/raid1/www/Hosts/bankrupt/TCRLA_Public/180508.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
Tuesday, May 8, 2018, Vol. 19, No. 89
Headlines
A R G E N T I N A
ARGENTINA: 40% Interest Rate Increase Brings Economic Uncertainty
ARGENTINA: Fitch Affirms FC IDR at 'B' & Alters Outlook to Stable
B R A Z I L
BANCO FIBRA: Moody's Affirms Ratings at B3, Outlook Negative
COMPANHIA ENERGETICA: Fitch Upgrades IDRs to B, Outlook Stable
COMPANHIA DE SANEAMENTO: Fitch Affirms Long-Term IDRs at 'BB'
C H I L E
LATAM AIRLINES: Moody's Upgrades CFR to Ba3, Outlook Stable
LATAM AIRLINES: To Sell Stake in Aerotransportes Mas de Carga
LATAM AIRLINES: Offers for Guarulhos Airport's Slots Closed May 2
G U A T E M A L A
BANCO AGROMERCANTIL: Fitch Affirms FC IDR at BB+, Outlook Stable
BANCO DE DESARROLLO: Fitch Affirms LT IDR at 'BB', Outlook Stable
BANCO DE LOS TRABAJADORES: Fitch Affirms 'B+' IDRs, Outlook Pos.
BANCO G&T: Fitch Affirms LT IDR at 'BB', Outlook Stable
BANCO INDUSTRIAL: Fitch Affirms LT IDR at 'BB', Outlook Stable
J A M A I C A
JAMAICA: Minister Urges Focus on Supply Side of Local Tourism
V E N E Z U E L A
PETROLEOS DE VENEZUELA: Conoco Moves to Take Over Caribbean Assets
VENEZUELA: Bonds Unchained From Oil as Presidential Vote Nears
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: 40% Interest Rate Increase Brings Economic Uncertainty
-----------------------------------------------------------------
Daniel Politi and Matt Phillips at The New York Times report that
since his 2015 election, President Mauricio Macri has pushed to
reconnect Argentina to the global financial system, after years of
isolation.
His approach -- emphasizing lower tariffs, accurate economic data,
trade pacts and the freer flow of capital -- was largely aimed at
coaxing foreign investment back to Argentina and ending the
economic exile that followed the country's default in 2001,
according to The New York Times.
But over the last week, Argentina has been reminded that when
capital is free to flow in, it can also flow out, creating
profound economic implications, the report notes.
The report relays that with foreign investors pulling their money
en masse, Argentina's central bank was forced to take drastic
action to stabilize the country's currency. Policymakers lifted
the benchmark interest rate to 40 percent after days of
intervening heavily in financial markets, the report discloses.
The NY Times says that while it helped settle the markets, the
move will weigh on the prospects for the president's ambitious
economic overhaul. It also has the potential to crimp growth,
adding to political discontent, the report relays.
The rate increase, a day after the Argentine peso fell 8.5 percent
against the dollar, was the third in a week, the report relates.
The central bank said it would use "all the tools at its disposal"
to slow inflation, which in March was up 25 percent from a year
earlier, to 15 percent this year, a goal most analysts now see as
unrealistic, the report notes.
In parallel, officials announced that they would cut government
spending, and reduce the primary budget deficit to 2.7 percent,
from the earlier goal of 3.2 percent, the report relays. Their
decision was seen as a response to criticism from investors that
Mr. Macri's government had not been cutting spending quickly
enough, the report discloses.
Mr. Macri was sworn into office in December 2015, the report
recalls. Argentina had been closed to international markets for
more than a decade amid a long-running legal fight with
bondholders that followed a default on its debt, the report notes.
Early on, Mr. Macri's policies were greeted with widespread
optimism by financial markets, which gobbled up the country's
newly issued bonds, the report says.
In a show of market confidence, prices for the country's
government bonds rose, pushing interest rates lower, the report
relays. Those lower rates helped to stimulate economic growth, the
report discloses.
"There was overconfidence on the part of policymakers about how
much could be done given the constraints they had," said Alvaro
Vivanco, a strategist covering Latin American bond and currency
markets for the Spanish bank BBVA, the report notes.
But doubts about the government's ability to quickly push through
the changes have emerged in recent months, the report says. In
January, Argentina's central bank cut interest rates and increased
its inflation target, a decision interpreted by some as weakening
the government's commitment to getting consumer prices under
control, the report notes.
"The central bank was cutting, with inflation expectations
deteriorating," said Gabriel Gersztein, head of Latin American
strategy at BNP Paribas, the report relays. "And this was a wake-
up call for international investors," he added.
The NY Times notes that the global economic backdrop has also been
changing. With the United States economy on solid footing, its
short-term interest rates have been rising. That has put upward
pressure on the United States dollar, and has resulted in a slide
for the peso, the report relays. That decline in the peso has
accelerated in recent days, as foreign investors began to see
their returns vaporized by the falling currency, the report says.
People moved to the exits, in part because of a new income tax on
foreign investors, the report notes. As more and more investors
pulled out, Argentina was suddenly facing a currency run, the
report relates.
Argentine officials have struggled to shore up the currency. Since
March, Argentina has spent more than $7.7 billion of its
international reserves, with the pace speeding up late last week,
the report relays.
Governments have a few tools they can use to stem the outflow of
capital, the report notes. One of them is to sharply raise
interest rates. Those higher rates translate into potentially
stronger returns for investors. As such, they can attract money
into an economy, which helps prop up a currency, the report
discloses.
But it's a tricky play to pull off, noted the NY Times.
But high interest rates have economic costs, the report discloses.
They make it particularly difficult for businesses and consumer to
borrow money, the report relays. The lack of spending, in turn,
can slow growth and ultimately spark a recession.
According to NY Times, the key for Argentina will be to keep rates
high just long enough to inspire confidence that policymakers have
halted the currency run, but not so long that the increase drains
the economy.
"This was done in order to stop the bleeding," the report qouted
Mr. Gersztein of BNP Paribas as saying. "It's like you have
someone in the E.R. You need to take very short-term, bold
decisions.
"Then once you stabilize the patient, you need to take different
decisions in order to make the patient get better and recover,"
Mr. Gersztein added.
Politically, it all puts Mr. Macri in a more precarious position,
the report relays.
In recent months, his popularity has declined, notes the report.
In an April poll of Argentines by Synopsis, a local consultancy,
43 percent said they had a negative view of the government,
compared with 34 percent with a positive view, the report relays.
That was a sharp shift from November, when nearly 52 percent said
they had a positive image of the government and Mr. Macri's allies
did better than expected in midterm elections, the report adds.
The president is now balancing the concerns of a restive
population and the needs of international investors -- and they
don't necessarily want the same thing, the report notes.
International investors want assurance that Mr. Macri will
continue to cut spending and stick with other parts of his plan,
the report relays. But those same efforts are frustrating certain
constituencies at home, the report discloses.
Unions are worried that workers are losing purchasing power amid
high inflation and a broad increase in public utility rates, part
of the government's efforts to decrease spending by slashing
subsidies, the report relates. Hundreds gathered in downtown
Buenos Aires outside the National Electricity Regulator for a
union protest against recent increases in utility prices, the
report notes. Last month, thousands took to the streets to
protest the hikes, the report says.
The higher utility costs are hitting the manufacturing sector
hard, particularly companies that compete against imported goods,
the report says.
What happens next with the economy may translate into whether Mr.
Macri's coalition will win the presidential election next year or
whether discontent will give rise to an interventionist government
that will undo many of his changes, the report relays. Although
the economy as a whole is growing -- expanding 5.1 percent in
February, on the year -- the latest measures are prompting some
analysts to revise their forecasts downward, the report relays.
"The government so far has not been able to show big victories,
and it's obvious that if it is going to take unpopular measures,
its popularity will suffer," the report quoted Fausto Spotorno,
the chief economist at Orlando Ferreres & Asociados, a local
consultancy, as saying. "But it has rushed many of the measures so
that it can avoid bad news next year," the report adds.
As reported in the Troubled Company Reporter-Latin America on
December 4, 2017, Moody's Investors Service has upgraded the
Government of Argentina's local and foreign currency issuer and
senior unsecured ratings to B2 from B3. The senior unsecured
shelves were upgraded to (P)B2 from (P)B3. The outlook on the
ratings is stable. At the same time, Argentina's short-term
rating was affirmed at Not Prime (NP). The senior unsecured
ratings for unrestructured debt were affirmed at Ca and the
unrestructured senior unsecured shelf affirmed at (P)Ca.
Moody's said the key drivers of the upgrade of the rating to B2
are: (1) a record of macro-economic reforms that are beginning to
address long existing distortions in Argentina's economy; and (2)
the likelihood that reforms will continue and in turn sustain
the recent return to positive economic growth.
The stable outlook on Argentina's B2 ratings balances Argentina's
credit strengths of its large, diverse economy and moderate income
levels against the credit challenges posed by still high fiscal
deficits and a reliance on external financing, which increases its
vulnerability to external event risk, said Moody's.
On Nov. 10, 2017, Fitch Ratings revised Argentina's Outlook to
Positive from Stable and has affirmed its Long Term Foreign-
Currency Issuer Default Rating (IDR) at 'B'.
On Oct. 30, 2017, S&P Global Ratings raised its long-term
sovereign credit ratings on the Republic of Argentina to 'B+' from
'B'. The outlook on the long-term ratings is stable. S&P also
affirmed its short-term sovereign credit ratings on Argentina at
'B'. At the same time, S&P raised its national scale ratings to
'raAA' from 'raA+'. In addition, S&P raised its transfer and
convertibility assessment to 'BB-' from 'B+', in line with its
assessment of sustained local access to foreign exchange.
As previously reported by the TCR-LA, Argentina defaulted on some
of its debt late July 30, 2014, after expiration of a 30-day grace
period on a US$539 million interest payment. Earlier that day,
talks with a court-appointed mediator ended without resolving a
standoff between the country and a group of hedge funds seeking
full payment on bonds that the country had defaulted on in 2001.
A U.S. judge had ruled that the interest payment couldn't be made
unless the hedge funds led by Elliott Management Corp., got the
US$1.5 billion they claimed. The country hasn't been able to
access international credit markets since its US$95 billion
default 13 years ago. On March 30, 2016, Argentina's Congress
passed a bill that will allow the government to repay holders of
debt that the South American country defaulted on in 2001,
including a group of litigating hedge funds that won judgments
in a New York court. The bill passed by a vote of 54-16.
ARGENTINA: Fitch Affirms FC IDR at 'B' & Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Argentina's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'B' and revised the Outlook to
Stable from Positive.
KEY RATING DRIVERS
Argentina's 'B' rating reflects high inflation and economic
volatility, a weak albeit improved external liquidity position,
and large fiscal and current account deficits implying heavy
external borrowing (but from a favorable starting point in terms
of leverage). These weaknesses are balanced by structural
strengths including high per-capita income, a large and
diversified economy, and improved governance scores.
The revision of Argentina's Outlook to Stable from Positive
reflects macroeconomic policy frictions and political headwinds
that have intensified beyond Fitch's prior expectations,
highlighting risks surrounding the gradual policy adjustment
process. Fitch expects policy adjustments underway to progress
despite recent political noise and market volatility, gradually
reducing still high inflation and fiscal imbalances, and
supporting a stronger and more stable growth outlook.
Nevertheless, recent developments have highlighted the
vulnerability of the current policy strategy amid market sentiment
and political support.
Slow progress in the disinflation process and monetary policy
shifts have highlighted frictions in the current policy framework
that have hindered improvement in its credibility. Inflation of
25% in 2017 overshot the 12%-17% target and stood at a similar
level as of March, reflecting headwinds including utility rate
hikes, peso depreciation, high money supply growth emanating from
fiscal pressures, and wage inertia. In December, the government
hiked its 2018 and 2019 inflation targets. While this made them
more realistic, subsequent policy rate cuts may have dented market
sentiment and central bank (BCRA) credibility, and inflation
expectations jumped above the new targets.
Since the December policy shift, the BCRA has relied more on
containing peso depreciation to contain inflation pressures given
its other transmission channels remain weak. Amid a sharp selloff
of the peso in recent weeks, this has involved aggressive FX
intervention and 12.75 percentage points in hikes to its policy
rate to 40%. Fitch expects inflation to decline to 23% in 2018 and
16.5% in 2019, above the targets and the highest in the 'B'
category, with additional risk given recent peso depreciation.
Wage negotiations pose another key test; so far in 2018 these have
involved nominal hikes in line with the executive guidance of 15%
but have included clauses that would re-open negotiations in the
likely event that inflation exceeds this level, adding uncertainty
and inertia to wage dynamics.
The current account deficit reached 4.8% of GDP in 2017, its
highest level in decades. The higher CAD reflects the country's
reintegration into global capital markets and a rising investment
cycle, but less benign trends are also contributing, such as
surging outbound tourism that drove the services deficit to a
record high. The CAD has been financed primarily via external
borrowing, highlighting the vulnerability of the current growth
cycle to external shocks. FDI inflows remain relatively low but
recovered to historic average levels of 1.9% of GDP in 2017 and
could rise further on reform efforts.
Heavy inflows from external borrowing enabled the BCRA to build
its reserve holdings to USD64 billion by early 2018, from USD38.4
billion at end-2016, but aggressive FX intervention to prop up the
peso in recent weeks amid capital outflows and a resident
portfolio shift out of peso assets has brought the stock down to
around USD55 billion as of early May. The external liquidity
position has improved but remains weak relative to 'B' peers and
in the context of persisting capital account volatility, given a
sizeable part of the gains in FX reserves has corresponded to
build-up in liquid external liabilities (short-term debt and non-
resident holdings of local debt instruments), and a large portion
still consists of assets with corresponding FX liabilities (e.g.
the China swap, bank USD reserve requirements).
The Macri administration quickly used its political capital after
the 2017 midterms with several legislative victories: a tax reform
to boost competitiveness, a cost-saving change to the formula used
to calculate pension benefits, and a pact with the provinces to
contain spending and resolve complex revenue-sharing issues.
Although these successes show improved governance and capacity to
advance on unpopular measures in pursuit of sustainable growth,
political resistance has recently intensified. Negotiations around
measures such as the pension change and utility rate hikes have
been resolved with only minor concessions so far. However, Fitch
sees limited scope for a much more ambitious pace of adjustment or
unpopular reforms.
Fiscal consolidation has emerged as a key policy priority in 2018,
after two years in which deficits rose due to measures to preserve
social support and reduce distortions that entailed a net fiscal
cost. The government originally aimed to lower the central
government primary deficit to 3.2% of GDP, from 3.8% in 2017, but
recently announced a more ambitious target of 2.7% in response to
deteriorating market sentiment. Fitch believes the new target is
feasible, assuming subsidy cuts remain on track despite recent
political resistance and tax revenue growth remains buoyant. Fitch
projects the total general government deficit (consolidating
federal and provincial finances, and including BCRA profit
transfers) to fall to 5.7% of GDP in 2018 from 6.6% in 2017, still
above the 'B' median.
Fitch assumes the government will meet its consolidation goal in
2019, and its pact with the provinces could encourage the spending
restraint needed to achieve this. However, risks are on the
downside given the absence of a clear multi-year strategy, a
smaller subsidy bill to cut, and political headwinds ahead of 2019
elections. The pension formula change could help avoid additional
budgetary pressures but is unlikely to lower pensions as a share
of GDP given demographics and indexation to higher past inflation.
Revenues losses from the tax reform could be offset by gains from
growth and formalization, although this is uncertain.
Having issued USD9 billion in external bonds in January 2018,
securing additional financing via repo facilities with foreign
banks, the sovereign plans to rely on domestic markets for the
remainder of its 2018 financing. However, sovereign external
borrowing needs will remain sizeable in the forecast horizon.
Fitch projects gross central government debt to rise to 62.9% of
GDP in 2018 from an estimated 56.5% in 2017, driven by borrowing
as well as real peso depreciation (reversing a trend that had
previously flattered the trajectory). At the general government
level (federal and provincial debt consolidated with FGS social
security holdings), Fitch projects debt to surpass the 'B' median
of 61% of GDP in 2018, although remain lower net of 17pp-of-GDP in
holdings by the BCRA (easily refinanced). Interest-to-revenues
converged with the 'B' median of 9.3% in 2017 and are set to rise
above.
Policy improvements, removal of distortions and reforms have put
the economy on a more stable, albeit moderate growth path. Fitch
projects growth to slow slightly to 2.6% in 2018 from 2.9% in
2017, rather than accelerate as previously expected, due to a
drought in the agriculture sector. The underlying trend has been
positive, however, with greater dynamism in the private sector
balancing gradual retrenchment by the public sector. Nevertheless,
risks are to the downside given greater fiscal tightening, peso
depreciation and its likely confidence impact, and deteriorating
financing conditions that could complicate investment plans.
Fitch projects stronger private investment will support growth
around 3% in the coming years, ending an erratic pattern seen in
the past decade. Prospects are particularly bright in several
sectors due to targeted government efforts, namely infrastructure
(via an ambitious pipeline of PPP projects) and energy. The tax
reform could boost investment appetite by shifting the burden from
businesses to individuals and reducing distortions.
SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Argentina a score equivalent to a
rating of 'B+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee adjusted the output from the
SRM to arrive at the final LT FC IDR by applying its QO, relative
to rated peers, as follows:
Macro Policies and Performance: -1 notch, to reflect a record of
macroeconomic instability in terms of growth, inflation, interest
rates and the exchange rate, which has not yet been overcome.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to
a positive rating action are:
--An improved outlook for growth and inflation;
--Consolidation of a more consistent policy framework and
progress on reforms;
--Progress on fiscal consolidation and maintenance of favorable
sovereign financing access;
--A sustained strengthening of the external liquidity position.
The main factors that could, individually or collectively, lead to
a negative rating action are:
--Fiscal slippage and/or re-emergence of fiscal financing
constraints;
--Erosion of international reserves.
KEY ASSUMPTIONS
--Fitch expects the economy of key trading partner Brazil to
accelerate moderately in 2018 after returning to positive growth
in 2017.
--Fitch expects monetary policy normalization in the U.S. will
proceed gradually, and will not materially impair Argentina's
external financing access.
Fitch has affirmed Argentina's ratings as follows:
--Long-Term Foreign-Currency IDR at 'B'; Outlook Stable;
--Long-Term Local-Currency IDR at 'B'; Outlook Stable;
--Short-Term Foreign-Currency IDR at 'B';
--Short-Term Local-Currency IDR at 'B';
--Country Ceiling at 'B';
--Issue ratings on long-term senior unsecured foreign-currency
bonds at 'B'.
===========
B R A Z I L
===========
BANCO FIBRA: Moody's Affirms Ratings at B3, Outlook Negative
-------------------------------------------------------------
Moody's Investors Service has affirmed Banco Fibra S.A.'s (Fibra)
ratings and assessments, including the global local and foreign
currency long- and short-term deposit ratings of B3 and Not Prime;
the foreign currency long- and short-term senior unsecured medium
term note (MTN) program ratings of (P)B3 and (P)Not Prime; the
Brazilian national scale long- and short-term deposit ratings of
B2.br and BR-4; the baseline credit assessment (BCA) and the
adjusted BCA of b3; and the long- and short-term counterparty risk
assessments (CRA) of B2(cr) and Not Prime(cr). The outlook remains
negative.
The following ratings and assessments of Banco Fibra S.A. were
affirmed:
- Long-term global local-currency deposit ratings of B3;
negative outlook
- Short-term global local-currency deposit ratings of Not Prime
- Long-term foreign-currency deposit rating of B3; negative
outlook
- Short-term foreign-currency deposit rating of Not Prime
- Senior unsecured foreign currency MTN program rating of (P)B3
- Foreign currency Other Short Term rating of (P)Not Prime
- Long-term Brazilian national scale deposit rating of B2.br
- Short-term Brazilian national scale deposit rating of BR-4
- Baseline credit assessment of b3
- Adjusted baseline credit assessment of b3
- Long-term counterparty risk (CR) assessment of B2(cr)
- Short-term counterparty risk (CR) assessment of Not Prime(cr)
- Outlook remains Negative
RATINGS RATIONALE
In affirming Fibra's ratings, Moody's acknowledges the improvement
of the bank's financial metrics since it was downgraded to B3,
almost three years ago. Despite this progress, however, the bank
still has a large volume of problem loans and very weak adjusted
capitalization. The negative outlook considers that the improving
trend reversed itself in 2017, when delinquencies began to rise
again and the bank once again recorded net losses, albeit much
smaller than it had prior to the downgrade. In addition, the loan
book continued to contract at a rapid pace, as the bank cleaned
legacy problem loans. Moody's anticipates Fibra will still face a
significant challenge to lower asset risk, reduce credit costs,
and report sustainable positive earnings that will allow it to
bolster its capital position.
Although problem loans (90 or more days delinquent) declined
significantly from 11% of gross loans in mid-2015, they
nevertheless remained elevated at 7% in December 2017.
Delinquencies would likely have been even higher if Fibra had not
restructured nearly 20% of its portfolio in recent years. In the
second half of 2017 alone, approximately 10% of the portfolio was
restructured following a sharp rise in loan payments overdue less
than 90 days. However, the bank reports that problem loans are
largely related to its legacy portfolio of SME loans, and that its
newly originated loans are performing much better, reflecting more
conservative underwriting standards. While the gradual recovery of
the Brazilian economy could help Fibra's borrowers and lower the
amount of problem loans, Moody's does not expect a material
improvement in asset quality metrics for at least 12 to 18 months,
as legacy operations continue to weigh on the balance of problem
loans.
The rating also incorporates Fibra's very high borrower
concentration. The bank's exposure to the 20 largest clients
accounted for almost one third of its total portfolio, or nearly
five times its tangible common equity (TCE) in December 2017.
While management reports that these large borrowers are all of
strong creditworthiness, the bank's problem loan ratio would rise
sharply if just a small portion of them were to become delinquent.
Poor asset quality has resulted in consistently high credit costs,
which in turn have pressured earnings. After breaking even in 2016
for the first time in six years, Fibra once again recorded a loss
in 2017, albeit a relatively modest one equal to just 0.45% of
tangible assets. Net interest income rose despite a 10%
contraction of the portfolio as the bank was reportedly able to
raise its lending rates even as Brazil's policy rate declined
sharply, but the increase in interest income was more than offset
by an increase in loan loss provisions and a reduction in income
tax credits. Earnings also suffer from high operating expenses,
which equaled nearly 5% of assets in 2017. With the bank's
prospects for loan growth limited, Moody's believes that Fibra's
profitability will likely remain weak in 2018, as loan loss
provisions and operating expenses will stay high.
In the past five years, Fibra's shareholders have supported the
bank's operation through repeated capital injections that totaled
BRL810 million, which has allowed the bank to maintain adequate
regulatory capital levels despite its recurring net losses.
Nevertheless, its regulatory Tier 1 ratio declined by 320 basis
points over the past 18 months years to 11.6% as of December 2017.
Moreover, its ratio of TCE to adjusted risk-weighted assets
(RWAs), Moody's preferred measure of capitalization, equaled just
3.8% due to the bank's high volume of deferred tax assets (DTAs).
Moody's deducts most DTAs from capital due to their limited
ability to absorb losses.
The affirmation also incorporates recent improvements to Fibra's
funding profile. Management has been able to increase the amount
of deposits, which enabled the bank to reduce its reliance on
market funds to less than 10% of total assets in 2017 from 25% two
years earlier, and to extend its funding duration. However,
Moody's notes that the bank sources most of its deposits from
brokers, which makes them potentially less stable than true retail
deposits. The bank also maintains an moderate amount of liquid
resources, equal to more than 20% of tangible banking assets as of
December 2017, which will likely remain steady in the next 12
months given modest loan growth prospects.
WHAT COULD CHANGE THE RATING -- DOWN/UP
In line with the negative outlook, Fibra's ratings do not face
upward pressure at this time. However, the outlook could return to
stable if the bank demonstrates that it is able to generate
profits on a sustainable basis and problem loans level off.
Improvements to the bank's capital position could also contribute
to a stable outlook.
Conversely, Fibra's ratings could be downgraded should the bank be
unable to reduce credit costs and operating expenses, leading to
further net losses. Continued deterioration of asset quality
and/or weakening of the bank's capital position would also put
downward pressure on its ratings.
The principal methodology used in these ratings was Banks
published in April 2018.
Banco Fibra S.A. is headquartered in Sao Paulo, Brazil, with
assets of BRL6.32 billion and shareholders' equity of BRL991
million as of December 31, 2017.
COMPANHIA ENERGETICA: Fitch Upgrades IDRs to B, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has upgraded Companhia Energetica de Minas Gerais
(Cemig) and its wholly owned subsidiaries Cemig Distribuicao S.A.
(Cemig D) and Cemig Geracao e Transmissao S.A. (Cemig GT)'s Long-
term Foreign and Local Currency Issuer Default Ratings (IDRs) to
'B' from 'B-' and their Long-term National Scale Ratings to 'BBB-
(bra)' from 'BB-(bra)'. At the same time, local debentures
issuances were upgraded to 'BBB-(bra)' from 'BB-(bra)' and Cemig
GT's USD1 billion eurobond issuance was affirmed at 'B', with its
respective Recovery Rating changing to 'RR4' from 'RR3'. In
addition, Fitch has removed the Rating Watch Negative from all
ratings and assigned a Stable Outlook for the corporate ratings.
The upgrade reflects Cemig's ability to refinance a large portion
of its short-term debt maturities and improve its liquidity
profile since the end of 2017. The group was able to refinance
around BRL3.4 billion with banks, issued the USD1 billion
eurobonds, had a capital injection of BRL1.3 billion and sold
around BRL700 million in Transmissora Alianca de Energia Eletrica
S.A.'s (Taesa) shares. In addition, Fitch views that the group
currently has a higher financial flexibility to manage future
short-term debt maturities. The expected additional EBITDA, by
around BRL400 million to BRL500 million annually, coming from
Cemig D's tariff review process was also incorporated in Fitch's
base scenario and should support the group's deleveraging process.
The net adjusted leverage is expected to be in the range of 3.5x
to 4.2x in the next four years, which is low for the IDR of a
company in the power sector. Negatively, the high interest
payments should continue to pressure the group's free cash flow
(FCF).
Cemig and its subsidiaries' credit profiles are analyzed on a
consolidated basis due to cross default clauses and cash dynamics.
The group presents a low to moderate business risk, supported by
low competition and positive asset diversification, mainly into
power generation, transmission and distribution segments, being
the latter the most volatile. Positively, Cemig has a relevant
asset base in the Brazilian electric sector, including shared
control in several companies with relevant market value. The IDRs
also factor in the existence of political risk, due to Cemig's
condition as a state owned company, as well as a moderate
regulatory risk for the Brazilian power sector and a hydrology
risk currently above historical average.
Fitch has changed the Recovery Rating of Cemig GT's eurobond
issuance to 'RR4' from 'RR3' reflecting the bulk of its assets
located in the Brazilian jurisdiction that has been considered by
Fitch in the group of countries with Recovery rating capped at
'RR4', which means recovery prospects at the range of 31% to 50%
in the event of default, given the group's cash flow generation
and assets portfolio.
KEY RATING DRIVERS
Higher Operational Cash Flow: Fitch believes that Cemig's
consolidated FCF will be positive at around BRL160 million in 2018
and BRL300 million in 2019, as Cemig D is expected to obtain
annual additional EBITDA of BRL400 million-BRL500 million after
the implementation of the fourth tariff review cycle on May 2018.
The higher EBITDA should contribute to boost the group's cash flow
from operations (CFFO). Cemig D's reported EBITDA of BRL831
million in 2017 is far from the regulatory EBITDA of BRL1.7
billion, so the company still needs to improve efficiency. In
2017, the consolidated CFFO was only BRL200 million due to the
negative impact of non-manageable costs of almost BRL1 billion at
Cemig D, conversely to the positive impact of BRL1.5 billion in
2016. Capex of BRL1.1 billion and BRL540 million in dividends
payments resulted in a negative FCF of BRL1.5 billion.
Moderate Leverage: Fitch expects Cemig's consolidated net adjusted
leverage to be reduced to the range of 3.5x to 4.2x in the next
four years. In Dec. 31, 2017, Cemig reported consolidated net
adjusted debt/adjusted EBITDA of 4.7x after almost 6.0x in 2016.
Fitch includes the guarantees of BRL5.9 billion to non-
consolidated companies, mainly to Belo Monte and Santo Antonio
hydro plants, and the exercised put option in the total adjusted
debt. On the other hand, dividends received from non-consolidated
investments in the amount of BRL354 million were added to the
EBITDA.
Favorable Business Model: The group benefits from its
diversification in terms of segments and assets, which mitigates
operational risks and reduces the group's cash flow volatility.
Cemig is one of the largest power companies in Brazil, with 8.4
million clients served in the distribution segment, 5.7 GW of
power generation installed capacity and 8.2 thousand km of
transmission lines. The company is expected to reduce its activity
in greenfield projects and in the acquisition of assets, after
being very aggressive historically. The debt associated with the
acquisitions at relevant levels and strong dividend payments in
the past, have significantly affected the group's credit quality.
Strategic Sector for the Country: In Fitch's analysis, the credit
profile of agents in the Brazilian power sector benefits from its
strategic importance to sustain the country's potential economic
growth and foster new investments. The federal government has
acted to circumvent systemic problems that impact the cash flow of
companies and guided discussions to improve the current regulatory
framework in order to reduce the risk of the sector.
DERIVATION SUMMARY
Comparing to peers in the power sector, Cemig presents higher
leverage and weaker liquidity than Eletropaulo Metropolitana de
Eletricidade de Sao Paulo (Local and Foreign Currency IDRs 'BB')
and its affiliated company Light S.A. (Local and Foreign Currency
IDRs 'BB-'), despite of its more diversified asset base that tends
to reduce operational risks and cash flow volatility. When
assessing other Latin American players at the power sector,
although Cemig has a larger revenue base, its coverage ratios
compare unfavourably with AES Argentina and Genneia, both with
Local Currency IDR of 'BB-'
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
--Average energy consumption growth at Cemig D's concession area
to increase 2.75% in 2018 and 3% in 2019-2020
--Positive annual impact of BRL400 million-BRL500 million on
Cemig D's EBITDA related to the fourth tariff review cycle;
--Cemig D's non-manageable costs fully passed through tariffs;
--Average consolidated capex of BRL1.5 billion during 2018-2021;
--Dividend payout of 50% of net income or BRL420 million,
considering which one presents the higher amount;
--No cash outflow to pay Light's shares put option in 2018.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
--Improvement of liquidity with cash/short-term debt higher than
1.0x;
--Maintenance of net adjusted leverage lower than 3.5x;
--Ability to reduce interest rates.
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
--Deterioration of liquidity and reduction in financial
flexibility with cash/short-term debt below 0.5x;
--Maintenance of net adjusted leverage higher than 5.0x;
--Perception of lower financial flexibility to meet short-term
debt maturities.
LIQUIDITY
Improved Liquidity Profile: Fitch considers that Cemig's liquidity
profile has improved in the last six months through the debt
renegotiation with banks, equity injection, eurobond issuance and
the sale of Taesa's shares. Nevertheless, the group still needs to
manage some short-term obligations until the end of 2018, mainly
coming from the around BRL600 million of Light's shares put option
on November and BRL2.2 billion of debentures maturing on December.
The expected additional EBITDA from the distribution segment and
the potential asset sales may also be important internal sources
of liquidity in the next years. At the end of 2017, Cemig group's
total adjusted debt amounted to BRL21.2 billion (including off-
balance sheet debt of BRL5.9 billion and exercised put option of
BRL600 million), while cash and equivalents were BRL2.0 billion.
The debt maturing in the short term was BRL2.9 billion.
FULL LIST OF RATING ACTIONS
Fitch has taken the following ratings actions:
Cemig
--Long-Term Foreign Currency IDR upgraded to 'B' from 'B-';
--Long-Term Local Currency IDR upgraded to 'B' from 'B-';
--Long-Term National scale rating upgraded to 'BBB-(bra)' from
'BB-(bra)'.
Cemig D
--Long-Term Foreign Currency IDR upgraded to 'B' from 'B-';
--Long-Term Local Currency IDR upgraded to 'B' from 'B-';
--Long-Term National scale rating upgraded to 'BBB-(bra)' from
'BB-(bra)';
--BRL1.6 billion senior unsecured debentures due 2018 upgraded
to 'BBB-(bra)' from 'BB-(bra)'.
Cemig GT
--Long-Term Foreign Currency IDR upgraded to 'B' from 'B-';
--Long-Term Local Currency IDR upgraded to 'B' from 'B-';
--Long-Term National scale rating upgraded to 'BBB-(bra)' from
'BB-(bra)';
--BRL1.4 billion senior unsecured debentures, with two
outstanding series due 2019 and 2022, upgraded to 'BBB-(bra)' from
'BB-(bra)';
--USD1 billion eurobonds due 2024 affirmed at 'B' and Recovery
Rating changed to 'RR4' from 'RR3'.
The Rating Watch Negative was removed from all ratings, and a
Stable Outlook was assigned to the corporate ratings.
COMPANHIA DE SANEAMENTO: Fitch Affirms Long-Term IDRs at 'BB'
-------------------------------------------------------------
Fitch Ratings has affirmed Companhia de Saneamento Basico do
Estado de Sao Paulo's (Sabesp) Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) at 'BB' and its National
Long-term rating at 'AA(bra)'. The Rating Outlook is Stable.
Sabesp's IDRs reflect its low business risk associated with its
near monopolistic position as a provider of an essential service
to the population within its concession area, as well as on the
economies of scale obtained as the largest basic sanitation
company in the Americas by number of customers. These
characteristics combined with its matured operations allow Sabesp
to present predictable operational cash flow generation and strong
EBITDA margins. The company's credit profile also benefits from
its conservative capital structure, robust liquidity position and
manageable debt maturity profile. Fitch believes the company will
operate under adequate tariff adjustments combined with gradual
recovery in water and sewage volumes billed in the coming years.
Fitch sees Sabesp's expected negative free cash flow (FCF) due to
its significant capex plans and the relevant FX debt exposure as
limiting rating factors. The assessment also reflects the still
developing regulatory environment for Sabesp, the intrinsic
hydrological risk of its business and the political risk
associated with its condition of state-owned company subject to
the potential changes in management and strategy after each
election for the Government of the State of Sao Paulo.
KEY RATING DRIVERS
Reduced Business and Industry Risks: Fitch estimates total volume
billed growth of around 2% for the next three years and after
strong volume recovery during 2016-2017 following the reduction
during the hydrological crisis. Sabesp benefits from resilient
demand as demonstrated during 2013-2015 distressed operating
environment when the company's volume billed dropped only by 8.5%,
which enhances the predictability of its operating cash flow
generation. Its activity in the State of Sao Paulo, which presents
the highest GDP in the country, is also viewed as positive. The
company has been able to implement adequate tariff adjustments,
maintaining the economic and financial balance of its concession
agreement, despite the developing regulatory environment.
Strong EBITDA Margin: Sabesp's high operational scale is one of
the pillars for the company to achieve EBITDA margins above its
state owned peers in Brazil. Fitch believes EBITDA margin will be
around 45% in the coming years, which compares with 41% on average
in the last five years influenced by the distressed operating
scenario. In 2017, EBITDA of BRL5.3 billion represented a margin
of 46%. Based on it, Fitch estimates Sabesp will sustain its
strong cash flow from operations (CFFO) generation, reaching
BRL3.8 billion in 2018, supported by growth in volumes billed and
adequate tariff adjustments. Sabesp's CFFO was strong at BRL3.3
billion in 2017, benefiting from a 4.3% increase in volumes and a
6.0% average tariff increase when compared to the previous year,
despite relevant working capital requirement.
Manageable Negative FCF: Fitch estimates Sabesp's negative FCF of
BRL111 million on average for the next three years, being
approximately at break even in 2018. The company's FCF performance
is to reflect the expected capex increase to BRL2.9-3.5 billion in
2018-2020. Positively, Sabesp counts on favourable financial
flexibility from debt issuances with multilateral agencies with
reduced cost and lengthened amortization schedule in addition to
proven access on local and international debt markets to
comfortably fund this negative FCF. Fitch projects Sabesp's annual
dividends distribution manageable of around BRL722 million on
average during 2018-2020. In 2017, FCF was positive at BRL559
million, after capex of BRL2 billion and dividends of BRL760
million.
Conservative Capital Structure: Fitch estimates Sabesp's net
leverage below 2.0x in the next three years, which is low for the
industry and for its IDR. Sabesp's conservative credit metrics
should be supported by the expectation of sound EBITDA generation
at BRL5.7 billion by the end of 2018 up to BRL6.3 billion by 2020,
and despite expected capex increase. In 2017, total debt/EBITDA
and net debt/EBITDA of 2.3x and 1.9x, respectively, showed
consistent development from 4.0x and 2.8x, respectively, in 2015.
High FX Debt Exposure: Sabesp should remain carrying risks
associated with its high percentage of foreign-currency debt (47%
of total debt by the end of December 2017) given its strategy to
accessing international funding. Risks are mainly linked with cash
flow impact in the case of strong devaluation during significant
foreign currency debt maturing periods and financial covenants
calculations, as the company is subject to the 3.65x gross
leverage covenant. Nevertheless, Fitch estimates that Sabesp
currently carries enough financial headroom to moderate the
impacts of an eventual relevant FX devaluation.
Manageable Hydrological Risk: Sabesp's reservoirs are at
manageable levels to face the dry rainfall season during 2018. The
company's implemented actions to enhance water systems
interconnection and higher supply capacity has improved its
operating flexibility, which further mitigates hydrology concerns
and should provide stronger resilience to the company's CFFO
generation capacity to face unfavourable operating scenario.
DERIVATION SUMMARY
Sabesp's matured operations and its condition as the largest
water/wastewater utility in the country, benefits its business
profile in terms of economy of scale and capital structure when
compared with Aegea Saneamento e Participacoes S.A.'s (Aegea -
Long-Term Foreign and Local Currency IDRs BB/Stable), that
presents moderate leverage reflecting its growth strategy. On the
other hand, Aegea's credit profile benefits from its diversified
concessions within Brazil, while Sabesp operates exclusively in
the State of Sao Paulo, which brings higher operational and
regulatory risks. Sabesp also carries a political risk given its
state-owned condition. Both Sabesp and Aegea have similar and
strong EBITDA margins.
In comparison with Transmissora Alianca de Energia Eletrica S.A.
(Taesa - Long-Term Foreign Currency IDR BB/Stable and Local
Currency IDR BBB-/Stable), the transmission company presents a
better credit profile than Sabesp due to its even more predictable
CFFO, strong financial profile and lower regulatory risk). In
addition, Taesa does not carry hydrological, political and FX
risks.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
--Total annual average volume billed growth of around 2% during
the next three years supported by expected population and
connections growth;
--Annual tariff increase of 4.8% in 2018 and 4.3% thereafter and
according with Fitch's expected inflation. Tariff increases have
been adjusted with the X Factor of 0.94%;
--Average annual capex of BRL3.4 billion from 2018 to 2021;
--Dividends payout ratio of 30.5% of net profit (net of legal
reserves).
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
--Sustainable positive FCF generation;
--Lower FX debt exposure.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
--EBITDA margins below 33%;
--Net leverage above 3.5x on a sustainable basis;
--Fitch's perception of higher political risk.
LIQUIDITY
Robust Liquidity Profile: Fitch's expectation is that Sabesp will
continue to benefit from its proven financial flexibility,
maintenance of adequate liquidity position and lengthened debt
maturity schedule. The company's financial flexibility is enhanced
with its available free receivables (estimated at around BRL600
million monthly- approximately 65% of total receivables) to be
offered as collateral for debt issuances, if necessary, in
addition to access to various sources of funding including
multilateral agencies loans specific for the water/wastewater
segment. At the end of December 2017, cash balance of BRL2.3
billion comfortably covered short-term debt of BRL1.7 billion by
1.3x.
In the same period, Sabesp's total debt of BRL12.1 billion
consisted mainly of multilateral agency loans (BRL4.0 billion),
debenture issuances (BRL3.5 billion) and bonds (BRL1.2 billion).
From its total debt, BRL5.7 billion (or 47%) was linked with FX
variation without any hedge protection. There is BRL1.1 billion
maturing until 2019 exposed to FX variation, and BRL1.4 billion
maturing in 2020, mainly composed of the USD350 million bonds. At
the same time, BRL3.7 billion of the company's total debt was
secured by future flow of receivables linked with Baco Nacional de
Desenvolvimento Economico e Social (BNDES) and Caixa Economica
Federal (Caixa) loans.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Sabesp
--Long-Term Local Currency IDR at 'BB';
--Long-Term Foreign Currency IDR at 'BB';
--USD350 million notes at 'BB';
--National Long-Term rating at 'AA(bra)';
--21st senior unsecured debentures at 'AA(bra)';
--22nd senior unsecured debentures at 'AA(bra)'.
=========
C H I L E
=========
LATAM AIRLINES: Moody's Upgrades CFR to Ba3, Outlook Stable
-----------------------------------------------------------
Moody's Investors Service has upgraded the Corporate Family rating
(CFR) of LATAM Airlines Group S.A (LATAM) to Ba3 from B1. At the
same time, Moody's upgraded to B1 from B2 the foreign currency
rating assigned to its $500 million senior unsecured notes due in
2020. Moody's also upgraded LATAM Pass Through Trust 2015-1A to A3
from Baa1 and the LATAM Pass Through Trust 2015-1B to Baa3 from
Ba1. The outlook for all ratings is stable.
List of affected ratings:
Affirmations:
Issuer: LATAM Airlines Group S.A (LATAM)
Corporate Family Rating: upgraded to Ba3 from B1
USD500 million senior unsecured notes due 2020: upgraded to B1
from B2
Issuer: LATAM Pass Through Trust 2015-1A
Senior Secured Enhanced Equipment Trust due 2029: upgraded to A3
from Baa1
Issuer: LATAM Pass Through Trust 2015-1B
Senior Secured Enhanced Equipment Trust due 2025: upgraded to Baa3
from Ba1
The outlook for all ratings is stable
RATINGS RATIONALE
The ratings upgrade is a result of LATAM's improvements in
operating performance, leverage and liquidity observed during the
last two years. The upgrade also considers Moody's view that the
improved results are sustainable and leverage will continue to
improve during the next 12 to 18 months. Accordingly, LATAM has
posted a marked recovery in its operating margin and leverage
measured by total adjusted debt to EBITDA that have reached 9.0%
and 4.6x, respectively at the end of 2017. The company has also
increased its cash balance, which reached almost 22% of net
revenues at the end of 2017. Operating improvements are a
consequence of capacity reduction, cost cutting, and stronger
demand for air travel stemming from a gradual strengthening in the
economies in Latin America as a whole and more especially in
LATAM's largest market - Brazil, which Moody's believes will
continue during 2018. Improvements in liquidity were a consequence
of positive FCF generation and the upsize in the company's
committed credit facility to $450 million.
LATAM Airlines' Ba3 corporate family rating reflects the company's
leading market position in Latin America with a well-diversified
business portfolio of air transportation services, superior
network connectivity and strategic alliances, along with an
improving operating structure and liquidity that will allow it to
remain competitive going forward. The ratings also incorporate the
benefits from its diversified capital structure, track record of
financial support from local banks and international capital
markets, long term aircraft financing, and a relatively low debt
cost. On the other hand, the Ba3 Corporate Family rating considers
the company's still high gross leverage and the volatility and
uncertainties inherent to Latin American economies, especially
Brazil. LATAM's ratings also incorporate its exposure to foreign
currency, fuel price volatility, tough competitive environment and
other risks inherent to the industry.
Despite the upgrade of the unsecured notes to B1 from B2, the
rating remains one notch lower than LATAM Airlines' Ba3 CFR in
order to reflect the effective subordination of those unsecured
creditors to the company's other existing secured debt. LATAM
Airlines' consolidated debt is composed mainly of long-term
secured bank obligations and capital leases collateralized by
aircrafts, representing about 73% of its total debt. As such, the
unsecured notes rank below all the company's existing and future
secured claims.
The upgrade of the EETC ratings accompanies the upgrade of the
Corporate Family rating. Moody's assigns ratings to EETCs by
adding notches to an airline's Corporate Family rating, based on
its opinions of the importance of the aircraft collateral to the
airline's network, whether there is a liquidity facility, its
estimates of the size of the equity cushion, and each Classes'
position in the waterfall. Moody's estimates the peak LTVs at
about 61% and about 74% for the Class A and Class B certificates,
respectively. These levels are consistent with Moody's expectation
when it first rated the transaction in 2015. Moody's has increased
the annual depreciation rates for each of the aircraft models in
the collateral, to 5% from an average of 3.9% used previously.
This change reduces the projected improvement in the equity
cushion over the transaction's remaining term, but not enough to
cause Moody's to lower the notching. The still sufficient equity
cushions, the ongoing importance of the models to the company's
network, the cross-default and cross-collateralization of the
equipment notes and Moody's expectation that repossession would be
timely under an insolvency scenario support the EETC ratings.
The B787-9s in the transaction are powered by Rolls-Royce Trent
1000 Package C engines. The utility of 787s with this engine is
currently curtailed because of reliability issues of turbine
blades in the engines' intermediate pressure compressor that have
led to the imposition of operating restrictions by regulatory
authorities. Moody's anticipates that the issue will be corrected
within the next 12 to 24 months, preserving the long-term value of
Rolls-powered 787s. Although Moody's does not expect airlines to
change engines, the 787 is the first aircraft model that allows
for the interchange of engines between the two available types,
the GE GEnx-1B being the other engine for this aircraft.
LATAM Airlines reported net revenues of $10.2 billion in 2017, an
increase of 6.7% as compared to 2016, and 7.7% in the 4Q'17
compared to 4Q'16 driven by higher traffic, stronger load factor
and continuing yield recovery. Despite the improvements in demand
and increased ASKs in 2017, LATAM continued to reduce its cost
structure by a material decrease in its workforce and the number
of operating aircraft that were cut by 9.7% and 22 aircraft
respectively in 2017, allowing the company to post strong
improvements in its operating income of almost 26%.
The positive developments in operating income, reduction of fleet
commitments, along with the upsize in the company's committed
credit facility to $450 million, helped improve LATAM's liquidity.
The company reported unrestricted cash and short-term investments
in the amount of $1.64 billion at the end of 2017, enough to cover
1.3x its short-term debt maturities. Including the $450 million
committed credit facility, LATAM's cash to net revenues achieved
almost 22% in 2017. Moody's believes the company's $450 million
committed credit facility further mitigates its liquidity risk.
LATAM's debt is composed mainly of long-term secured bank
obligations and financial leases. After the merger with TAM, the
company's adjusted gross leverage to EBITDA increased
significantly to 8.0x in 2012 from 4.2x in 2011. Since then, LATAM
has undertaken several leverage reduction initiatives including
debt prepayment and renegotiation of more expensive debt to reduce
interest expenses such as the payment of the $300 million 7.375%
senior unsecured notes issued by TAM's subsidiary TAM Capital Inc
completed in April 2017, and the prepayment of the $500 million
8.375% senior unsecured notes due 2021 issued by TAM's subsidiary
TAM Capital 3 Inc in September 2017. Still, gross leverage remains
high at 4.6x total adjusted debt to EBITDA at the end of 2017.
The stable outlook reflects Moody's expectation that the company
will continue to increase its operating margins, expand internal
cash flow generation and reduce leverage going forward. The stable
outlook also assumes that management will continue to timely
implement the financing strategy in anticipation of debt
maturities.
A rating upgrade could be considered if LATAM Airlines is able to
successfully reduce leverage to below 3.5x (4.6x in 2017) total
adjusted debt-to-EBITDA, along with maintaining strong
profitability, as illustrated by an EBIT margin higher than 12.5%
(9.7% in the end of 2017), and strong cash generation measured by
RCF to total adjusted debt higher than 20% (14.6% in the end of
2017).
The rating could be downgraded if the company's liquidity is
strained due to a prolonged market downturn or continued revenue
constraints, which combined with its aircraft acquisition program
would lead to weaker free cash flow generation. Downward pressure
on the rating could occur if LATAM Airlines' adjusted EBIT margin
deteriorates to below 8% (9.7% in 2017), if its adjusted leverage
remains above 5.0x (4.6x in 2017), or if Funds from Operations +
Interest to Interest decreases to below 3.0x (4.0x in 2017) for a
sustained period of time.
The ratings of the EETCs could change if the Corporate Family
rating of LATAM Airlines Group changes, or if equity cushions
erode relative to Moody's projections.
The principal methodology used in rating LATAM Airlines Group S.A
(LATAM) was Passenger Airline Industry published in April 2018.
The principal methodologies used in rating LATAM Pass Through
Trust 2015-1A and LATAM Pass Through Trust 2015-1B were Enhanced
Equipment Trust and Equipment Trust Certificates published in
December 2015 and Passenger Airline Industry published in April
2018.
LATAM Airlines Group S.A. (LATAM Airlines) is a Chilean-based
airline holding company formed by the business combination of LAN
Airlines S.A. of Chile and TAM S.A. of Brazil in June 2012. LATAM
Airlines is the largest airline group in South America with local
presence for domestic passenger service in six countries (i.e.
Brazil, Chile, Peru, Ecuador, Argentina, Colombia). The company
also provides intra-regional and international passenger services
and it also has a cargo operation that is carried out through the
use of belly space on passenger flights and dedicated freighter
service. In 2017, LATAM Airlines generated USD10.2 billion in net
revenues and carried over 67 million passengers and 896 thousand
tons.
LATAM AIRLINES: To Sell Stake in Aerotransportes Mas de Carga
----------------------------------------------------------------
LATAM Airlines Group has reached a preliminary agreement for the
sale of its stake of Mexican Cargo Airline Aerotransportes Mas de
Carga, S.A. de C.V. ("Mas Air") to a group led by current
shareholders of said company.
If the conditions stipulated in the agreement are met, the
transaction is expected to be executed in early August of this
year. The transaction amount is not considered material for LATAM
Airlines Group.
As reported in the Troubled Company Reporter - Latin America on
April 3, 2018, S&P Global Ratings affirmed its 'BB-' global scale
corporate ratings, and 'clBBB' Chilean national scale corporate
ratings on Latam Airlines Group. S&P has also affirmed its 'B+'
issue-level ratings on Latam's 2020 and 2024 senior unsecured
notes, and the 'clBBB-' Chilean national scale issue-level ratings
on the local bonds due 2022 and 2028. The outlook on the global
scale corporate credit ratings, and corporate and issue-level
national scale ratings remains stable.
LATAM AIRLINES: Offers for Guarulhos Airport's Slots Closed May 2
-----------------------------------------------------------------
In compliance with the ruling of the Tribunal de Defensa de la
Libre Competencia (Competition Court of Chile), and to the
provisions contained in the document "LATAM Slots' Exchange
Procedure According to the First Condition Resolution No. 37/2011
HTDLC" approved by the Tribunal de Defensa de la Libre
Competencia of Chile (hereinafter referred to as the "Procedure");
LATAM Airlines Group S.A. informs the beginning of the tender
procedure regulated by the Procedure and further informs the
following:
The closing date for filing proposals expires at 12:00 a.m. on
May 2, 2018.
The Notary where the instruments established by the Procedure will
be executed is the Santiago's Notary of Patricio Raby Benavente.
As reported in the Troubled Company Reporter - Latin America on
April 3, 2018, S&P Global Ratings affirmed its 'BB-' global scale
corporate ratings, and 'clBBB' Chilean national scale corporate
ratings on Latam Airlines Group. S&P has also affirmed its 'B+'
issue-level ratings on Latam's 2020 and 2024 senior unsecured
notes, and the 'clBBB-' Chilean national scale issue-level ratings
on the local bonds due 2022 and 2028. The outlook on the global
scale corporate credit ratings, and corporate and issue-level
national scale ratings remains stable.
==================
G U A T E M A L A
==================
BANCO AGROMERCANTIL: Fitch Affirms FC IDR at BB+, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Banco Agromercantil de Guatemala's
(BAM) Long-Term Foreign Currency Issuer Default Rating (IDR) at
'BB+'. The Rating Outlook is Stable.
KEY RATING DRIVERS
BAM
IDRs, VR AND NATIONAL RATINGS
BAM's IDRs and national ratings reflect Fitch's opinion that the
support from its ultimate shareholder, Bancolombia (BBB/Stable)
will be timely and sufficient if needed. In Fitch's opinion,
Bancolombia's capacity and propensity to support BAM considers
that any required support would be manageable relative to the
ability of the parent to provide it, the important role of the
subsidiary in Bancolombia's strategy in the region, and the high
reputational risks to the parent in the event of subsidiary
default. Fitch's view factors in the low cost of potential
support, as BAM accounts for 5% of the group's assets.
BAM's standalone creditworthiness, as indicated by its Viability
Rating (VR), is driven by its company profile based on its
moderate franchise in Guatemala combined with its consistent and
proven business model that allows the bank to maintain a stable
performance and favorable prospects once the strategy defined by
Bancolombia is in full deployment. The VR also considers with a
moderate importance the bank's adequate capital position, good
asset quality, diversified and stable funding, as well as its
modest profitability.
As of December 2017, BAM was the fourth largest bank in Guatemala
with a market share of 8%. By deposits, the bank has a 7.4% of
market share (sixth place) and 10.6% by loans (fourth place) of
the local system. The competitive position of the bank is good in
the local financial system with the second place in the segments
of agriculture (25.8%), mining (27.7%) and the third place in
commerce (16.5%) and transport (12.7%).
BAM's capital position is adequate with a FCC of 11.2% but is
considered the weakest link of the financial profile, though
Guatemala's system lacks robust indicators of solvency. The bank
showed a declining trend in previous years but due to the material
moderation of credit growth, this trend stop remaining slightly
above the 2016 ratio. Also, a lowest ratio of dividend payout
contributed to the stabilization of the FCC ratio.
BAM's asset quality is good although showing more deterioration
compared with 2016, a trend also visible in the local industry. 90
days past due reached 2.0% at YE17, still comparing below the
system's average (2.3%). The growing expansion of the bank's
retail portfolio, the aggressive growth of previous years and the
delinquency of some big ticket loans have influenced the
deterioration trend. In Fitch's view, the asset quality of the
bank should remain similar and further material deterioration is
not expected considering the increasing reinforcement of the
control risk framework and the expected moderate growth.
BAM's profitability is modest and one of the lowest of the big
corporate banks in Guatemala. Operating profit to risk weighted
assets is 1.5% as of December 2017. The bank compares below peers
in terms of operating efficiency and credit costs. The
administration is in a continuous process to reinforce the
efficiency but material advances are still not visible. Also, the
spike in deterioration is forcing the credit cost compare with the
rest of corporate banks. The bank's profitability should remain
modest in the short and medium term.
BAM's funding structure is deposit-based and has a good track
record of stability. Despite not having a comparable franchise in
the deposit sector relative to larger banks, BAM's deposits are
well diversified, in Fitch's view. As of YE17, the 20 largest
depositors represented 8% of total deposits, comparing favorably
to local peers. The bank's funding is complemented by an ample and
diversified number of wholesale sources.
SUPPORT RATING
The bank's Support Rating reflects Fitch's opinion on
Bancolombia's ability and propensity to provide assistance to BAM,
should the need arise. As per Fitch's criteria, BAM's IDR of 'BB+'
maps to a support rating of '3'.
AGROMERCANTIL SENIOR TRUST (AST)
Agromercantil Senior Trust's (AST) rating is in line with BAM's
IDR reflecting that the senior unsecured obligations rank equally
with the bank's unsecured and unsubordinated obligations.
MERCOM and FINANCIERA AGROMERCANTIL - NATIONAL RATINGS
Mercom and Financiera Agromercantil's national ratings are based
on the support it would receive from its ultimate shareholder,
Bancolombia, if needed. Both companies are important subsidiaries
for the group in Guatemala given that it operates in complementary
market segments - enhancing BAM's business model - and reflects a
high degree of integration.
RATING SENSITIVITIES
IDRS, VR, NATIONAL RATINGS AND SUPPORT RATINGS
BAM's Foreign Currency IDR is capped by Guatemala's country
ceiling. The bank's Long-Term Local Currency IDR is above the
sovereign's Local Currency IDR and as such would be sensitive to
any sovereign rating action.
Downward risk for the bank's IDRs, national ratings and support
rating is limited given its parent support but the ratings could
be downgraded if Fitch's assessment of Bancolombia's ability or
willingness to support its subsidiaries changes. Currently, there
is no upside potential for the bank's IDRs as these are above the
sovereign's IDRs, which have a Stable Outlook.
The VR could be downgraded if the Fitch Core Capital ratio
consistently falls below 9% and/or the profitability metrics
weakens materially below the 1% ratio of operating profit to risk
weighted assets.
AST
Changes in the notes' rating would derive from changes in BAM's
IDR.
MERCOM and FINANCIERA AGROMERCANTIL
A downgrade in Mercom and Financiera Agromercantil's ratings is
contingent on Bancolombia's ability and propensity to support its
operations if needed.
Fitch has affirmed the following ratings:
Banco Agromercantil de Guatemala, S.A.
--Long-Term Foreign Currency IDR at 'BB+'; Outlook Stable;
--Short-Term Foreign Currency IDR at 'B';
--Long-Term Local Currency IDR at 'BBB-'; Outlook Stable;
--Short-Term Local Currency IDR at 'F3';
--Viability Rating at 'bb';
--Support at '3';
--National scale long-term rating at 'AAA(gtm)' ;
--National scale short-term rating at 'F1+(gtm)'.
Agromercantil Senior Trust
--Long-term foreign currency loan participation notes at 'BB+'.
Mercom Bank Limited
--National scale long-term rating at 'AAA(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
Fitch has assigned the following ratings:
Financiera Agromercantil, S.A.
--National scale long-term rating at 'AAA(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
BANCO DE DESARROLLO: Fitch Affirms LT IDR at 'BB', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Banco de Desarrollo Rural, S.A.'s
(Banrural) long-term Issuer Default Rating (IDR) at 'BB', its
short-term IDR at 'B' and its Viability Rating (VR) at 'bb'. The
Outlook on the long-term IDR is Stable. Additionally, the National
Ratings of Banrural and Financiera Rural S.A. (Finrural) were also
affirmed.
KEY RATING DRIVERS
BANRURAL IDRs, VR AND NATIONAL RATINGS
Banrural's IDRS and National Ratings are driven by its standalone
profile reflected in its VR. This rating mirrors its strong local
franchise and consistent business model. The VR also considers its
good profitability and sufficient capital buffer to accompany the
recent negative trend in asset quality and challenging operating
environment.
In Fitch's opinion, Banrural has a relevant franchise as the
second largest bank in terms of loans (18%), deposits (23%) and
income. The bank benefits from a well-established business model
with lower competition in rural areas and segments such as small
and medium-sized enterprises (SMEs).
As of December 2017, impaired loans (NPLs) have increased up to
3.6% from an average of around 0.7% in 2014-2015, and have
registered further deterioration during the first quarter of 2018
(above 4%). Delinquency levels have reached its highest peak in
recent years, though still in range with the 'b' category. Fitch
expects that the establishment of an internal collection and
recovery department will improve asset quality, but the NPL ratio
will not return to previous levels below 1%.
Operating profit to risk-weighted assets (RWAs) stood close to
2.9% as of December 2017. Profitability metrics are deemed to be
good despite being lower than the historic average (2014-2015:
4.2%). Banrural maintains an ample net interest margin that
compensates for moderate income diversification, relatively high
operating costs and increased loan impairment changes.
Fitch considers capitalization and reserve coverage levels (125%)
to be adequate. As of December 2017, the bank's Fitch Core Capital
to risk-weighted assets ratio increased up to 16.1% after
maintaining levels consistently around 13% (2014-2016). Fitch
expects that capital metrics will show a slight decline once loan
growth is reestablished (December 2017: 7% yoy contraction).
Banrural's funding structure is based on a diversified and
relatively stable deposit base. As of December 2017, loans to
deposits ratio stood at 61.5% (2014-2016: 74%), which is viewed by
Fitch as adequately matching assets and funding. Fitch considers
that contingency plans have proven to be adequate during
reputational events where deposit withdrawals were rapidly
recovered.
SUPPORT RATING AND SUPPORT RATING FLOOR
Banrural's Support Rating (SR) and Support Rating Floor (SRF)
reflect Fitch's opinion regarding the likelihood that the bank
will receive extraordinary support from the Sovereign.
The bank's SR of '3' reflects Fitch's opinion that there is a
moderate probability of support from the state. The SRF is one
notch below the sovereign rating at 'BB-', which indicates the
minimum level to which the entity's long-term IDR could fall if
the agency does not change its view on potential sovereign
support.
Fitch's assessment considers the relative size of the banking
system relative to the size of the economy, and Banrural's local
systemic importance as one of the largest banks in Guatemala.
FINANCIERA RURAL NATIONAL RATINGS
Finrural's ratings are driven by the support it would receive from
Banrural, if required. In the agency's view, Finrural's relative
size is immaterial relative to the ability of Banrural to provide
support. Fitch also considers Finrural's key role as trustee as
well as the reputational risk if Finrural would default.
RATING SENSITIVITIES
IDRs, VR AND NATIONAL RATINGS
A sustained decline in profitability (operating profit to RWAs
below 2%) along with a decline in capitalization (FCC/risk-
weighted assets close to 12%) would affect the ratings.
Fitch believes there is limited upside potential for Banrural's
IDRs and VR given the constraints of its operating environment
(Guatemala's IDR is BB/Stable).
SUPPORT RATING AND SUPPORT RATING FLOOR
Banrural's SR and SRF are sensitive to changes in the sovereign
rating as well as its capacity and/or propensity to provide
support.
FINANCIERA RURAL NATIONAL RATINGS
Changes in Finrural's ratings are associated with changes in
Banrural's capacity and/or propensity to provide support.
Fitch has affirmed the following ratings:
Banrural:
--Foreign-currency, long-term IDR at 'BB'; Outlook Stable;
--Foreign-currency, short-term IDR at 'B';
--Local-currency, long-term IDR at 'BB'; Outlook Stable;
--Local-currency, short-term IDR at 'B';
--Viability Rating at 'bb';
--Support Rating at '3';
--Support Rating Floor at 'BB-';
--National long-term Rating at 'AA+(gtm)'; Outlook Stable;
--National short-term Rating at 'F1+(gtm)'.
Financiera Rural, S.A.:
--National long-term Rating at 'AA+(gtm)'; Outlook Stable;
--National short-term Rating at 'F1+(gtm)'.
BANCO DE LOS TRABAJADORES: Fitch Affirms 'B+' IDRs, Outlook Pos.
----------------------------------------------------------------
Fitch Ratings has affirmed Banco de los Trabajadores' (Bantrab)
Long-Term Issuer Default Ratings (IDRs) at 'B+'. The rating
Outlook remains Positive. In addition, Fitch has affirmed
Bantrab's Long-Term National Rating at 'BBB+'/Positive Outlook.
The Positive Outlook on both Bantrab's Long-term IDRs and National
Rating reflects Fitch's expectation that Bantrab's recent measures
to strengthen its corporate governance and risk management
framework, in addition to its stronger capital base, have improved
the bank's overall risk profile. Fitch believes the bank's
operational capacity to make future debt payments has also
improved. Nevertheless, the agency will continue to monitor the
evolution of Bantrab's relationship with correspondent banks.
Following a series of events that led to the arrest of various
former executives and members of the Board of Directors by the
Guatemalan authorities on charges of fraud, illicit associations
and embezzlement, to the detriment of the bank's shareholders in
mid-2016, the bank is under new management and is in the process
of restructuring its operations. In Fitch's view, these changes
are positive but its long-term effects and sustainability are yet
to be seen.
In line with the rating actions on Bantrab, Fitch has affirmed
Bantrab Senior Trust's (BST) Long-Term Rating at 'B+'/'RR4'.
Fitch affirmed Fintrab's National scale ratings since they are
driven by support from Bantrab.
KEY RATING DRIVERS
IDRs, VR and NATIONAL RATINGS - Bantrab
Bantrab's risk appetite and capitalization highly influence its
ratings. The ratings also consider Bantrab's sound profitability,
good asset quality, concentrated funding structure and adequate
liquidity.
Bantrab has improved its risk controls by strengthening its
internal management control framework. The bank's plans to
investment in technology should provide a robust capacity for
further growth. Additionally, this will bring Bantrab's risk
management practices closer to that of its higher rated domestic
peers. Solid capitalization helps support Bantrab's growth
prospects, which compares favorably with the industry average and
its main competitors.
Bantrab's profitability is sound and is based on a high net
interest margin, acceptable operational efficiency and moderate
loan loss provisions. Moreover, the bank registers good loan
quality indicators for its consumer focused business model, given
the debt collection via automatic payroll deductions.
The issuer's funding structure is based on term deposits of higher
than average cost but with high stability. Liquidity is also sound
and able to respond in a timely manner to liquidity needs that may
arise.
SUPPORT RATING AND SUPPORT RATING FLOOR - Bantrab
Bantrab's SR and SRF of '5' and 'NF', respectively, indicate that,
although possible, external support cannot be relied upon given
the currently low state ownership and limited systemic importance.
SENIOR DEBT - Bantrab Senior Trust
Bantrab Senior Trust's (BST) seven-year U.S.-dollar loan
participation notes' rating is in line with Bantrab's VR,
reflecting that the senior unsecured obligations rank equally with
the bank's unsecured and unsubordinated obligations.
BST's 'RR4' Recovery Rating reflects Fitch's expectations of an
average recovery in the event of a default.
NATIONAL RATINGS-Fintrab
Fintrab's National ratings are underpinned by institutional
support it would likely receive from its shareholder, Bantrab.
Fitch's opinion of support is based on the high integration of the
subsidiary with the parent and the significant reputational risk
that a default would pose to Bantrab. As a result, Fintrab's
National ratings are aligned with Bantrab's credit profile.
RATING SENSITIVITIES
IDRs, VR, AND NATIONAL RATINGS, -Bantrab
Fitch believes that if Bantrab's structural changes consolidate
and yield positive, material and sustainable results in terms risk
management while maintaining its financial profile, a positive
rating action could be triggered.
However, while not Fitch's base case scenario, the Outlook could
be revised to Stable if no sustainable and material progress is
perceived in the bank's risk management framework thus stalling
its overall development.
SUPPORT RATING AND SUPPORT RATING FLOOR - Bantrab
Guatemala's propensity or ability to provide timely support to
Bantrab is not likely to change given the bank's low systemic
importance. As such, the SR and SRF have no upgrade potential.
SENIOR DEBT - BST
Changes in the notes' Long Term Rating and Recovery Rating are
contingent upon rating actions for Bantrab.
NATIONAL RATINGS - Fintrab
The National ratings of Fintrab would mirror changes in the
National scale ratings of its parent.
Fitch has affirmed the following:
Banco de los Trabajadores:
--Long-Term Foreign Currency IDR at 'B+'; Outlook Positive;
--Short-Term Foreign Currency IDR at 'B';
--Long-Term Local Currency IDR at 'B+'; Outlook Positive;
--Short-Term Local Currency IDR at 'B';
--National Long-Term Rating at 'BBB+(gtm)'; Outlook Positive;
--National Short-term Rating at 'F2(gtm)';
--Viability Rating at 'b+';
--Support Rating at '5';
--Support Rating Floor at 'NF'.
Financiera de los Trabajadores, S.A.
--National Long-term Rating at 'BBB+(gtm)'; Outlook Positive;
--National Short-term Rating at 'F2(gtm)';
Bantrab Senior Trust
--Long-term Foreign Currency Loan Participation Notes at
'B+'/'RR4'.
BANCO G&T: Fitch Affirms LT IDR at 'BB', Outlook Stable
---------------------------------------------------------
Fitch Ratings has affirmed Banco G&T Continental S.A.'s (G&TC)
Long-Term Issuer Default Rating (IDR) at 'BB' and Viability Rating
(VR) at 'bb'. G&TC's Rating Outlook on the Long-Term IDR remains
Stable.
G&TC'S KEY RATING DRIVERS
IDRs, VR AND NATIONAL RATINGS
G&TC's IDRs and National ratings are driven by its intrinsic
profile, as reflected in its Viability Rating (VR). G&TC's VR
reflects its strong franchise in the Guatemalan banking system
along with its business orientation towards corporate segment. The
bank's ratings also consider its narrow capital levels, its loan
book's moderate quality and concentration. The VR also reflects
its stable profits, and its deposit-based funding structure.
G&TC is the main entity of the second largest financial group in
Guatemala, Grupo Financiero G&T Continental, with an important
franchise in the local financial system and regional positioning
through subsidiaries in El Salvador, Costa Rica and Panama. The
entity's main focus is corporate and commercial segments although
management will seek to expand its service towards the small and
medium enterprises (SMEs) segments in order to increase
diversification and profitability.
G&TC's capital position has remained the same in the last few
years, although its levels are still tight. The same is true for
most of its peers. As to December 2017, its Fitch Core Capital
(FCC) was 11.1% (2012-2016 average: 10.9%). Traditionally,
dividend payments have restrained the entity's capital levels as
dividend distributions were above 50% of net profits in the last
five years. However, as from 2018 management will significantly
diminish these payments in order to strengthen its equity
position.
Deterioration on some of the largest debtors of the bank has
driven to an increase on its delinquency levels. As of December
2017, the bank's non-performing loans (NPL) ratio was 2.3%, the
highest levels in recent years, and mainly due to one relevant
past due creditor. Given G&TC's traditional business model, loan
book concentration by debtor is high. Its 20 largest debtors by
economic group accounted for 33.6% of total loans and were 2.4x
its FCC as of the same date. However, the bank's strategy for 2018
seeks to reduce this concentration, although the latter would
remain significant given the corporate segment would remain the
entity's principal orientation and local economy considerations.
G&TC's profitability remains moderate although stable. As of
December 2017, the operating return of its risk weighted assets
was 1.7%, similar to previous periods. These levels are explained
by low net interest margin, given its corporate orientation, and
by moderate loan impairment charges along with under control
expenses. Fitch considers increases on G&TC's profitability levels
would be moderate considering the slight loan book diversification
it will pursue.
G&TC funds its operations through customer deposits as its loans
represented 69.5% of its deposits as of Dec 2017. These deposits
were 80.8% of total funding and were mostly comprised of demand
deposits, which has benefitted its funding costs. These deposits
have moderate concentration and have proven stable, with renewal
rates above 90%. The entity will maintain its funding through
demand deposits therefore its costs could slightly reduce. The
bank holds a good liquid position as its liquid assets represented
roughly 50% of total deposits, which is adequate to respond to
liquidity requirements.
SUPPORT RATINGS AND SUPPORT RATING FLOOR
G&TC's support rating (SR) and support rating floor (SRF) reflect
Fitch's opinion about the moderate probability of the bank
receiving extraordinary support from the Sovereign if needed. This
is due to the bank's systemic importance with considerable market
share of customer deposits and, geographic coverage. At year-end
2017, the bank was the third largest bank in Guatemala, with a
market share in loans and deposits of around 15.5% and 17%,
respectively. SRF of 'BB-' is one notch below the sovereign rating
of Guatemala (BB/Stable), and according to Fitch's criteria,
indicates the minimum level to which the entity's Long-Term IDR
could fall if the agency does not change its view on potential
sovereign support.
CONTICREDIT, FIN G&TC, GTC AND FIN G&TC CR KEY RATING DRIVERS
NATIONAL RATINGS
In Fitch's opinion, G&T Conticredit S.A. (Conticredit), Financiera
G&T Continental, S.A.(FG&TC), GTC Bank Inc. (GTC) and Financiera
G&T Continental Costa Rica, S.A.'s (FG&TC CR) national ratings are
underpinned by institutional support they would receive from their
shareholder, G&TC, if needed. Fitch's opinion of the support is
based on the relevant role these subsidiaries possess in its
parent's strategy and the significant reputational risk that a
default of one of them would pose to G&TC. As a result, their
national scale ratings are aligned with G&TC's credit profile.
RATING SENSITIVITIES
G&TC'S IDRs, VR AND NATIONAL RATINGS
Upside potential is limited given the entity's tight capital
position and moderate profitability. Conversely, downward
movements in G&TC's ratings could come from significant
deterioration of its main customers, which increases the bank's
NPL ratio consistently above 3%, reducing its profits and
affecting its FCC below 9%, along with reductions on its funding
sources; however, this is not Fitch's base scenario.
SUPPORT RATINGS AND SUPPORT RATING FLOOR
G&T's Support and Support Rating Floor ratings are sensitive to
changes in Guatemala's sovereign rating or in Fitch's view of the
sovereign propensity to support the bank.
CONTICREDIT, FIN G&TC, GTC AND FIN G&TC NATIONAL RATINGS
The national ratings of G&TC's subsidiaries will mirror changes in
its parent's ability and propensity to provide timely support when
required.]
Fitch has affirmed the following ratings:
Banco G&T Continental S.A.
--Long-term Foreign Currency IDR at 'BB'; Outlook Stable;
--Short-term Foreign Currency IDR at 'B';
--Long-term Local-Currency IDR at 'BB'; Outlook Stable;
--Short-term Local-Currency IDR at 'B';
--Viability Rating at 'bb';
--Support at '3';
--Support Rating Floor at 'BB-';
--Long-term National Rating at 'AA-(gtm)'; Outlook Stable;
--Short-term National Rating at 'F1+(gtm)'.
G&T Conticredit S.A.
--Long-term National Rating at 'AA-(gtm)'; Outlook Stable;
--Short-term National Rating at 'F1+(gtm)';
--Short-term senior unsecured debt national ratings at
'F1+(gtm)'.
Financiera G&T Continental, S.A.
--Long-term National Rating at 'AA-(gtm)'; Outlook Stable;
--Short-term National Rating at 'F1+(gtm)'.
GTC Bank Inc.
--Long-term National Rating at 'AA-(gtm)'; Outlook Stable;
--Short-term National Rating at 'F1+(gtm)';
--Long-term National Rating at 'A+(pan)'; Outlook Stable;
--Short-term National Rating at 'F1(pan)'.
Financiera G&T Continental Costa Rica, S.A.
--Long-term National Rating at 'A+(cri)'; Outlook Stable;
--Short-term National Rating at 'F1(cri)';
--Long-term senior unsecured debt national ratings at 'A+(cri)';
--Short-term senior unsecured debt national ratings at
'F1(cri)'.
BANCO INDUSTRIAL: Fitch Affirms LT IDR at 'BB', Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Banco Industrial, S.A.'s (Industrial)
Long-Term Issuer Default Rating (IDR) at 'BB', Short-Term IDR at
'B' and Viability Rating (VR) at 'bb'. The Rating Outlook is
Stable. Similar rating actions were taken on the national ratings
of the bank and its subsidiaries.
KEY RATING DRIVERS
IDRS VR, NATIONAL RATINGS
The bank's IDRs are driven by its intrinsic financial strength as
reflected by its VR. Industrial's ratings reflect the bank's local
systemic relevance its weaker, albeit improving, capitalization
over regional peers. Industrial is the largest bank in Guatemala,
with market shares of 27.6% of total loans and 24.8% of total
deposits. The bank's local franchise allows for a diversified and
stable deposit base (70.3% of total funding), while its strong
market position in the corporate sector sustains low delinquency
rates. However, this results in elevated concentrations by
borrower and by economic sector.
Industrial's Fitch Core Capital (FCC) ratio (10.8% as of December
2018) has improved compared to its historic average but remains
below similarly rated peers. In Fitch's view, the increase in FCC,
underpinned by a capital increase, lower dividend payments and
lower asset growth is sustainable in the medium term due to the
moderate growth prospects. Although they are not part of the FCC
calculation the agency also considers the additional loss
absorption capacity provided by the bank's loan loss provision
coverage above 100% and issued subordinated debt and hybrid
securities.
Given Industrial's systemic importance and large franchise, the
operating environment has a moderate influence on the bank's
performance and prospects, as systemic events can affect the
bank's risk profile. The operating environment is a constraining
factor for the VR. Fitch's evaluation of the operating environment
for Industrial incorporates the sovereign Guatemala's BB'/Stable
rating.
Industrial's loan quality outperforms peers with controlled
delinquency rates and ample reserves coverage. As of December
2017, delinquency rates deviated from their historical average and
rose to 1%, while reserves coverage maintained a decreasing trend
but remains high at 177%. In Fitch's view, Industrial's asset
quality ratios are sensitive to the deterioration of specific
clients in light of the concentrations by individual borrower. As
of December 2017, Industrial's top 20 borrowers represented 1.64x
its FCC (2016: nearly 2x).
Operating profits recovered slightly in 2017, driven by its
resilient margins, improved efficiency and controlled credit
costs. However, Industrial's profitability metrics have decreased
from their historic averages due to slower asset growth. In
Fitch's view, current profitability levels are sustainable but
could vary in response to changes in the operating environment.
Industrial's operations are funded primarily by domestic market
deposits, complemented with debt issuance in international markets
to help support long-term funding needs. The loan to deposit ratio
is lower than peers at 83.3% as of December 2017. In Fitch's view,
the international debt issuances are well diversified by maturity
profile and source and provide stability to the bank's funding
profile.
In the agency's opinion, Industrial maintains an adequate
liquidity position. Liquid assets cover 14% of deposits and short
term funding as of December 2017, while its conservative
investment portfolio provides reasonable additional liquidity
coverage under normal market conditions but could be less liquid
under conditions of market stress
SUPPORT RATING AND SUPPORT RATING FLOOR
Industrial's support rating (SR) of '3' and support rating floor
(SRF) of 'BB-' reflect Fitch's opinion about the moderate
probability of extraordinary support that the bank will receive
from the Sovereign if needed. Fitch's opinion factors in
Industrial's local systemic importance, its ample geographic
coverage in Guatemala and its deposit based funding structure.
Industrial's SRF is one notch below the sovereign rating of
Guatemala and according to Fitch's criteria, indicates the minimum
level to which the entity's Long-Term IDR could fall if the agency
does not change its view on potential sovereign support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Industrial's subordinated Tier I capital notes (IST-I) are rated
four notches below the bank's Long-Term IDR given its deep
subordination status and discretionary coupon omission. Fitch had
previously assigned a RR rating of 'RR6' to reflect its
expectation for poor recovery prospects in the event of default.
Industrial Subordinated Trust's Notes (ISbT) are rated one notch
below Industrial's Long-Term IDR, reflecting the subordinated
status, ranking junior to all Industrial's present and future
senior indebtedness, pari passu with all other unsecured
subordinated debt and senior to Industrial's capital and tier I
hybrid securities.
Industrial Senior Trust's Notes' (ISnT) ratings are in line with
Industrial's Long-Term IDR, reflecting that the senior unsecured
obligations rank equally to Industrial's unsecured and
unsubordinated obligations.
SUBSIDIARY AND AFFILIATED COMPANY
The national ratings of Industrial's subsidiaries Contecnica S.A.
(Contecnica), Financiera Industrial S.A. (Financiera Industrial)
and Westrust Bank (International) Limited (Westrust Bank), are
equalized with those of Industrial. Fitch views these entities as
key and integral parts of Industrial's business given their high
degree of integration with the group, complementary activities and
enhancement of Industrial's business model.
The national ratings of Panamanian BI Bank S.A.(BIBank) reflect
the potential support from its holding company, Bicapital
Corporation. The ratings also reflect strong synergies with the
parent, the delivery of products/services in markets identified as
strategically important and the high integration with the group.
RATING SENSITIVITIES
IDRs, VR AND NATIONAL RATINGS
Industrial's VR and IDR have limited upside potential given the
constraining operating environment.
A Fitch core capital ratio below 9% could negatively affect the
bank's IDRs and National Ratings, as would a sustained
deterioration in the bank's asset quality and financial
performance. Conversely, the bank's National Ratings in Guatemala
would improve if capital metrics increase above 12%, while the
bank sustains its current asset quality and profitability metrics.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Industrial's Support and Support Rating Floor ratings are
sensitive to changes in Guatemala's sovereign rating, or in
Fitch's view of the sovereign's propensity to support the bank.
INDUSTRIAL'S SUBORDINATED TIER 1 CAPITAL NOTES, SUBORDINATED AND
SENIOR TRUSTS' RATING SENSITIVITIES
Changes in the ratings of IST-I, ISnT and ISbT's are contingent on
changes in Industrial's Long-term IDR.
SUBSIDIARY AND AFFILIATED COMPANY
Changes in the ratings of Contecnica, Financiera Industrial,
Westrust Bank, and BIBank are contingent on changes in
Industrial's capacity and propensity to provide support.
The rating actions are as follows:
Banco Industrial S.A.:
--Long-Term Foreign Currency IDR at 'BB'; Outlook Stable;
--Short-Term Foreign Currency IDR at 'B';
--Long-Term Local Currency IDR at 'BB'; Outlook Stable;
--Short-Term Local Currency IDR at 'B';
--Viability Rating at 'bb';
--Support at '3';
--Subordinated Tier I Capital Notes debt at 'B-'/ 'RR6';
--Support Rating Floor at 'BB-';
--National scale long-term rating at 'AA(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
Industrial Senior Trust:
--Long-term senior unsecured debt at 'BB'.
Industrial Subordinated Trust:
--Industrial Subordinated Trust Tier II debt at 'BB-'.
Contecnica S.A.:
--National scale long-term rating at 'AA(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
Financiera Industrial S.A.:
--National scale long-term rating at 'AA(gtm); Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
Westrust Bank (International) Limited:
--National scale long-term rating at 'AA(gtm)'; Outlook Stable;
--National scale short-term rating at 'F1+(gtm)'.
BI Bank, S.A.
--National scale long-term rating at 'A(pan)', Outlook Stable;
--National scale short-term rating at 'F1(pan)'.
=============
J A M A I C A
=============
JAMAICA: Minister Urges Focus on Supply Side of Local Tourism
-------------------------------------------------------------
RJR News reports that Tourism Minister Edmund Bartlett, is urging
the private sector to focus more on fulfilling the supply side of
the local tourism market.
The report notes that Mr. Bartlett said the demand side is doing
well, but notes that there is room for improvement on the supply
side.
He was speaking during a courtesy call from Private Sector
Organization of Jamaica (PSOJ) President, Howard Mitchell, the
report relays.
"Jamaica must own the supply site. We cannot and we will not be
able to own the demand side. The demand side is huge investments
that's the guys who are building airplanes and big hotels. But we
need the foreign direct investment and that's what the demand side
is. But the supply side is the consumption and the consumption
that the visitor makes is three times that of the local
consumption," the report quoted Mr. Bartlett as saying.
The Tourism Minister also called for the PSOJ to help in getting
banks to support expansion in the tourism sector, the report adds.
As reported in the Troubled Company Reporter-Latin America on
Feb. 5, 2018, Fitch Ratings has affirmed Jamaica's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'B' and has
revised the Rating Outlook to Positive from Stable.
=================
V E N E Z U E L A
=================
PETROLEOS DE VENEZUELA: Conoco Moves to Take Over Caribbean Assets
------------------------------------------------------------------
Marianna Parraga and Deisy Buitrago at Reuters report that U.S.
oil firm ConocoPhillips has moved to take Caribbean assets of
Venezuela's state-run PDVSA to enforce a $2 billion arbitration
award over a decade-oil nationalization of its projects in the
South American country, according to three sources familiar with
its actions.
The report says the U.S. firm targeted facilities on the islands
of Curacao, Bonaire and St. Eustatius that accounted for about a
quarter of Venezuela's oil exports last year. The three play key
roles in processing, storing and blending PDVSA's oil for export,
according to Reuters.
The company received court attachments freezing assets at least
two of the facilities, and could move to sell them, one of the
sources said, the report notes.
Conoco's legal maneuvers could further impair PDVSA's declining
oil revenue and the country's convulsing economy, the report
relays. Venezuela is almost completely dependent on oil exports,
which have fallen by a third since its peak and its refineries ran
at just 31 percent of capacity in the first quarter, the report
says.
The report relays that PDVSA and the Venezuelan foreign ministry
did not respond on Sunday to requests for comment. Dutch
authorities said they are assessing the situation on Bonaire, the
report notes.
Conoco's claims against Venezuela and state-run PDVSA in
international courts have totaled $33 billion, the largest by any
company, the report discloses.
"Any potential impacts on communities are the result of PDVSA's
illegal expropriation of our assets and its decision to ignore the
judgment of the ICC tribunal," Conoco said in an email to Reuters.
The U.S firm added it will work with the community and local
authorities to address issues that may arise as a result of
enforcement actions, the report relays.
Reuters says PDVSA has significant assets in the Caribbean. On
Bonaire, it owns the 10-million-barrel BOPEC terminal which
handles logistics and fuel shipments to customers, particularly in
Asia. In Aruba, PDVSA and its unit Citgo lease a refinery and a
storage terminal.
On the island of St. Eustatius, it rents storage tanks at the
Statia terminal, owned by U.S. NuStar Energy, where over 4 million
barrels of Venezuelan crude were retained by court order,
according to one of the sources, the report says.
NuStar is aware of the order and "assessing our legal and
commercial options," said spokesman Chris Cho, the report notes.
The company does not expect the matter to change its earnings
outlook, he said.
Conoco also sought to attach PDVSA inventories on Curacao, home of
the 335,000-barrel-per-day Isla refinery and Bullenbay oil
terminal. But the order could not immediately be enforced,
according to two of the sources, the report notes.
Last year, PDVSA's shipments from Bonaire and St Eustatius
terminals accounted for about 10 percent of its total exports,
according to internal figures from the state-run company, the
report recalls. The exports were mostly crude and fuel oil for
Asian customers including ChinaOil, China's Zhenhua Oil and
India's Reliance Industries, the report relates.
From its largest Caribbean operations in Curacao, PDVSA shipped 14
percent of its exports last year, including products exported by
its Isla refinery to Caribbean islands and crude from its
Bullenbay terminal to buyers of Venezuelan crude all over the
world, the report notes.
PDVSA ordered its oil tankers sailing across the Caribbean to
return to Venezuelan waters and await further instructions,
according to a document viewed by Reuters. In the last year,
several cargoes of Venezuelan crude have been retained or seized
in recent years over unpaid freight fees and related debts, the
report notes.
"This is terrible (for PDVSA)," said a source familiar with the
court order of attachment. The state-run company "cannot comply
with all the committed volume for exports" and the Conoco action
imperils its ability to ship fuel oil to China or access
inventories to be exported from Bonaire, the report says.
At the International Chamber of Commerce (ICC), Conoco had sought
up to $22 billion from PDVSA for broken contracts and loss of
future profits from two oil producing joint ventures, which were
nationalized in 2007 under late Venezuela President Hugo Chavez,
the report notes. The U.S. firm left the country after it could
not reach a deal to convert its projects into joint ventures
controlled by PDVSA, the report relays.
A separate arbitration case involving the loss of its Venezuelan
assets is before a World Bank tribunal, the International Centre
for the Settlement of Investment Disputes, the report discloses.
Exxon Mobil Corp also has brought two separate arbitration claims
over the 2007 nationalization of its projects in Venezuela, the
report adds.
As reported in the Troubled Company Reporter-Latin America on
March 19, 2018, Moody's Investors Service downgraded Petroleos
de Venezuela, S.A.(PDVSA)'s ratings to C from Ca. Moody's also
lowered the company's baseline credit assessment (BCA) to c
from ca.
VENEZUELA: Bonds Unchained From Oil as Presidential Vote Nears
--------------------------------------------------------------
Ben Bartenstein at Bloomberg News reports that the price of crude,
long a bellwether for oil-rich, cash-poor Venezuela's ability to
repay debt, is anything but that these days.
The correlation coefficient between oil and Venezuela's benchmark
2027 bond is on the verge of turning negative for the first time
since January, according to Bloomberg News. That's happened only
three times in the past decade, apart from the three months after
President Nicolas Maduro called for a debt restructuring in
November, Bloomberg News relates.
Bloomberg News notes that the divergence reflects investors' lack
of faith in Venezuela's ability to repay bonds as the government
and state-run oil company blow past deadlines on $3.7 billion in
debt. While opposition candidate Henri Falcon, who's promised to
carry out a debt restructuring if elected, leads some polls by
double digits ahead of the nation's May 20 presidential vote, few
expect him to win amid an opposition boycott and less-than-fair
conditions, Bloomberg News says.
Barring an upset, it's unlikely that the U.S. Treasury Department
would loosen sanctions that prohibit a restructuring, Bloomberg
News discloses. The measures were drafted, in part, with the
intention of booting Maduro from office, Bloomberg News adds.
As reported in the Troubled Company Reporter-Latin America on
March 13, 2018, Moody's Investors Service has downgraded the
Government of Venezuela's foreign currency and local currency
issuer ratings, foreign and local currency senior unsecured
ratings, and foreign currency senior secured rating to C from
Caa3. Concurrently, the foreign currency senior unsecured medium
term note program has also been downgraded to (P)C from (P)Caa3.
The outlook has been changed to stable from negative.
***********
Monday's edition of the TCR-LA delivers a list of indicative
prices for bond issues that reportedly trade well below par.
Prices are obtained by TCR-LA editors from a variety of outside
sources during the prior week we think are reliable. Those
sources may not, however, be complete or accurate. The Monday
Bond Pricing table is compiled on the Friday prior to publication.
Prices reported are not intended to reflect actual trades. Prices
for actual trades are probably different. Our objective is to
share information, not make markets in publicly traded securities.
Nothing in the TCR-LA constitutes an offer or solicitation to buy
or sell any security of any kind. It is likely that some entity
affiliated with a TCR-LA editor holds some position in the
issuers' public debt and equity securities about which we report.
Tuesday's edition of the TCR-LA features a list of companies with
insolvent balance sheets obtained by our editors based on the
latest balance sheets publicly available a day prior to
publication. At first glance, this list may look like the
definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
Submissions about insolvency-related conferences are encouraged.
Send announcements to conferences@bankrupt.com
***********
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., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2018. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *