economic environment, the potential regulatory risks,
and the fierce competition in the wireless business that should
continue pressuring operating margins. The outlook may be
changed to positive if TNL maintains its solid profitability and
cash-flow protection measures, and if this is accompanied by
further reduction in dividend distribution that could result in
faster reduction in debt levels.

The stable outlook on the foreign-currency rating reflects that
of the Federative Republic of Brazil.

Business Description
TNL is Brazil's largest telecom carrier, offering a wide range
of telecommunications services, namely fixed-line local and
long-distance calls, data services (with brand name 'Velox'),
and wireless communications (brand name 'Oi'). The Company has
15.2 million fixed-line accesses in 16 states in the northern,
southeastern, and northeastern regions of the country (so-called
"Region I") through its operator, Telemar Norte Leste S.A. TNL
also operates a 100% digital PCS wireless network within the
same Region I, under the GSM technology, through TNL PCs S.A.

TNL is ultimately controlled by Telemar Participacoes S.A.
(Telemar), which currently holds 54% of TNL's voting shares.
Telemar's controlling shareholders are the La Fonte Group,
Andrade Gutierrez, GP Participacoes and Opportunity, each of
whom own 10.2% of Telemar's total capital; other shareholders
are BNDES (through BNDESPar), 25%; two insurance companies owned
by Banco do Brasil S.A. (BB), 10%; and five major Brazilian
pension funds headed by Previ (BB's pension fund), 19.9%.

Business Profile
TNL exhibits an average business profile, based on its very
strong and considerably sheltered competitive position on fixed
telecommunication services within its concession area, despite
increasing competition mostly in the wireless and long-distance
services. The operating improvements and gains in efficiency and
productivity achieved by the operator have enabled TNL to
maintain sound operating margins. The Company retains a dominant
market share within the area where it is the incumbent carrier
and is well positioned to remain among the industry's
consolidators as a fully integrated provider of
telecommunication services. These positive factors are partially
offset by the risk related to an operation that is wholly
dependent on Brazil's volatile economic performance and on the
potential risk related to a still-uncertain regulatory
framework, including the recurring debate on interconnection and
unbundling issues. In addition, more difficulties arise from an
increasingly competitive environment throughout the country.

The anticipation of Anatel's universalization goals in 2002-
which initially resulted in a worsening capital structure-
allowed TNL to successfully launch its wireless operations in
2002 and to start offering interregional and international
calls, adding to the Company's product portfolio. TNL's
increasing emphasis on wireless services, data communications,
and the Internet is part of the Company's strategy of operating
as a fully integrated multicommunication provider, able to offer
a variety of communications services nationwide. We expect the
synergies between fixed-line and wireless services to allow TNL
to increase its revenues per customer, increase loyalty from
clients, optimize processes, and reduce costs and expenses.

Fixed-line operations
TNL's fixed-line services consist of local services in Region I
(installation, subscription, measured service, collect calls,
and supplemental local services); intraregional long-distance
services within the same Region I; interregional long-distance
services (Region I, II, and III); and international long-
distance services primarily from Region I, through fixed
telephones, using the Company's dialing code (31).

Competition has been considerably mild for TNL and for the other
Brazilian incumbents since the Telebras System's privatization
in 1998. TNL has inherited the fixed-line infrastructure
formerly owned by Telebras and has been able to keep a dominant
position within its region, benefiting from extensive coverage,
its dominance of the "last mile," and relevant penetration among
higher-end consumers. Its strong market position has discouraged
and prevented the local competitive carrier (mirror Company),
formerly Vesper and now Embratel-which acquired Vesper in
December 2003-to increase its penetration in the region, in
local and intraregional calls. TNL has maintained a market share
of approximately 96% in local calls within its concession area.

The interregional and international long-distance markets,
formerly disputed only by TNL, Embratel, and the mirror Company
Intelig, counts now four more companies: Telesp (Telefonica
Group), Claro (Telmex Group), TIM (Telecom Italia), and Brasil
Telecom. Despite increasing competition, the Company has been
able to increase traffic in this segment, especially in calls
originated in mobiles. TNL became the leader in long distance
with approximately 27% in June 2004 (from 24% in December 2003).

Wireless operations
TNL operates a 100% digital PCS wireless network within the same
16 states as its fixed-line operations, under the GSM technology
through its brand name, Oi. Oi received authorization from
Anatel to start offering wireless communication services in
2002. Upon completing two years of operations in June 2004, the
Company had 5.1 million clients (6 million in October 2004).
Market share in the region has grown through 2004, and in
September it reached 22% within it are of coverage
(approximately 10% on a nationwide basis. Dynamics in the
wireless market are completely different from those in the
fixed-line market: competition is fiercer, while the competitive
barriers are limited by constant technological changes (fast
obsolescence of the handsets); coverage, mobility, and service
packages offered are key issues; and there is higher growth
potential than in the fixed-line market (the number of mobiles
in Brazil has increased 42% in the LTM ended October 2004).

The regulatory environment poses potential risk due to being
relatively new and with some uncertainties. These include Decree
4733 (of June 2003) that sets new rules for concession contracts
as from January 2006. Many of the decree's guidelines are still
vague, making it difficult to predict to what extent proposed
changes and rulings could threaten wireline incumbents'
currently strong business positions. Our main concerns relate to
pricing of unbundled network elements and interconnection, clear
rules for tariff adjustment and local-number portability, as
most of the initiatives intend to boost competition in the local
telecom services. These are partially offset by the fact that
the decree also provides that regulatory amendments will be
subject to the maintenance of the financial and economic
equilibrium of the contracts. We believe that TNL's sound
financial and business profiles help to partly mitigating those

After a long discussion in justice about the index for tariff
adjustment, a final decision was obtained in 2004 with the
original IGP-DI index validated as the official one for tariff
adjustment. In the case of TNL, this means a tariff increase of
8.7% for its local wireline services and 10.9% for long
distance, both in force in the second half of 2004.

Financial Policy: Relatively aggressive
TNL usually distributes a high level of dividends every year.
Because of the Company's ownership structure and debt issue at
the holding Company Telemar Participacoes S.A., the Company is
expected to keep distributing sizable dividends in the near
future. Therefore, a potential debt reduction may occur only on
a gradual basis. Nevertheless, TNL's indebtedness is viewed as
manageable. Debt maturity is concentrated mostly in 2005 and
2006, 24% and 30% of total debt, respectively. TNL had a cash
position of $1.7 billion as of September 2004, covering all the
maturities in 2005.

Capex needs are expected to reach $700 million in 2004.
Following the extremely high capex amount of $4.6 billion in
2001-in anticipation of Anatel's expansion requirements and to
buy the PCS licenses-and a broad review of its bad-debt
provision policy, TNL has gradually recovered its previous
profitability levels and enhanced its capital structure.

The Company's cash position and cash generation are in line with
expected investments for the next years, and are sufficient to
meet principal and interest on Telemar Participacoes'
outstanding debentures.

TNL is reasonably protected against foreign exchange risk. The
Company's foreign currency debt is 87% hedged against currency
mismatches until maturity, and 95% of the total debt hedged in

Financial Profile
TNL has maintained strong credit measures for the rating
category. The EBITDA margin has been stable at approximately 44%
since 2002 and the Company is expected to sustain this level for
the coming quarters. The EBITDA interest coverage ratio was
maintained at 4.6x. The positive results from the fixed-line
business should remain as an anchor and should allow the Company
to withstand the negative impact from the still-low margins in
wireless operation. In fact, the wireless segment should
continue facing pressure on operating margins in the short to
medium run due to aggressive marketing campaigns and price
reductions. Furthermore, the reality of the market is that
prepaid services are leading the growth. The number of
subscribers is expected to remain flat at the wireline segment.
Growth should come mostly from wireless and ADSL segments.

TNL also shows strong cash generation to support capex and
continued expansion of the wireless operations. The Company is
expected to have total capex for fiscal year ending December
2004 at approximately 700 million, with 55% in the wireline
operations, 40% in the wireless, and 5% in its call center.

TNL enjoys easy access to capital markets and bank lines and has
uncommitted bank lines with several banks in Brazil. The Company
maintains good relationship with the development bank BNDES, its
most important source of financing-representing 23% of total
debt in September 2004-and with other international development
banks such as the Japan Bank for International Cooperation and
Kreditanstalt fur Wiederaufbau. Despite that, and similarly to
other companies operating in Brazil, TNL faces potential
difficulties related to availability, cost, and tenor of
funding, in the event of stress situations affecting the

The Company's financial ratios are strong for its rating
category, with a total debt-to-EBITDA ratio of approximately 2x
in 2003 and 2004 and total debt-to-capitalization at about 50%.
The Company's total debt amounted to $4.1 billion on a
consolidated basis, but holds a fairly large cash position of
$1.7 billion.

Primary Credit Analyst: Daniel Araujo, Sao Paulo (55) 11-5501-

USIMINAS: S&P Releases Report on Ratings
Usinas Siderugicas de Minas Gerais S.A. (Usiminas)
Corporate Credit Rating:
  Local currency                      BB/Stable/--
Corporate Credit Rating:
  Foreign currency                    BB-/Stable/--

Senior Unsecured Debt:
  Foreign currency                    BB-

Major Rating Factors

    * Low-cost position in the flat carbon steel industry
      worldwide, thanks to its easy access to iron ore,
      technical know-how, and other synergies between its two
      world-class steel mills
    * Strong domestic market share in flat carbon steel
      products, with very sound positioning in heavy plates
    * Consistent export capabilities (approximately 30% of total
      volumes traditionally exported), partly offsetting
      domestic economic volatility and now increasing with
      Cosipa's competitive semifinished steel production

    * Somewhat exposed to the more volatile Brazilian economy,
      as production is still very much directed to domestic
      market, and to the inherent volatility of the global steel
    * Domestic competition growing with new entrants
      (particularly Vega do Sul), which are also targeting
      premium markets

The ratings on Usinas Siderurgicas de Minas Gerais S.A.
(Usiminas) reflect the credit quality of the so-called "Usiminas
System," consisting of the combined operating and financial
profiles of both Usiminas as parent Company and its operating
subsidiary Companhia Siderurgica Paulista (Cosipa), as well as
their respective subsidiaries altogether. Therefore, the local-
currency corporate credit rating on Usiminas reflects the
Company's exposure to the volatile and cyclical global steel
industry, which despite its current extraordinarily positive
environment, is intrinsically exposed to wide price and demand
oscillations; its degree of reliance on the economic and
operating environment of its home and predominant market Brazil,
and where competition is gradually increasing with new entrants.

These risks are partly offset by Usiminas' strong business
profile, made evident by a very competitive cost structure and a
diversified product portfolio; a solid market position in the
fairly concentrated flat-steel sector in Brazil, in particular
in the higher value-added low-carbon steel segment; increasing
profitability and efficiency at its subsidiary Cosipa, all of
that boding well for resilient operating profitability and free
cash generation through the steel industry cycles (today
essentially freed up to pay off debt). An improving financial
profile, resulting from significant debt reduction accomplished
in 2004 and further decreases projected until the end of the
year also help improve Usiminas' overall credit quality.

The Usiminas System comprises the largest flat carbon steel
production complex in Brazil, with a consolidated capacity of
two operationally independent steelworks in the Southeast of
Brazil for 9.3 million metric tons per year (tpy) of crude steel
and 8.0 million tpy of steel products. The system produces and
sells a variety of flat carbon steel products, including slabs,
heavy plates, hot-rolled, cold-rolled, and galvanized steel
coils and sheets, among others, to a diverse customer base in
Brazil and abroad. Usiminas produced 6.72 million tons of crude
steel and sold 5.89 million tons of steel products in the first
nine months of 2004. Consolidated net revenues and EBITDA
amounted to $2.83 billion and $1.28 billion, respectively, in
the same period. Total debt (not including pension liabilities)
was $2.20 billion as of September 2004.

Usiminas' financial condition improved substantially in 2004, a
result of both the Company's efforts to reduce its exposure to
refinancing risk and the strengthening of market and price
conditions, both locally and internationally. The Company has
reduced total consolidated debt levels by approximately $446
million in the first nine months of 2004, and is expected to pay
down another $250 million by the end of the year, bringing total
debt down to approximately $2.0 billion. While slightly higher
than at June 2004, short-term debt maturities as of September
2004 were still following the expected downward trend to $629.2
million, compared with $1.08 billion in the same period of last
year. Debt reduction in 2004 was accomplished with strengthened
free cash generation, which Standard & Poor's Ratings Services
regards as fairly permanent given modest, though slightly
increasing, capital commitments projected for the next several
years. More importantly, Usiminas' management has explicitly
adopted a more conservative financial policy this year, and is
expected from now on to limit as much as possible the use of
short-term debt instruments. The recovery of the Brazilian
economy this year, favorable prospects for 2005, and a still
sanguine global steel market, point toward firm prices for at
least mid-2005. For that matter, abnormally robust cash
generation is expected to persist through the next couple of

As a global low-cost steel maker, Usiminas has benefited from
the exceptional market conditions in 2004. The recovery of the
Brazilian economy has allowed Usiminas to also substantially
improve its domestic profitability, with shipments in the
country growing by 21% in third-quarter 2004 compared with the
same period of last year. As a result of all that, the Company's
EBITDA margin rose to an all-time high of 42.1% in the 12 months
ended Sept. 30, 2004. Such positive performance is also the
result of the increasing profitability of Cosipa, which is not
only exporting more, but also obtaining higher margins
domestically through a combination of richer product mix and
price increases. While these results should be interpreted as
peak-of-cycle, we expects that Usiminas will manage to sustain
EBITDA margins around 35% through the steel industry cycle, as
it benefits from its overall strong cost position, a well-
managed product mix, and a strong domestic market position.

Funds from operations (FFO) of $1.13 billion in the 12 months
ended Sept. 30, 2004, allowed the Company's total debt
(adjusted, for analytical purposes, by including pension
liabilities of $358.4 million as of Sept. 30, 2004)-to-EBITDA
ratio to decline to 1.66x (from 5.4x in 2001 and 2.9x in 2003)
and FFO-to-total debt to improve to 44.0% (from 11.2% in 2001
and 22.1% in 2003) in September 2004. We estimate that, thanks
to improved free cash generation also in the fourth quarter and
the Company's strategy to continue paying off as much debt as
possible in the period, total debt-to-EBITDA is likely to fall
to around 1.2x by year-end 2004 and be sustained below 2x all
through the steel industry cycle. The EBITDA-to-gross interest
ratio continued improving in third-quarter 2004, reaching 6.6x
in the 12 months ended Sept. 30, 2004, in line with the
expectations of approaching 6.0x by mid-2005.

The current positive environment is expected to extend over at
least first-half 2005. While price accommodations have already
been noticed worldwide, particularly in the U.S., steel prices
should not plummet dramatically next year based on tight supply
and still-strong demand in Asia, coupled with a shortage of raw
materials and high energy costs affecting steel makers all
around the world (leading to higher costs passed on to end-
product prices). Usiminas is sold out through the next couple of
months at solid price levels, and negotiations in 2005 are
expected to remain favorable. In Brazil, utilization rates for
all Brazilian steel makers remain close to full capacity,
equally pointing to a favorable price environment and positive
spreads, as traditionally practiced in the country, relative to
international prices.

With cash reserves of $462.9 million and strong free operating
cash flow to face maturities of $629.2 million during the next
12 months, Usiminas' current liquidity condition is comfortable
for the rating category. In the past two years, Usiminas has
focused its financial strategy on reducing its exposure to
refinancing risk deriving from its then-sizable short-term
maturities. Thanks to the strong cash generation obtained this
year, Usiminas essentially paid off most of its debt maturities
during the first nine months of 2004 and is anticipating further
debt reductions through the end of the year. In 2005, the
Company's debt maturities amount to $520 million, which are in
line with expected free operating cash flow and further comfort
provided by stronger cash balances. In October 2004, Usiminas
exercised a call on Cosipa's Brazilian reais (BrR) 240 million
debentures ($85 million), also reducing maturities for 2005.

Capital expenditures should not affect the present trend,
although the Company has recently announced new midsize
investments (a thermal power plant to capture self-generated
energy and new coke oven batteries, which altogether should cost
approximately $240 million, to be expensed over 2005 and 2006).
The Company is also studying a third caster and a top-blowing
turbine at Cosipa, for approximately $85 million. Part of this
investment is expected to be financed under long-term funding.
The potential investment in a 1.5-million tpy expansion of
Usiminas' plant in Minas Gerais, currently under study, has not
factored in the ratings yet. Although Usiminas does not count on
committed credit facilities (a normal practice in the bank
industry in Latin America), Standard & Poor's acknowledges that
the Company has financial flexibility enough to reach bank
facilities or coal suppliers' credit to finance its working
capital requirements, which has been the case even under the
rather stressful credit crunch witnessed in second-half 2002.

The stable outlook on the local-currency corporate credit rating
reflects our expectations that Usiminas will be able to sustain
sound operating profitability and preserve free operating cash
generation not only in 2004 and 2005, but also through the steel
industry cycle. During the next quarters, the Company should
keep up the pace of debt reduction and credit measures
improvement. The outlook also incorporates the expectation that
Usiminas will manage to sustain little exposure to short-term
debt vis-…-vis projected free cash flow and cash reserves from
now on. Nevertheless, the ratings could come under downward
pressure if adequate financial metrics, such as total debt-to-
EBITDA lower than 2x and FFO-to-debt higher than 30%,
deteriorate in the future. On the other hand, strengthening
results to levels not factored yet or a much more conservative
financial profile (in this case deriving from permanent
improvement in cash generation and low debt levels) could lead
to a positive revision of the ratings or outlook in the medium
to long term.

The stable outlook on the foreign-currency corporate credit
rating reflects the outlook on the foreign-currency sovereign
rating on the Federative Republic of Brazil.

Business Description
Usiminas, combined with its wholly-owned subsidiary Cosipa, is
the largest integrated flat carbon steel Company in Brazil, on a
consolidated basis, with a total capacity for 9.3 million tpy of
crude steel and 8.0 million tpy of rolled products.

Privatized in 1991, a controlling group ruled by a shareholders'
agreement controls the Company. Participants include Nippon
Usiminas Co. Ltd., a subsidiary of Nippon Steel (A-/Stable/--);
cement companies Camargo Corrˆa (unrated) and Votorantim Group
(LC: BBB-/Stable/--; FC: BB-/Stable/--); Usiminas' pension fund
and employees; and Brazil's largest financial conglomerate,
Bradesco (LC: BBpi/--/--). Not all voting shareholders
participate in the controlling group (in particular, CVRD, the
largest individual shareholder, does not participate in it. CVRD
has already stated that it has the intention to sell its stake
of Usiminas sometime in the future).

Usiminas holds 96.7% of Unigal, a joint venture with Nippon
Steel to produce HDG steel in Ipatinga. It also owns stakes in a
series of correlated businesses, among which are 99.9% of
Usiminas Mecƒnica (a capital goods fabricator); Fasal, Rio
Negro, and Dufer (service centers and distributors); and 10% of
MRS Log¡stica S.A. (an efficient railroad that is the main
transportation channel for the Company's raw material and end


Industry scenario
The global steel industry has witnessed exceptionally favorable
conditions since the beginning of 2004, reflecting the shortage
of finished steel products worldwide, which, combined with
soaring feedstock and freight costs (due to a shortage of iron
ore, coking coal & coke and scrap, and ships to move all these
commodities around the world), has translated into sequential
and across-the-board steel price increases in the year. A higher
level of global economic activity, in synch with the eager
demand from China and other Asian countries in general, has been
supporting the heated price environment. As a direct result,
steel makers around the world have been reporting extraordinary
cash generation and, in many cases, strengthened balance sheets.
While the persistent steel shortage in Asia, low inventories in
Europe, and the weakening of the U.S. dollar relative to other
currencies continues pumping steel prices up, there is a high
level of uncertainty about the sustainability of any of these
factors beyond mid-2005. Therefore, current market conditions
are certain to be considered as peak-of-cycle that will
incidentally subside to more modest historic levels. While this
could be of particular concern if feedstock costs do not fall
down at the same time, the current outstanding market and price
environment may result in more perennial credit quality
improvements, depending on how companies use their excess cash
flows while the bonanza prevails.

We continue to view the global steel industry as having above-
average risk characteristics, due to its inherent price
volatility, fierce competition (which affects Brazilian
companies in their export initiatives), and close correlation
with economic activity patterns, either globally or
domestically. Intense consolidation activity worldwide,
especially in Europe, has already resulted in a little more
discipline during crises, but the industry remains rather
fragmented when compared with some of its main clients (notably
auto makers) or key raw material suppliers (in particular,
coking coal and iron ore producers). As a result, prices still
tend to be generally demand-driven, except for periods of
indisputable demand growth like the current one.

In this context, the ability to weather cyclical and volatile
price patterns by securing a competitive cost position is a key
success factor in the steel industry. Nevertheless, other
important competitive factors include backward integration,
economies of scale of each production site, the quality of the
customer base, and the diversification of the product mix, as
well as the competitive environment, measured by the degree of
industry consolidation and the supply-demand balance, to the
extent that they allow for more rational pricing behavior.
Finally, the Company's financial profile and its exposure to
specific country risks in emerging markets obviously have
significant influence on a steel maker's creditworthiness.

The steel industry in Brazil
According to the International Iron Steel Institute, Brazil was
the eighth-largest steel producing country worldwide in the
first 10 months of 2004, with a production of 27.4 million tons
in the period (31.1 million tons in 2003). The local market is
still relatively small compared with its potential: domestic
apparent consumption in Brazil is expected to reach 18.2 million
tons in 2004 (projection by the Brazilian Steel Institute),
recovering from a bottom of 16.0 million tons in 2003, which
renders a per capita steel consumption of 97.7 kilos in 2003,
compared with 154.6 kilos in Chile, 349.3 kilos in the U.S., and
600 kilos in Japan. Flat carbon steel is the largest market,
accounting for 60% of total domestic steel sales. The market is
becoming more competitive, but still is fairly concentrated.
There are basically three large groups producing flat steel
products in the country: CSN, the Usiminas System (the combined
operations of Usiminas and Cosipa), and Arcelor Group (which
recently took over Companhia Siderurgica de Tubarao-CST and is
one of the sponsors of the Vega do Sul Project).

While Usiminas-Cosipa is the most diversified Brazilian steel
maker, with capacity to produce from very specialized and high-
quality low-carbon steel (such as Interstitial Free), used in
exposed automotive body panels, all the way down to
distribution-quality steel and slabs, CSN has a long-term cost
advantage because of its full operational integration (from iron
ore to steel mill to port). Part of this advantage is
compensated by the fact that Usiminas' plant in Minas Gerais is
located even closer to iron ore reserves, and may be fairly
offset over time depending on coke and coal purchasing
strategies, particularly now, as the price for this feedstock
has been very volatile. In terms of domestic market positioning,
Usiminas has been losing some ground (although this has been
expected since CST announced in 2000 that it would invest in a
hot strip mill), but remains the strongest player, with a 53%
share in September 2004, compared with CSN's 31% and CST's 13%.
With investments in product mix enrichment, CSN is also gaining
some share in premium segments in Brazil, competing with
Usiminas in extra-deep drawing steel. CST, which was
traditionally a fully export-oriented operation, is now
completing the learning curve of its hot strip mill (2 million
tpy of hot-rolled coils), started up in 2002, whose production
has been substantially destined to its affiliate Vega do Sul
(controlled 75% by Arcelor and 25% by CST). Vega do Sul started
up in mid-2003 and has a capacity for 880,000 tpy of cold-rolled
coils and HDG steel, supplying auto makers located in the South
of Brazil. The entering of CST and Vega do Sul into the domestic
market has not been disruptive and is not expected to cause
dramatic changes in the local supply-demand balance, but has led
CSN to export more.

Cost position and operating efficiency
After revamping Cosipa's plant and bringing production at that
site back to a 4.5 million tpy level (at an $800 million cost),
Usiminas' consolidated operations have improved substantially.
Usiminas invested approximately $1.8 billion in 1997-2001 to
improve productivity, enrich product mix, and obtain some
marginal capacity expansion at its plant in Minas Gerais. In
terms of the operations, the major challenge for Usiminas going
forward is to bring Cosipa's profitability to similar levels as
those of Usiminas by fine-tuning the recent expanded capacity,
implementing other cost cutting initiatives, and continuing
product mix enrichment.

One of the major general competitive advantages of Brazilian
steel makers, and Usiminas in particular, is the ready access to
quality sources of iron ore (in this case, iron ore from global
giant CVRD). While CVRD accounts for the majority of iron ore
requirements in Minas Gerais, Cosipa also purchases iron ore
from other smaller suppliers in the country. As a low price-to-
weight commodity, logistic advantages in iron ore transportation
(as Usiminas' steel mills are strategically close to iron ore
reserves, moved by private railroads) provide substantial
freight cost savings to Usiminas.

Coking coal and coke have to be imported, as local coal reserves
are high in ash, and therefore not well fitted for coking. While
volatile coke prices have a direct effect on the Company's cost
structure, mineral coal prices are negotiated annually by
Brazilian steel makers in a joint effort, which helps increase
bargaining power, as well as better absorb cost impacts along a
given year. Coal and especially coke prices have skyrocketed in
2004, and are expected to increase even further in 2005
(accounting today for 24.5% of total costs). Particularly, the
effect of high coal and coke prices this year has been neutral
to Usiminas' EBITDA margins, as international steel prices
quickly passed this impact on to markets, a movement also
followed by Brazilian steel makers. In any event, we believe
that even considering a more moderate steel price environment,
Usiminas' overall privileged cost position would still leave it
in an advantageous position and allow it to preserve margins
substantially higher than those of its international peers.

As are other Brazilian players, Usiminas is planning to expand
its coking capacity through 2006. Today, Usiminas and Cosipa
purchase 400,000 tons of coke, as about 89% of coke requirements
are processed in-house. The investment in a new 550,000 tpy coke
oven batteries amounts to $180 million in two years and will
provide the Company with some excess coke production that could
also be potentially monetized. The Company is also investing to
increase energy self-sufficiency by building an in-house thermal
power plant of 60 MW, which will enhance further its already
very competitive energy cost position ($60 million expenditure).
While both Usiminas and Cosipa have pension liabilities deriving
from old defined-benefit plans (already closed to new entrants
in 1998), these are substantially smaller than those in the U.S.
or Europe, also leaving the Company in a favorable comparative
cost position.

Diversification, product mix, and customer base
While operating two operationally independent plants in Ipatinga
and Cubatao, but still having sales concentrated in the domestic
market, Usiminas is exposed to Brazil's country risks. Usiminas
has traditionally exported 20%-30% of its consolidated
production to a variety of export markets (28% in the first nine
months of 2004), benefiting from its low-cost position and
profiting from those even at depressed markets (exporting more
of Cosipa's production).

Among Brazilian steel makers, Usiminas is certainly the most
diversified in terms of the range of products. It is the only
producer of heavy plates, accounting for nearly 98% of steel
supply for large tubes, all the way up to higher value-added
ultralow-carbon steels, such as Interstitial Free steel,
produced now at both Ipatinga and Cosipa with vacuum degassing
and used in extra-deep drawing applications (such as exposed
auto parts); and Bake Hardenable steel, used particularly for
automotive body panel applications due its combined strength and
formability characteristics. The Company's production strategy
has been two-fold: while Usiminas has concentrated in higher
value-added products (in automotive, auto parts, large-diameter
pipes, and electric equipment), Cosipa has destined its products
to distribution quality and exports (small tubes, structural
shapes, and industrial applications).

Usiminas' customer base is fairly diversified among sectors,
product range, and geography. In Brazil, no industrial sector is
predominant, the largest ones being automotive, home appliances,
and distribution. Traditionally, domestic prices tend to follow
international prices, with a premium for freight costs, a
pattern that changed last year due to the economic recession and
currency depreciation at that time. Gradually, Usiminas has
recovered this positive spread for domestic sales with
sequential price increases. Due to the existing cost and market
fundamentals (as auto makers require extra quality or delivery
reliability not easily beaten), steel imports have traditionally
been nearly negligible. Brazil's steel imports summed 385,680
tons through October 2004 (or only 2% of production of rolled
steel in Brazil in the same period). Apart from quality, it is
rather difficult for end consumers to order steel imports on a
continuing and consistent basis: in the particular case of flat
steel, imports in many cases cannot compete in customer service
(technical assistance, customization of products, production
lead times, delivery times) and quality requirements, on top of
the more evident cost competitiveness of the Brazilian products.

Management and strategy
Comparatively, Usiminas' management has been considerably less
acquisitive than its domestic peers, in part due to the fact
that the acquisition of Cosipa in 1993 and the subsequent bail-
out in 1999 came as a heavy financial and operating burden that
only now has been entirely digested. Management has proven
commitment to and focus on sustaining a prudent financial
policy, and additional capital expenditures (even considering
the recently announced repurchase of Cosipa's shares), has been
modest, even more so considering the current cash windfall.

Financial Policy
Usiminas' financial policy is regarded as moderately aggressive,
considering the Company's total indebtedness in the context of
the volatility associated with the Brazilian economy and the
steel sector at large. Nevertheless, the Company's consolidated
financial profile has substantially improved in 2004 with total
and short-term debt reduction, at the same time as cash reserves
increased, providing incremental liquidity protection. Usiminas'
management has traditionally been more conservative in capital
commitment decisions than some of its Brazilian peers, as
Cosipa's financial and operating difficulties have exhausted
nearly all efforts in revamping and streamlining. While capital
expenditures should modestly increase in the next year or so as
projects of marginal production improvement and expansion are
eventually implemented with free cash flow, the Company is
currently analyzing the feasibility for a 1.5 million tpy
expansion of its plant in Minas Gerais, to be implemented by
2008 at a cost of approximately $700 million. We believe,
however, that this expansion, if eventually approved by mid-
2005, will be financed partly with internal cash and adequate
long-term funding. Dividend policy has equally been moderate and
should continue so in the future.


Usiminas reports quarterly consolidated financial statements in
Brazilian GAAP, with no significant accounting changes announced
recently. Pension liabilities of $124.5 million with Cosipa's
pension fund FEMCO and of $358.4 million with Usiminas' pension
fund as of Sept. 30, 2004, are added to total debt balances to
calculate credit measures. We also calculate interest burden by
removing from total financial expenses long-term noncash foreign
exchange and monetary debt variation to reflect effective EBITDA
interest coverage ratio.

Profitability and cash flow
Usiminas' operating profitability has consistently reported
strong EBITDA margins, averaging 34.6% in the past three years
(therefore remaining strong even during the industry's trough),
largely surpassing international peers. Ordinarily, Usiminas'
unconsolidated has been stronger due to its richer product mix
and streamlined operations and, until 2002, larger scale. Since
the new caster was installed, Cosipa has been catching up,
reporting occasional spikes of outstanding export profits when
market conditions are favorable.

In absolute terms, cash generation has improved substantially in
past quarters as steel prices soared, with EBITDA reaching $1.54
billion for the 12 months ended Sept. 30, 2004, compared with
$999 million in 2003. Considering the still sanguine
expectations for the market in 2005, we believe that this trend
can be sustained at least through the first half of next year,
then start declining back to historic levels (but yet with an
EBITDA hovering around $850 million through the steel industry
cycle, but probably standing around $1.5 billion in 2004 and
2005). While coal and coke will continue putting some pressure
on EBITDA margins (when coal contracts are eventually renewed,
impacting second-half 2005 cost structure), we believe that
those will continue being absorbed by either cost-cutting
initiatives in other areas or price increases. Coke and coal
feedstock accounted for about 24.5% of Usiminas' total cost in
the first nine months of 2004. Nevertheless, imported coke
requirements tend to be eliminated in the next couple of years,
as the Company is investing to reach coking self-sufficiency by
2007, which will also bode well for less profit volatility. The
Company's access to iron ore is an important competitive factor
in Minas Gerais. On the other hand, Usiminas should continue
improving Cosipa's product mix (both locally and for exports),
with smaller but effective investments.

Cash generation has equally strengthened substantially in past
quarters, resulting in a robust FFO-to-pension-adjusted total
debt ratio of 44.0% in the 12 months ended Sept. 30, 2004,
compared with an average 19.5% in the past three years. Since
2001, the Company has reported consistent positive free
operating cash flow (FOCF), averaging $490 million since 2002.
Although increasing capital expenditures in the next two to
three years (with a thermal power plant of $60 million, coke
ovens of $180 million, and potentially a new continuous caster
and a top-blowing turbine at Cosipa of $85 million) should
decrease this amount somewhat in the future, Usiminas is still
expected to report positive FOCF to reduce total debt in 2004
and slightly in 2005. Through the cycle, we expect Usiminas to
report EBITDA margins consistent with historic levels around
35%, with FFO-to-total debt around 30% and total gross debt-to-
EBITDA below 2x going forward.

It is the Company's strategy to maintain short-term debt around
$600 million (reducing from more than $1 billion in 2002), in
line with liquidity reserves and FOCF. Having no significant
concentration in the next several years also provides the
Company with an additional layer of comfort to face debt burden
even when confronting a potentially lower cash flow.

Capital structure and financial flexibility
Usiminas has as a consolidated entity two main pension fund
liabilities: a long-term debt with Cosipa's pension fund FEMCO,
which amounts to $124.7 million, and the actuarial pension
liability of Usiminas' pension fund defined benefit plan, of
$358.4 million (which has been closed for new hires since 1998),
as of Sept. 30, 2004. The Company's existing pension plan is a
defined contribution plan. While total gross debt is expected to
remain sizable in absolute terms (around $2 billion), Usiminas
has managed to extend debt duration in the past two years,
reducing exposure to short-term debt, and is expected as
financial policy to keep up cash reserves as a liquidity cushion
in the future.

Usiminas' financial flexibility is regarded as adequate for the
rating category. The Company has consistently accessed bank
loans and suppliers credit to finance working capital needs (as
tested during 2002), and has been increasing presence in
international capital markets with a couple of bond issues. The
Company has also worked consistently to improve visibility and
transparency in stock exchanges (being currently listed at
Bovespa). More recently, it announced that it is going to
repurchase all outstanding shares of Cosipa, focusing stock
liquidity at the parent Company's shares. Dividend distribution
has been conservative and in line with the capital expenditure

Primary Credit Analyst: Reginaldo Takara, Sao Paulo
(55) 11-5501-8932;

Secondary Credit Analyst: Milena Zaniboni, Sao Paulo
(55) 11-5501-8945;


ENDESA CHILE: Seeks to Nullify Government Resolution
- The Company is thus taking legal actions in defense of its
business with respect to the recent decisions concerning firm

- These actions are in accordance with its board resolution
which asked that all opposing legal actions be taken under the
fundamental guarantees provided in the country's constitution
and which were affected by the recent decisions of the Panel of
Experts and in Resolution No.35.

Endesa Chile, together with its subsidiaries Empresa Electrica
Pehuenche S.A. and Empresa Electrica Pangue S.A., presented
Tuesday a nullity demand against Ministerial Resolution No.35 of
the Ministry of the Economy.

Resolution No.35 corrected the same ministry's Resolution No.17
and requested the CDEC-SIC to redefine the hours of the greatest
probability of load loss. In other words, by resolving a
reversal proceeding based on an earlier judged reversal, it
proceeded to resolve a matter that was not of the competence of
the Ministry. It has thus reopened inopportunely and without
competence the settlements for capacity between the generating
companies on the Central Grid System for the periods 2000-2003,
which then resulted in the later decisions by the Panel of
Experts of the CDEC-SIC on this matter.

All this led to a redistribution of revenues between generating
companies with respect to the previous ministerial resolutions.
It is also a new form of revenue distribution to that calculated
by the CDEC based on a prior decision by the same Panel, thus
producing a worrying uncertainty for the Chilean electricity

The above is taking place in accordance with the resolution of
the Company's board at its meeting on December 15 when it
required the management to take all opposing legal actions under
the fundamental guarantees provided by the nation's constitution
and that were affected by the decisions of the Panel of Experts
and Ministerial Resolution No.35 to the considerable detriment
of the shareholders of the Company and of its hydroelectric

For the handling of this demand, and of other actions that will
soon be taken against the recent decisions of the Panel of
Experts on this same subject, it has contracted the legal
services of the law firm Ortuzar, Aguila & Bulnes.

         Santa Rosa 76
         Santiago, CHILE
         Phone: (212) 688-6840
         Fax: (212) 838-3393
         Web Site:

D O M I N I C A N   R E P U B L I C

SMITH-ENRON: Resumes Service
Dominican Republic power plant Smith-Enron, which went offline
since September 9 due to financial issues, has returned to
service, pouring 130 MW of power into the national grid.

According to DR1 Daily News, Smith-Enron will replace Itabo I
and its 100 MW, which made an exit due to mechanical problems.

The Superintendent of Electricity said that for the first time
in a long time, supply was in excess of demand. The nation's
electricity supply has reached 1,460 megawatts, while demand is
just 1,318 MW.

Haina is providing 23% of the electricity and the hydroelectric
dams are putting out another 25%. The IPPs, Seaboard, Cogentrix,
Palamara, La Vega, Monte Rio and CEPP are providing the rest.

E L   S A L V A D O R

BANCO CUSCATLAN: S&P Releases Report on Ratings
CREDIT RATING:                       BB/Stable/B

Counterparty Credit:              BB/Stable/B
Certificate of deposit:              BB/B

Major Rating Factors

    * Leading market position
    * Belonging to the Cuscatlan group
    * Improving asset quality

    * Large portfolio of nonperforming assets (NPAs)
    * Small and nondiversified Salvadorian economy with low
      growth prospects
    * Lower capitalization than that of peers

The ratings on Banco Cuscatlan S.A. are constrained by the
bank's vulnerable asset quality due to its relatively flexible
policy toward loan restructuring and a nonconservative reserve
policy of NPAs, which is a weakness of the Salvadorian banking
system as a whole. The ratings are also constrained by the
relatively small size and limited diversification of El
Salvador's economy. The ratings are supported by the bank's
strong market position in El Salvador, its good profitability,
and the increasing recognition of the Cuscatlan brand in the

Banco Cuscatlan has maintained its market position as the
second-largest bank in El Salvador, holding 24% of the system's
deposits. Growth has been slow in El Salvador, though, and this
has resulted in lower-than-usual growth rates for the bank.
Prospects have improved in the medium term, in part by the
smooth entry of a new government. Nevertheless, El Salvador's
economy is small and concentrated in few sectors. The banking
business is well developed and to a certain extent it is mature.
Therefore, banks' growth is based on strong competition via
lowering prices, which is putting pressure on the system's
profitability. Banco Cuscatlan has taken a different strategy
and is trying to sustain prices by diversifying sources of
revenues and increasing products. As other players in the
system, Cuscatlan is placing great emphasis on greater growth in
the retail segment, which should offset downward pressure on

Asset quality, which was a weak element a few years ago, has
shown improvements. Additionally, the bank has tightened credit
underwriting conditions, has enhanced borrower surveillance, and
has taken a slightly more conservative approach toward loan
restructurings. The bank is expected to maintain or even improve
asset quality in the future, even though economic growth will
shape it too.

Cuscatlan has maintained one of the highest profitability ratios
in the El Salvador market, with 1% ROA and 16% ROE. As the loan
portfolio grew only 1.1% between December 2003 and June 2004,
interest income remained almost stable. The net interest margin
(NIM) represents 80% of total revenues as of June 2004 compared
to 87% in 2002. It has decreased in the system as a whole as the
market is very liquid and more stable as a consequence of the
dollarization policy implemented in the country. In addition, to
compensate the slow growth in NIM, the bank has increased
trading activities, which although a volatile source of
earnings, is adequate for the current rating level. As loan
growth is anticipated to be moderate, it is likely that
investment income will gain importance in the future. As 2005 is
not expected to be a dynamic business environment, profitability
should remain in the current levels.

The liability side has been well managed, and a broad customer
base has allowed Cuscatlan to maintain deposits even at the
beginning of the year when there was politic uncertainty. With
40% of assets comprised of cash and securities, the bank
maintains a high level of liquidity, in part because of
regulatory requirements.

As of September 2004, Banco Cuscatlan reported a 12.17%
regulatory capital ratio, which is expected to remain. As growth
in loans is not going to be high, with a 16% ROE and a 37%
dividend payout in the past five years, internal capital
generation should finance capital future needs. Nevertheless,
lower-than-peer capitalization is expected to remain.

The outlook reflects our opinion that the bank's strategies and
adequate operations should maintain profitability at good levels
in a stable economic environment. An economic downturn or the
continuation of low growing prospects of the Salvadorian
economy, however, could affect the bank's overall performance,
putting pressure on the ratings. Ratings could go up if there is
a strong development in economic conditions, along with a
sustainable improvement in asset quality (including restructured
loans and repossessed assets) and profitability, and if capital
ratios are higher than those of its closest peers.

Primary Credit Analyst: Leonardo Bravo, Mexico City

Secondary Credit Analyst: Angelica Bala, Mexico City
(52) 55-5081-4405;


ELECTRICITY OF HAITI: Technically Bankrupt Says Director
Electricity of Haiti (EDH) is technically bankrupt with
accumulated debts exceeding HTG755 million (US$21 million) as of
September 30, BBC Monitoring reports, citing the firm's new
director-general, Jean Errol Morose.

The executive attributed the Company's dire financial condition
to high rates, failure in commercial management, pitiful
production and a tendency for customers to produce their own

Mr. Morose suggests that fixing the Company will require a state
subsidy or the realization of international promises made within
the framework of CCI (Interim Cooperation Framework).

EDH is on the list of public firms to be modernized in the
state's 1996 privatization programme.


PEMEX: Environmental Prosecutors File Oil Spill Complaint
Mexico's federal environmental prosecutor's office announced
Tuesday a criminal complaint has been filed against the
country's state oil monopoly for spilling 5,000 barrels of crude
into a river leading to the Gulf of Mexico, the AP reports.

Pemex could be fined as much as US$200,000 for the spill, which
occurred on Dec. 22 after an explosion at a pumping station
triggered a burst of high pressure that ruptured an oil line 70
miles (110 kms) away in Nanchital, just south of the Gulf port
city of Coatzacoalcos.

Environmental prosecutors said they have been inspecting the
cleanup from the start and have ordered Pemex to deliver a
damage assessment and detailed report on the causes of the

P U E R T O   R I C O

CENTENNIAL COMMUNICATIONS: Completes Puerto Rico Cable TV Sale
Centennial Communications Corp. (NASDAQ: CYCL) announced Tuesday
that it completed the sale of its wholly owned subsidiary,
Centennial Puerto Rico Cable TV Corp. ("Centennial Cable TV") to
an affiliate of Hicks, Muse, Tate & Furst Incorporated for
approximately $155 million in cash.

As of November 30, 2004 Centennial Cable TV operated a digital
cable television system that served approximately 74,000
subscribers and passed over 300,000 contiguous homes in southern
and western Puerto Rico. The net proceeds of approximately $155
million from this transaction will be used to fund capital
requirements, including the build out of the Company's recently
purchased spectrum in its contiguous Midwest markets. Waller
Capital Corporation represented Centennial Communications in the

Centennial Communications also announced that it will redeem
$115 million aggregate principal amount of its $300 million
outstanding 10-3/4 percent senior subordinated notes due
December 15, 2008. The redemption will occur on or about January
27, 2005 at a redemption price of 103.583 percent.

"We remain committed to balancing growth and debt reduction to
deliver shareholder value and have taken a very positive step by
monetizing our cable television business to accelerate the
deleveraging of the Company," said Michael J. Small, Chief
Executive Officer.


Centennial Communications (NASDAQ: CYCL), based in Wall, NJ, is
a leading provider of regional wireless and integrated
communications services in the United States and the Caribbean
with over 1 million wireless subscribers. The U.S. business owns
and operates wireless networks in the Midwest and Southeast
covering parts of six states. Centennial's Caribbean business
owns and operates wireless networks in Puerto Rico, the
Dominican Republic and the U.S. Virgin Islands and provides
facilities-based integrated voice, data, video and Internet
solutions. Welsh, Carson Anderson & Stowe and an affiliate of
the Blackstone Group are controlling shareholders of Centennial.



PDVSA: Moves Closer to New Collective Labor Contract With Unions
Venezuela's state oil Company Petroleos de Venezuela SA (PDVSA)
reached an agreement on wages with its three unions -
Fedepetrol, Sinutrapetrol and Fetrahidrocarburos - bringing it
closer to approving a new collective labor contract.

Bloomberg reports that the proposal would give workers a daily
wage increase of VEB7,000 ($3.65) when the contract is signed
and an additional VEB1,000 on May 1.

What's left to consider is the Company's demand that the unions
give up the right to select 60% of newly hired workers.

PDVSA has about 19,000 employees and about 30,000 subcontractors
covered by the contract. The talks are the first since a two-
month strike that ended in February 2003, when the Company fired
18,000 of 33,000 employees. The strike was aimed at forcing
President Hugo Chavez from office.


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
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Maryland USA. John D. Resnick, Edem Psamathe P. Alfeche and
Lucilo Junior M. Pinili, Editors.

Copyright 2004.  All rights reserved.  ISSN 1529-2746.

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