/raid1/www/Hosts/bankrupt/TCRLA_Public/221221.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, December 21, 2022, Vol. 23, No. 248
Headlines
A R G E N T I N A
ARGENTINA: Inflation Slowed to 4.9% in November
ARGENTINA: Pressing U.S. for Exception to Tap EV Tax Bonanza
PAN AMERICAN: Fitch Affirms LongTerm Foreign Currency IDR at 'BB-'
B R A Z I L
AMERICANAS SA: Moody's Cuts CFR to Ba2, Alters Outlook to Negative
BRAZIL: Minister Says Fiscal Expansion Won't Help at the Moment
BRAZIL: Probability Inflation Will be Above Target in 2023 is 57%
PETROLEO BRASILEIRO: Market Capitalization Loses US$5.6B in a Day
C O L O M B I A
COLOMBIA: Fitch Affirms 'BB+' Foreign Currency IDR, Outlook Stable
C O S T A R I C A
COSTA RICA: Aims to Join North American Trade Pact
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: S&P Raises LT Sovereign Credit Rating to 'BB'
J A M A I C A
JAMAICA: Gas Prices Fall to One-Year Low
- - - - -
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A R G E N T I N A
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ARGENTINA: Inflation Slowed to 4.9% in November
-----------------------------------------------
Buenos Aires Times, citing the INDEC statistics bureau, reports
that inflation in Argentina decelerated last month to 4.9 percent,
but price increases so far this year are among the highest in the
world at 85.3 percent.
The November rate was the lowest recorded monthly figure since
February when inflation reached 4.7 percent, according to Buenos
Aires Times, according to Buenos Aires Times.
Over the last 12 months, the cost of living has risen 92.4 percent
- the highest rate in 30 years, Buenos Aires Times relays.
However, there is now a good chance that annualized price hikes
will remain below the fearful three digits forecast by private
consultancy firms over the past few months, the report notes.
Public services and communications spearheaded last month's price
increases with food prices -- the most important item -- bringing
up the rear, according to INDEC. Food and non-alcoholic beverages
rose 3.5 percent in November, tampering down the overall price
index, Buenos Aires Times discloses. Elsewhere, education at 3.8
percent was the item rising the least,Buenos Aires Times says.
Housing, water, electricity, gas and other fuels was the item that
climbed the most (8.7 percent) with electricity and gas standing
out in particular due to the segmentation of public service billing
nationwide, which also affected water specifically in Greater
Buenos Aires, Buenos Aires Times relays. Communications came next
with 6.4 percent due to the impact of the rising cost of telephone
and Internet services, followed closely by alcoholic beverages and
tobacco at 6.3 percent (chiefly due to the increased price of
cigarettes), Buenos Aires Times notes.
Despite the deceleration of the monthly rate, social organisation
activists demonstrated outside supermarket doors across the country
to protest against the high cost of living and expensive food,
Buenos Aires Times notes.
President Alberto Fernández's government is trying to halt runaway
inflation via price agreements with different sectors, Buenos Aires
Times relays. Until now it has obtained pledges from food,
garment, footwear and petrol companies, among others, Buenos Aires
Times notes.
GDP Rise
Meanwhile, INDEC confirmed that Argentina's Gross Domestic Product
grew 1.7 percent in the third quarter of the year by comparison
with the second, the report relays.
Consumer spending drove activity, which was higher than the
previous quarter when there was one percent growth, the report
notes. Measured against the same month last year, the economy
expanded 5.9 percent according to INDEC data also divulged, the
report relays.
According to the Central Bank's regular monthly survey of analysts
and market experts, Argentina's economy will expand 5.3 percent
this year but slow down to under one percent growth in the
following - a year of presidential elections with drought affecting
crops, the report discloses.
Shoppers are feeling the strain at present, the report relays.
Within the food and beverages, fruit, mineral water, soft drinks,
juices, bread and cereals rose the most last month while vegetable
prices dropped in most regions, the report relays.
Core inflation (excluding regulated and seasonal prices) was
measured at 4.8 percent while the regulated prices rose 6.2 percent
(largely due to electricity, gas and water) and seasonal 4.1
percent, the report notes.
Last month, Economy Minister Sergio Massa relaunched a price
control programme under the name of "Precios Justos" whereby the
prices of over 1,700 products were temporarily frozen, the report
discloses. He has also negotiated agreements with petrol and
footwear companies among other industries to cap price increases,
the report relays. Central Bank officials consider that these
agreements, along with higher interest rates, contributed to
cooling down monthly inflation, the report notes.
The Central Bank's monthly survey had projected a November
inflation rate of 6.1 percent while estimating this year's
inflation at 99.1 percent, a percentage point below their 100
percent forecast in the previous month, the report says.
Regarding next year, participants foresee 2023 inflation of 99.7
percent (3.7 percentage points more than the previous survey) and
75 percent for 2024 (5.4 percentage points above the previous), the
report notes.
Argentina has been suffering from annual double-digit inflation for
years. Such persistent price increases impact poverty, which in the
first half of this year affected a population provisionally
measured at 47.32 million inhabitants in the May census, the report
relays. Last year's inflation was 50.9 percent, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Last March 25, 2022, Argentina finalized agreement with the IMF for
a new USD44 billion Extended Funding Facility (EFF) intended to
fund USD40 billion in looming repayments of the defunct Stand-By
Arrangement (SBA), with an extra USD4 billion in up-front net
financing. This has averted the risk of a default to the IMF and is
facilitating a parallel rescheduling of Paris Club debt.
As reported in the Troubled Company Reporter-Latin America on Nov.
18, 2022, S&P Global Ratings affirmed its 'CCC+/C' foreign currency
sovereign credit ratings on Argentina. S&P lowered the long-term
local currency sovereign credit rating to 'CCC-' from 'CCC+' and
the national scale rating to 'raCCC+' from 'raBBB-'. S&P also
affirmed its 'C' short-term local currency rating. The outlook on
the long-term ratings is negative. S&P's 'CCC+' transfer and
convertibility assessment is unchanged.
Last April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term
Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'.
Fitch said Argentina's 'CCC' ratings reflect weak external
liquidity and pronounced macroeconomic imbalances that undermine
debt repayment capacity, and uncertainty regarding how much
progress can be made on these issues under a new IMF program. On
July 19, 2022, Fitch Ratings placed Argentina's Long-Term Foreign
Currency Issuer Default Rating (IDR) and Long-Term Local Currency
IDR Under Criteria Observation (UCO) following the conversion of
the agency's Exposure Draft: Sovereign Rating Criteria to final
criteria. The UCO assignment indicates that ratings may change as a
direct result of the final criteria. It does not indicate a change
in the underlying credit profile, nor does it affect existing
Rating Outlooks.
Moody's credit rating for Argentina was last set at Ca on Sept. 28,
2020.
DBRS has also confirmed Argentina's Long-Term Foreign Currency
Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at
CCC (high) on July 21, 2022.
ARGENTINA: Pressing U.S. for Exception to Tap EV Tax Bonanza
------------------------------------------------------------
Buenos Aires Times reports that the world's fastest-growing lithium
producer is lobbying hard to gain access to US President Joe
Biden's new electric vehicle tax credits, despite Argentina not
meeting the requirement of being a US free-trade partner. So far,
it's being rebuffed, according to Buenos Aires Times.
Designed to end China's overwhelming dominance of the critical
metals sector and passed in August, Biden's signature Inflation
Reduction Act (IRA) has been welcomed as a landmark climate law
that will boost EV manufacture and uptake in the United States, the
report notes. But to qualify for the credits, it requires 80
percent of the battery metals in each vehicle to be "extracted or
processed" in the US or a country with US free-trade agreement by
2027, the report recalls.
That rules out Argentina, which on paper looks a logical partner in
Biden's push and could help alleviate supply constraints for
carmakers including Ford Motor Co and General Motors Co, the report
notes. The South American nation has one of the largest known
reserves of lithium, the biggest pipeline of new projects, and its
relations with the US have improved since Biden took office, the
report says.
The IRA has created a concern among Argentine officials that
they've discussed at several levels with US counterparts, according
to an Argentine official familiar with the mining secretary's
thinking, the report relays. Since the law has not yet been
implemented, both countries' embassies and Argentina's Foreign
Ministry are spearheading talks to receive an exception, the
official added, the report notes.
A spokeswoman from the US Commerce Secretary did not immediately
reply to an emailed request for comment.
After meeting with US Commerce Secretary Gina Raimondo last month,
Argentina's Production Secretary Jose de Mendiguren said of the
United States: "We want them to incorporate us into the new law on
inflation, so that we're in the chain of suppliers of lithium
products because up until now we're not there," the report
relates.
"If we can reach this agreement, we'll be able to integrate our
production with the United States' strategic production," he added.
The US Treasury has said it will provide more clarity around the
end of the year. But as it stands the wording of the IRA clearly
rules out non-FTA countries from refining the metals to a battery
grade level onshore, UBS battery-markets analyst Tim Bush said, the
report discloses.
It could also affect Indonesia, as its plan to process the majority
of its nickel - another key EV ingredient - onshore and also lacks
a free-trade agreement with the US, the report notes.
"It's possible they'd say you can extract it in Argentina or
Indonesia as long as it's processed in an FTA country," Bush said,
the report relays. "But if it's extracted and processed in
Indonesia, I can't see how they can possibly say that that's okay,"
he added.
"Ambiguous" Wording
The key to whether producers in Argentina and some other nations
will be eligible for the tax credits is in the interpretation of
"extracted or processed," according to Conrad Mulherin, director of
energy transition at PwC Australia, the report notes.
The "ambiguous" wording in the law could see countries like
Argentina and Indonesia excluded from the tax credits, making
achieving Biden's climate targets "very difficult," he said, the
report relays.
Still, he said the market outside the US was large - particularly
in China - and there would also still be a market for non-IRA
compliant battery metals in more expensive US vehicles that are not
eligible for tax credits, the report discloses.
But as it stands, the law raises questions over supply deals
between US carmakers and Argentine producers, the report relays.
Shortly before the IRA was announced, Rio Tinto Group, the world's
second-biggest miner, signed a non-binding agreement with Ford to
sell it lithium from its Rincon lithium project in Argentina, the
report notes.
Rio Tinto declined to comment on the future of this deal.
South Korean steel giant Posco Holdings Inc is also building a
lithium hydroxide refinery in Argentina, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Last March 25, 2022, Argentina finalized agreement with the IMF for
a new USD44 billion Extended Funding Facility (EFF) intended to
fund USD40 billion in looming repayments of the defunct Stand-By
Arrangement (SBA), with an extra USD4 billion in up-front net
financing. This has averted the risk of a default to the IMF and is
facilitating a parallel rescheduling of Paris Club debt.
As reported in the Troubled Company Reporter-Latin America on Nov.
18, 2022, S&P Global Ratings affirmed its 'CCC+/C' foreign currency
sovereign credit ratings on Argentina. S&P lowered the long-term
local currency sovereign credit rating to 'CCC-' from 'CCC+' and
the national scale rating to 'raCCC+' from 'raBBB-'. S&P also
affirmed its 'C' short-term local currency rating. The outlook on
the long-term ratings is negative. S&P's 'CCC+' transfer and
convertibility assessment is unchanged.
Last April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term
Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'.
Fitch said Argentina's 'CCC' ratings reflect weak external
liquidity and pronounced macroeconomic imbalances that undermine
debt repayment capacity, and uncertainty regarding how much
progress can be made on these issues under a new IMF program. On
July 19, 2022, Fitch Ratings placed Argentina's Long-Term Foreign
Currency Issuer Default Rating (IDR) and Long-Term Local Currency
IDR Under Criteria Observation (UCO) following the conversion of
the agency's Exposure Draft: Sovereign Rating Criteria to final
criteria. The UCO assignment indicates that ratings may change as a
direct result of the final criteria. It does not indicate a change
in the underlying credit profile, nor does it affect existing
Rating Outlooks.
Moody's credit rating for Argentina was last set at Ca on Sept. 28,
2020.
DBRS has also confirmed Argentina's Long-Term Foreign Currency
Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at
CCC (high) on July 21, 2022.
PAN AMERICAN: Fitch Affirms LongTerm Foreign Currency IDR at 'BB-'
------------------------------------------------------------------
Fitch Ratings has affirmed Pan American Energy S.L. Argentine
Branch's (PAE) Long-Term Foreign Currency (FC) Issuer Default
Rating (IDR) and its Long-Term Local Currency (LC) IDR at 'BB-'.
The Rating Outlook is Stable.
In conjunction with these rating actions, Fitch has affirmed the
ratings of the senior secured and unsecured notes issued by Pan
American Energy LLC Sucursal Argentina and Pan American Energy,
S.L., Argentine Branch, which are guaranteed by Pan American Energy
S.L. at 'BB-'.
Supporting factors for PAE's 'BB-' ratings are its stable
production track record, large reserve base, and low leverage. The
FC IDR is three-notches higher than Argentina's 'B-' Country
Ceiling due to the cash held abroad by the company, its access to
hard-currency credit lines, and cash flow from its Bolivian and
Mexican operations. The combination of these factors adequately
cover the next 24 months of debt service by a ratio in excess of
1.5x.
KEY RATING DRIVERS
Geographic Diversification: PAE's operations in Mexico and Bolivia
are positive credit considerations. However, the company's overall
credit quality remains highly tied to Argentina, as PAE's
operations in that country represent an estimated 80% of its EBITDA
in 2021. An increase contribution to EBITDA from Mexico and Bolivia
during the rating horizon, could result in the applicable Country
Ceiling changing from Argentina to Bolivia (Country Ceiling of B)
or Mexico (Country Ceiling of BBB+) per Fitch's Non-Financial
Corporates Exceeding the Country Ceiling Rating Criteria.
Stable Production Profile: PAE has a strong and stable production
profile that is consistent with a higher rating category. It is
expected to increase daily average production to over 240,000boe/d
by 2023 under Fitch's base case with production in 2022 projected
to grow by high-single digits. PAE's consolidated production
increased by 10% By September 2022, driven by higher Argentine gas
production (+11%). Fitch believes the company has extraordinary
flexibility from its strong reserve base, which allows production
adjustments to support profitability.
Strong Hydrocarbon Reserves: The company has a strong 1P reserve
life of 20 years, providing ample flexibility to adjust capex
investment. PAE reported 1,585MMboe in 1P reserves, 68% of which is
oil and 32% natural gas as of YE 2021. Fitch estimates PAE had oil
1P reserve life of 27 years and gas 1P reserve life of 14 years at
YE 2021. PAE's strong reserve base is supported by a strong
concession life. Operating concessions expire in 2046-2047, and the
company's Mexico asset has a remaining concession life of 24
years.
Solid Leverage Metrics: The company's capital structure remains
strong with gross leverage, defined as total debt to EBITDA, of
1.2x at LTM September 2022. Total debt to 1P reserves was
USD1.75/boe as of FY 2021. Fitch estimates the company's gross
leverage will average 1.4x between 2022-2025 as PAE's indebtedness
modestly increases to execute on expansion plans. The company has
solid access to capital and will likely refinance its debt at
competitive rates, especially with its Mexican asset in full
operation.
Integrated Business Model: PAE's integrated energy model in
Argentina gives the company flexibility to optimize profitability.
After the integration of Axion Energy by PAE, the company became
the largest private integrated energy company in Argentina. PAE's
upstream business is the largest private Oil & Gas company in the
country, and the largest private entity with 18% market share in
oil production and 14% in gas production in Argentina.
Axion was the third largest refiner in Argentina as of 3Q22 with a
15% market share with 95kbbl/d of refining capacity after the
refinery's successful modernization. PAE expects to operate the
refinery at 80% capacity and to produce higher-value products.
PAE's facility along with YPF are the only facilities in Argentina
that can process its heavy crude, which it generally exported. With
the completion of the expansion, PAE has greater flexibility to
meet domestic demand of diesel product, with the ability to adjust
its operations in line with domestic and international demand.
Strong Ownership: PAE is rated on a standalone basis. Per Fitch's
parent-subsidiary criteria, it views the legal, strategic and
operational incentive from its shareholders as low. The company's
primary shareholders, which is a 50/50 strategic alliance between
BP plc (A/Stable) and BC Energy Investments Corp. ([BC Energy]
formerly known as Bridas Corporation). BC Energy is also a 50/50
joint venture between Bridas Energy Holdings Ltd. and CNOOC Limited
(A+/Stable). Despite this, PAE's ratings are not impacted by those
of its shareholders. The company stands to benefit from their
industry and international expertise and relationships with global
creditors.
DERIVATION SUMMARY
PAE's FC IDR continues to be constrained by the Argentine Country
Ceiling at 'B-'; however, its medium production size of 240kboed
and strong 1P reserve life of close to 20 years compare favorably
to other 'BB' rated oil and gas E&P producers. These peers include
Tecpetrol Internacional (BB/Stable) with production of 195kboed,
Murphy Oil Corporation (BB+/Stable) with 150kboed and YPF SA (CCC-)
with 529kboed. Further, PAE reported 1,585 million boe of 1P
reserves at the end of 2021 equating to a reserve life of 20.9
years, higher than Murphy Oil's at 14 years and Tecpetrol's with 12
years. Fitch expects the company will be able to maintain its
strong reserve life.
PAE's capital structure remained strong in YE 2021 and through the
3Q22. Fitch estimates PAE 2022 gross leverage measured by total
debt to EBITDA to be 1.1x, down from 1.7x at YE 2021, in line with
Murphy Oil (2.3x), but higher than Tecpetrol (estimated 0.9x). On
debt to 1P reserve basis, Fitch estimates PAE's debt as of 2021 to
1P reserves at USD1.75 boe compared to Tecpetrol (USD1.30boe),
Murphy Oil (USD3.4boe) and YPF (USD6.50boe). PAE operates in a
lower operating environment (OE), which is a constraining factor
for its ratings, but receives a three notch uplift from the Country
Ceiling due to its cash flows from export revenues and cash flows
from abroad.
KEY ASSUMPTIONS
- Fitch's price deck is applied at USD100bbl in 2022, USD70bbl in
2022, USD85bbl in 2023 and USD53bbl in the long term;
- Reserve replacement ratio of 102% per annum;
- Domestic gas price of USD3.7MMBTU in 2022 and USD3.50MMBTU over
the rated horizon;
- Average gross production of 225,000boe/d-240,000boe/d from
2022-2025;
- Production cost of $9.5boe between 2022-2025;
- Royalties of $7.5boe between 2022-2025;
- SG&A of $6.0boe between 2022-2025;
- Annual consolidated capex averaging of USD1,400 million per year
from 2022-2025;
- No dividend payments.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Cash flows from operations outside of Argentina (Bolivia and
Mexico) adequately covering hard currency gross interest expense
for 12 months, resulting in a higher applied Country Ceiling than
Argentina (B-).
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Downgrade of the Country Ceiling of Argentina;
- PAE's ratings could be negatively affected if hard-currency
liquidity is weakened by capital controls;
- Inability to renew hard-currency committed credit lines from
highly rated international banks.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Fitch believes PAE can comfortably service debt
with cash on hand and cash flows through the rating horizon in the
event the company faces a challenging financing environment due to
the Argentina's capital controls. PAE also has a strong and
conservative track record of tapping local and international
markets and accessing capital at competitive rate.
ISSUER PROFILE
PAE is a leading integrated energy company with upstream and
downstream operations in Argentina, as well as upstream operations
in Bolivia and Mexico. It is the second largest oil and gas
producer in Argentina and the largest exporter of oil.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Pan American
Energy, S.L,
Argentine Branch LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
senior secured LT BB- Affirmed BB-
Pan American
Energy LLC
Sucursal Argentina
senior unsecured LT BB- Affirmed BB-
===========
B R A Z I L
===========
AMERICANAS SA: Moody's Cuts CFR to Ba2, Alters Outlook to Negative
------------------------------------------------------------------
Moody's Investors Service has downgraded to Ba2 from Ba1 Americanas
S.A.'s Corporate Family Rating and the ratings of senior unsecured
notes issued by JSM Global S.a r.l. and B2W Digital Lux S.a r.l.,
both guaranteed by Americanas S.A. The outlook was changed to
negative from stable.
Downgrades:
Issuer: Americanas S.A.
Corporate Family Rating, Downgraded to Ba2 from Ba1
Issuer: B2W Digital Lux S.a r.l.
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2
from Ba1
Issuer: JSM Global S.a r.l.
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2
from Ba1
Outlook Actions:
Issuer: Americanas S.A.
Outlook, Changed To Negative From Stable
Issuer: B2W Digital Lux S.a r.l.
Outlook, Changed To Negative From Stable
Issuer: JSM Global S.a r.l.
Outlook, Changed To Negative From Stable
RATINGS RATIONALE
The rating action follows the deterioration in the company's
interest coverage and other debt protection credit metrics such as
leverage and retained cash flow to net debt which Moody's believes
will persist in the next 12 to 18 months. Moody's has observed a
sharp increase in interest expense because of higher interest rates
in Brazil. Despite the evolution of sales, better gross margin and
increasing EBITDA, these will not be sufficient to mitigate the
higher interest cost in the near-term. Moody's believes interest
expense will more than double to BRL3 billion in 2022 compared to
BRL1.4 billion 2021. As of September 2022, the majority of
Americanas' debt was indexed by the Interbank Deposit Certificate
(CDI), a proxy for Brazil's basic interest rate Selic. This
includes its dollar denominated debt which is hedged to swap
foreign exchange exposure for CDI variation. Net CDI exposure in
September 2022 was of BRL12 billion. The Brazilian Central Bank
increased the Selic rate from 2.0% in March 2021 to 13.75% in
August 2022.
Americanas S.A.'s Ba2 ratings incorporate its competitive position
as one of the largest retailers in Brazil with relevant integration
of online and physical stores. The company's adequate liquidity
also supports the rating. The rating reflects management's strong
execution track-record and the company's ecosystem with its
omni-channel capabilities linking a diverse retail portfolio of
flexible small ticket items in brick-and-mortar outlets (shopping
mall and street stores, fresh produce and food, convenience stores,
apparel), e-commerce and marketplace as well as its large
proprietary logistics footprint in Brazil and expanding financial
services platform that together result in very stable sales through
economic downturns. The track record of shareholders supporting the
business is also credit positive.
Constraining the ratings is the aggressive growth strategy that
requires large capital spending for organic growth as well as M&A
activity. Also, the low interest coverage ratios linked to high
interest costs. Additionally, Americanas has been growing in the
very competitive online market where Moody's expects competition to
continue to increase in the coming years, which could result in
tighter margins and/or lower growth rates. Despite the increasing
sales and higher EBITDA generation, a sharp increase in interest
rates since 2021 will continue to strain interest burden through
2023.
Americanas made an aggressive use of its cash in 2021 and 2022,
despite of that liquidity remains adequate with an adequate
maturity schedule – no major maturities until 2025 - and cash
covered short-term debt by 5.4x times in September 2022. In terms
of working capital Americanas increased inventory levels to prepare
for year-end sales and anticipated suppliers working capital needs
all leading to a cash consumption of BRL991 million by September
2022. The company also reduced anticipation of credit card
receivables from issuer banks to 31.9% of available receivables
from 57.8% in September 2021, which increases receivables days, but
reduces relative interest costs. In 2021 Americanas made BRL2.4
billion in acquisitions. Hortifruti Natural da Terra (HNT) was the
most relevant at a cost of BRL2.1 billion. Moody's believes HNT
acquisition was accretive with an strategic fit, higher recurrence
of clients and non-discretionary nature of the business.
Coverage has deteriorated. Moody's expects EBIT/Interest Expense to
end 2022 at 0.78x. The estimated ratio for 2023 and 2024 is higher
at 0.99x and 1.40x respectively with higher EBITDA generation and
declining interest rates in 2024. Likewise, Retained Cash Flow
(RCF)/Net Debt should end 2022 at 6.6%, then increasing in 2023 and
2024 to 19.7% and 32.2%, respectively.
The negative rating outlook incorporates the possibility that
credit metrics do not recover from current levels or remain below
Moody's expectations for 2023. Also, any deterioration in liquidity
could precipitate a rating downgrade.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if the company fails to maintain an
adequate liquidity. Negative pressure on the rating could also
emerge from a perception of diminishing shareholder support.
Quantitatively, a downgrade would require (all Moody's-adjusted
metrics):
EBIT/interest expense to remain below 1.2x
gross debt/EBITDA to remain above 4.5x, with RCF/net debt below
15%
A positive rating action would require strong liquidity and a rapid
and sustainable improvement in free cash flow. Quantitatively, a
positive rating action would also require (all Moody's-adjusted
metrics):
EBIT/interest expense to remain above 2.0x
adjusted gross leverage to remain below 3.0x
RCF/net debt above 25%
Headquartered in Rio de Janeiro, Americanas S.A. is one of the
largest retailers in Brazil with a nationwide presence, largest
store footprint and own logistics footprint. The company has more
than 3,600 physical stores in different formats that are integrated
with its digital platform. The digital platform comprises both
e-commerce operations (1P) and marketplace platforms (3P), and has
reached more than BRL58.1 billion in gross merchandise value (GMV).
In the 12 months that ended September 2022, it reported net revenue
of BRL27.9 billion ($5.3 billion, converted using the average
exchange rate for the period), with an adjusted EBITDA margin of
14.2%.
The principal methodology used in these ratings was Retail
published in November 2021.
BRAZIL: Minister Says Fiscal Expansion Won't Help at the Moment
---------------------------------------------------------------
Reuters reports that Brazil's incoming finance minister Fernando
Haddad said fiscal expansion would not help the economy at the
moment, downplaying market jitters on an expected spending boost
starting next year.
"There are situations that demand countercyclical actions . . . but
we are not at a moment when fiscal expansion will help the
economy," he said in an interview with TV channel GloboNews,
according to Reuters.
Haddad said the multi-billion spending package backed by leftist
President-elect Luiz Inacio Lula da Silva meets campaign promises
and fixes budget holes that right-wing incumbent Jair Bolsonaro
left for 2023, the report relays.
It still has to be approved by the lower house of Congress after
passing the Senate, the report notes.
Haddad said the only possible stimulus would come from the central
bank cutting rates, but that would depend on signaling
sustainability for public accounts, the report relays.
"If we signal that we have restructured public accounts in a
sustainable way, it will be possible to bring interest rates" down,
he added, notes the report.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He will be sworn in on January 1, 2023, as the
39th president of Brazil, succeeding Jair Bolsonaro.
In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign
Currency Issuer Default Rating at 'BB-' and revised the Rating
Outlook to Stable from Negative. In June 2022, S&P Global Ratings
also affirmed its 'BB-/B' long- and short-term foreign and local
currency sovereign credit ratings on Brazil. Moody's, in April
2022, affirmed Brazil's long-term Ba2 issuer ratings and senior
unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and
maintained the stable outlook. On the other had, DBRS, in August
2022, confirmed Brazil's Long-Term Foreign and Local Currency
Issuer Ratings at BB (low).
BRAZIL: Probability Inflation Will be Above Target in 2023 is 57%
-----------------------------------------------------------------
Rio Times Online reports that the Central Bank (BC) said on
Thursday (Dec. 15) that the probability of Brazilian inflation
being above the target in 2023 is 57%.
The monetary authority's current projections indicate that the
annual rate will be 5% next year, above the permitted range of
2.75% to 4.75%, according to Rio Times Online.
The estimates were released in the Quarterly Inflation Report, the
report relays.
Brazil's inflation target is 3.25% in 2023, but there is a
tolerance of 1.5 percentage points, more or less, the report
notes.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He will be sworn in on January 1, 2023, as the
39th president of Brazil, succeeding Jair Bolsonaro.
In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign
Currency Issuer Default Rating at 'BB-' and revised the Rating
Outlook to Stable from Negative. In June 2022, S&P Global Ratings
also affirmed its 'BB-/B' long- and short-term foreign and local
currency sovereign credit ratings on Brazil. Moody's, in April
2022, affirmed Brazil's long-term Ba2 issuer ratings and senior
unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and
maintained the stable outlook. On the other had, DBRS, in August
2022, confirmed Brazil's Long-Term Foreign and Local Currency
Issuer Ratings at BB (low).
PETROLEO BRASILEIRO: Market Capitalization Loses US$5.6B in a Day
-----------------------------------------------------------------
Richard Mann at Rio Times Online reports that the lightning
approval of the change promoted by the House of Representatives in
the State Law made Petrobras lose BRL30 (US$5.6) billion in market
value in a single day, according to a survey conducted by the
TradeMap platform.
At the close of the stock market on Dec. 14, the preferred shares
of the oil company recorded a drop of 7.9%, while the common shares
had an even worse performance, accumulating a loss of 9.8%,
according to Rio Times Online.
The stock market, in turn, registered a high of 0.2%, the report
relays.
Headquartered in Rio de Janeiro, Brazil, Petroleo Brasileiro S.A.
Petrobras explores for and produces oil and natural gas. As
reported in the Troubled Company Reporter-Latin America on July 22,
2022, Fitch Ratings has affirmed Petrobras' BB- Long-Term Issuer
Default Rating. In addition, Fitch has revised the Rating Outlook
to Stable from Negative following a similar revision to Brazil's
Sovereign Rating Outlook.
Egan-Jones Ratings Company on July 8, 2022, upgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Petrobras to BB+ from BB.
===============
C O L O M B I A
===============
COLOMBIA: Fitch Affirms 'BB+' Foreign Currency IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Colombia's Long-Term Foreign Currency
Issuer Default Rating (IDR) at 'BB+'. The Rating Outlook is
Stable.
KEY RATING DRIVERS
Stable Credit Fundamentals: Colombia's ratings reflect the
country's track record of macroeconomic and financial stability
underpinned by an independent central bank with an inflation
targeting regime and a free-floating currency. The ratings are
constrained by the high fiscal deficits , which have already
resulted in relatively large increases in debt and interest burdens
relative to 'BB' peers, as well as high commodity dependence and
weaker external accounts.
Petro Initiates Reform Agenda: The Gustavo Petro administration
pledges to boost social expenditures with key reforms in
healthcare, pensions and other areas. Petro's administration also
seeks to transform Colombia's economy by reducing its dependence on
extractive industries while focusing on renewable energy, possibly
ending new oil exploration and banning fracking, which if
implemented could create uncertainties for the sector and undermine
investment.
The president was able to develop a working majority in the
congress by achieving alliances with many center-left and leftist
parties. As a result, Petro has passed significant tax reform
within his first few months in office, which is expected to yield
revenues of 1.3% of GDP in its first year and help fund pledged
increases to social expenditure.
Policy uncertainties are expected to remain over the coming year.
Petro's reform agenda during 2023 is expected to shift to focus on
the potentially controversial pension reform. However, the Petro
administration has pledged to adhere to Colombia's fiscal and
monetary framework, adhering to the independence of the central
bank and the updated fiscal rule.
Sharp Economic Slowdown in 2023: Fitch expects Colombia's economic
growth to slow sharply in 2023 to just 1.1%, after robust growth of
7.7% in 2022 and 10.7% in 2021, driven in large part by a
consumption boom, while investment remains below pre-pandemic
levels. The slowdown will be the result as a result of a number of
headwinds, including a significant fiscal adjustment via higher
taxes, tighter external and domestic financial conditions.
Fitch also projects lower average oil prices, weaker global growth
and higher global interest rates that could hinder growth. Fitch
expects Colombia's growth to return to its historical trend pace in
the medium term, but this will be sensitive to the microeconomic
policy orientation under the Petro government.
Inflation Proves Sticky: Colombia's inflation has steadily risen
over the last 12 months, reaching 12.5 % in November (from 5.6% in
August). Supply chain issues are largely behind the 25% increase in
food inflation. Additionally, an expenditure boom in 2022, higher
electricity prices, the weaker Colombian peso, and indexation have
fueled inflation. One-year inflation expectations have risen to
7.5% in the Central Bank's November survey, while two-year
expectations were at 4.7%, also above the 3% inflation target.
The central bank has increased interest rates by 925 basis points
since tightening cycle began in October 2021. The last increase was
100 basis points in October 2022 with a further 100 basis point
increase expected at its last monetary policy meeting in December.
Fiscal Adjustment Beginning in 2023 Expected: Fitch forecasts a
general government (GG) fiscal deficit of 6.7% of GDP in 2022, only
modestly better from the fiscal outturn in both 2020-2021. Despite
buoyant tax collections and high oil prices, Colombia's fiscal
deficit will remain elevated in large part due to fuel subsidies
(expected to reach over 2% of GDP in 2022) and an interest bill
that is rising sharply given the indexation of a portion of debt to
rising inflation.
Fitch forecasts the GG deficit to fall to 4.5% of GDP in 2023 as
the impact of last year's tax reform is felt, pandemic-related
expenditures wind down, and fuel subsidies decline as projected in
the budget, as oil prices fall and government increases oil prices
at the pump gradually, offset in part by pledged increases in
social expenditures.
Debt Largely Stabilizing: After rising by nearly 14 percent points
in 2020, GG debt is projected to remain stabilize at around 60% of
GDP in 2022 despite high nominal GDP growth (nearly 20%), due to
the high fiscal deficit and currency depreciation. Fitch expects GG
debt/GDP to rise gradually over the forecast period, staying
modestly above the 'BB' median. Further efforts would likely be
necessary to reduce the debt level in a meaningful way thereafter.
Current Account Deficit to Narrow: Colombia's current account
deficit (CAD) is expected to moderate to 4.5% of GDP in 2023 as
imports fall. The current account is estimated to reach 5.9% of GDP
in 2022, little changed from the 5.7% of GDP in 2021, driven by
sharply higher imports due to a consumption boom as well profit
remittances, largely by the extractive sector. The relatively large
CADs continue to be largely financed by FDI (estimated over 60% of
the total deficit for 2022).
Higher External Debt, Adequate Liquidity: Colombia's net external
debt has risen over the last decade to a projected 22% of GDP in
2022, from just 2% in 2012, driven to a large extent by public
sector external borrowing, and is now higher than the 'BB' median.
Colombia's reserves are expected to continue to cover a relatively
high six months of CXP through the forecast period. Furthermore,
the IMF approved a new two-year Flexible Credit Line with Colombia
in April 2022 for USD9.8 billion.
ESG - Governance: Colombia has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in its proprietary Sovereign
Rating Model. Colombia has a medium WBGI ranking at 43.4 reflecting
a recent track record of peaceful political transitions, a moderate
level of rights for participation in the political process,
moderate institutional capacity, established rule of law and a
moderate level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Public Finances: A failure to achieve fiscal consolidation that
leads to a significant deterioration in Colombia's general
government debt-to-GDP ratio relative to the 'BB' peer median;
Macro: Deterioration of investment and medium-term growth prospects
with adverse social ramifications, such as high unemployment and
poverty levels;
External Finances: Marked increase in external vulnerabilities, for
example due to continued large current accounts deficits, a sharp
fall in foreign direct investment and/or increase in net external
debt-to-GDP.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Public Finances: Achievement of fiscal consolidation consistent
with a steadily declining general government debt-to-GDP ratio and
enhanced fiscal policy credibility;
Macro: Higher sustained medium-term economic growth above
Colombia's historical averages, accompanied by broader
macro-financial stability;
Structural: Improvement in governance indicative of better social
cohesion and momentum around reforms that could improve Colombia's
structural fiscal position and medium-term growth prospects.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Colombia a score equivalent to a
rating of 'BB' on the Long-Term Foreign Currency IDR scale.
Part 2b. = QO adjustments
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final Long-Term Foreign Currency IDR by applying
its QO, relative to SRM data and output, as follows:
- Macro: +1 notch added to offset the deterioration of inflation
and GDP growth volatility variables in the SRM due to the current
position in the economic cycle, which Fitch expects will be
temporary, and would otherwise add excess volatility to the rating.
Colombia has a track record of stable economic growth, with only
two years of contractions in the past 50 years.
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 Long-Term Foreign Currency 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 its criteria that are not fully quantifiable and/or
not fully reflected in the SRM.
ESG CONSIDERATIONS
Colombia has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Colombia has
a percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Colombia has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore high relevant to the rating and are a key
rating driver with a high weight. As Colombia as a percentile rank
below 50 for the respective Governance Indicators, this has a
negative impact on the credit profile.
Colombia has an ESG Relevance Score of '4[+]'for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Colombia has a percentile rank above 50 for the
respective Governance Indicator, this has a positive impact on the
credit profile.
Colombia has an ESG Relevance Score of '4[+]' for Creditor Rights
as willingness to service and repay debt is relevant to the rating
and is a rating driver for Colombia, as for all sovereigns. As
Colombia has track record of 20+ years without a restructuring of
public debt and captured in its SRM variable, this has a positive
impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of 3. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity(ies), either due to their nature or to the way in which
they are being managed by the entity(ies).
Entity/Debt Rating Prior
----------- ------ -----
Colombia LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Country Ceiling BBB- Affirmed BBB-
senior
unsecured LT BB+ Affirmed BB+
===================
C O S T A R I C A
===================
COSTA RICA: Aims to Join North American Trade Pact
--------------------------------------------------
Rio Times Online reports that Costa Rica has informed the United
States that it is interested in joining the North American Trade
Pact between the United States, Mexico and Canada.
This was announced by President Rodrigo Chaves. Chaves said he has
sent a message to the White House expressing his desire to join the
US-Mexico-Canada Trade Agreement (USMCA), the modern twist on the
quarter-century-old North America Free Trade Agreement (NAFTA),
according to Rio Times Online.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: S&P Raises LT Sovereign Credit Rating to 'BB'
-----------------------------------------------------------------
On Dec. 19, 2022, S&P Global Ratings raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'.
Outlook
The stable outlook reflects S&P's expectation of continued
favorable GDP growth and policy continuity over the next 12-18
months that will likely stabilize the government's debt burden.
Downside scenario
S&P said, "We could lower the ratings over the next 12-18 months if
economic growth loses momentum, potentially resulting in higher
fiscal deficits and a worsening external profile. We could also
lower the ratings if the current challenges in passing reforms
translate into structurally higher fiscal deficits and debt."
Upside scenario
S&P could raise the ratings over the next 12-18 months if the
Dominican Republic demonstrates capacity to pass and implement
reforms that improve its fiscal and debt planning, leading to lower
government deficits.
Rationale
The upgrade to 'BB' is based on the Dominican Republic's
fast-growing and resilient economy. Despite its vulnerability to
external shocks, the country has proven its capacity to rapidly
bounce back in the aftermaths, thanks to somewhat predictable
economic policies.
The country has historically faced political and social challenges
in passing structural reforms to reduce fiscal deficits, despite
recent improvements in the electricity sector. The ratings are
constrained by relatively high debt, around 53% of GDP; a hefty
interest burden, at 20% of government revenues; and limited
monetary policy flexibility.
Institutional and economic profile: Stronger institutions support
high economic growth, although delays in key structural reforms
could lead to fiscal pressures
-- The Dominican Republic posted an impressive economic recovery,
not only surpassing pre-pandemic income but also resuming its
long-term trend growth.
-- A narrow political spectrum and limited polarization between
parties allow for some predictability in policies, favoring
economic growth prospects.
-- Social and political challenges will continue to delay the
passage of structural reforms, despite the government's strong
mandate in Congress and high popularity.
The Dominican Republic has gradually strengthened its public
institutions, reflected in its capacity to maintain high economic
growth rates and improve its fiscal planning and debt management.
The lack of political polarization between parties has led to a
narrow political spectrum and provided some visibility on economic
policies, mostly pro-business and market friendly.
However, the country continues to face challenges in passing and
implementing structural reforms (such as a modifications to the tax
system or the electricity sector). This weakness has contributed to
a deterioration in public finances over the last two decades. In
spite of these delays in key reforms, the administration of
President Luis Abinader, of the Partido Revolucionario Moderno
(PRM), was able to advance some complementary measures. For
example, it secured approval of the Electricity Pact in 2021,
dismantling the inefficient energy utility conglomerate and setting
the path for a gradual increase in electricity tariffs, which were
frozen for 10 years. It also bolstered the independence of the
judiciary in order to fight corruption.
Nonetheless, the government's decision to postpone a long-standing
tax reform and the temporary suspension of electricity tariff hikes
demonstrate shortcomings in its ability to undertake forceful and
timely measures to strengthen public finances. We don't expect a
meaningful tax reform during the next two years, despite the
government having working majorities in both chambers of Congress
and high popularity. But there could be complementary measures to
maintain pro-investment policies and other steps to boost tax
revenues and contain spending.
Counterbalancing this structural feature, the Dominican economy's
impressive economic dynamism has mitigated external and fiscal
risks. Backed by good prospects for tourism and private-sector
investment in free-trade zones and construction, GDP is set to grow
around 4%-5% over the next three years. As a result, per capita GDP
will average $11,000 over the next three years. The Dominican
Republic is one of the first countries in the region to resume its
pre-pandemic long-term trend growth.
The Dominican economy is relatively diversified--and, as a result,
relies on different sectors to generate economic growth. Tourism,
one of the pillars of the economy, posted a very strong recovery
following the last shock, and arrivals already exceed 2019 levels.
Good public- and private-sector coordination has helped to
compensate shortfalls in demand stemming from the global economic
deceleration and the Russia-Ukraine conflict. On the other hand,
ongoing private investment, construction, domestic consumption
(helped by remittances), and manufacturing from free-trade zones
are driving economic reactivation.
Despite the strong economic performance, the country's social and
educational indicators remain relatively weak. Poverty has
consistently fallen over the past decade but remains around 20%. As
a result of the pandemic, the quality of jobs has deteriorated, and
the rate of informality has risen to about 60%.
Flexibility and performance profile: Exchange rate appreciation has
helped contain fiscal and debt risks, although external
vulnerabilities remain
-- Rising foreign currency inflows from tourism, exports,
remittances, and long-term foreign direct investment are moderating
external debt vulnerabilities, although a more expensive oil bill
could lead to external pressures.
-- Higher government revenue collection is reducing the fiscal
deficit and stabilizing the debt burden, although some
infrastructure projects remain underexecuted.
-- The central bank's contractive monetary policy is anchoring
expectations, and we expect inflation to return to the target of 4%
over the coming years.
-- Exchange rate appreciation has partially mitigated external
vulnerabilities, although S&P considers there might be pronounced
volatility in the presence of unexpected external shocks. The rapid
economic recovery and the hike in energy prices globally are
increasing imports substantially, which is only being partially
compensated by tourism receipts, free-trade zones exports, and
remittances.
S&P said, "We expect current account deficits (CAD) to widen to
around 5% of GDP in 2022 and gradually narrow to 3% over the next
three years. Having said that, we expect the CAD to continue being
financed by either foreign direct investment (FDI), projected at
3.2% of GDP in 2021-2024, or other capital inflows. Despite the
sizable deterioration in the CAD, the Dominican peso has
appreciated throughout 2022 while the central bank continued to
accumulate reserves, which indicates that external risks are
relatively contained.
"We think the external and debt profiles could be subject to
volatility if the current dynamics were to reverse. We project
external debt to decrease toward 78% of current account receipts
(CARs) in 2022-2025, from a peak of 114% in 2020. Nonetheless, the
Dominican Republic remains exposed to sudden changes in FDI flows
since net external liabilities, which include the high inward stock
of FDI, account for about 180% of CARs. External liquidity remains
relatively stable as central bank foreign exchange reserves
currently exceed 13% of GDP. As a result, we expect the country's
gross external financing needs to remain about 89% of CARs plus
usable reserves during 2022-2025.
"While still low in terms of GDP compared with peers, government
revenues are rising, in line with the impressive economic recovery,
and the government has been able to adjust capital expenditures to
meet its budget. The government has also introduced subsidies to
oil and gas to mitigate the deterioration in households' disposable
income, while the decision to suspend electricity tariff
adjustments will likely translate into a higher deficit in the
electricity sector. We project the general government deficit to
stabilize around 3.9% of GDP this year and to slightly decrease
toward 3% over the next three years. Our definition of general
government includes the central government and the central bank
quasi-fiscal deficit, which accounts for around 1.0% of GDP.
"We do not project a substantial increase in government revenues
(as a share of GDP), given that we are assuming no tax reform over
the next two years.
"We expect the government to continue financing its fiscal deficits
largely through external borrowings, mainly in international debt
markets but also with official creditors. Despite some deepening in
recent years, shallow domestic markets limit the government's
capacity to raise debt internally.
"As a result of fiscal consolidation efforts and exchange-rate
appreciation this year, we expect the change in net general
government debt to remain around 3.1% of GDP in 2022, and widen to
4%-5% over the next three years. We expect the sovereign's net debt
to stabilize around 53% of GDP over the next three years, from a
peak of 65% in 2020. The net debt stock includes central bank
certificates (14% of GDP) and excludes the bonds that the central
government issued to capitalize the central bank (3% of GDP)
following the 2003-2004 bailout to the banking sector. Furthermore,
the historical reliance on international markets results in
vulnerability to currency depreciation, given that central
government debt in foreign currency is about 70% of total debt.
"With the hike in interest rates globally, we project interest
payments to increase and remain very high, around 21% of general
government revenues in 2022-2025, an important rating weakness for
the Dominican Republic. That one-fifth of government revenues are
devoted to interest payments leaves limited fiscal flexibility, and
highlights the importance of increasing government revenues.
However, the government refinanced its domestic and international
debt over the past years, mitigating rollover risks. Our interest
payment ratio incorporates the interest paid to the central bank as
a result of its quasi-fiscal deficit, which is around 2% of general
government revenue."
The central bank has tightened monetary policy as inflation
increased owing to higher energy and food prices globally, and
electricity tariff adjustments domestically. The bank increased its
policy rates to 8.5% currently, after keeping them at 3% throughout
the pandemic. It also continued reducing the extraordinary
liquidity injected into the financial sector to withstand the
external shock. Contractive monetary policy is already anchoring
expectations, and we expect inflation to remain within the central
bank's target (4% plus or minus 1%) within the next two years.
The central bank's quasi-fiscal losses, a low level of domestic
credit (about 30% of GDP), and shallow domestic debt and capital
markets constrain the effectiveness of monetary policy. An ongoing
negotiation between the Finance Ministry and the central bank could
allow for a gradual recapitalization of the bank, easing the
central government's interest burden and strengthening its policy
tools.
S&P said, "We consider the banking sector's contingent liabilities
to be limited, given its relatively small size, estimated at 55% of
GDP. The financial sector is concentrated in a few large banks,
which we consider to be systemic and have strong capital and
liquidity ratios. Since the banking crisis in 2003, the central
bank has improved regulation and financial-sector oversight."
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
Other governance factors
=============
J A M A I C A
=============
JAMAICA: Gas Prices Fall to One-Year Low
----------------------------------------
RJR News reports that some fuel categories will hit their lowest
since December 2021, as gas prices continue to decline.
A litre of 87 and 90 gasoline will sell for $4.50 less, according
to RJR News.
This is the lowest ex-refinery rate since December 23 last year,
the report notes.
Diesel and ultra low sulphur diesel will also sell for $4.50 less,
the report relays.
Additionally, kerosene will cost 4.50 less, the report notes.
Butane will, however, go down by $1.29, the report adds.
As reported in the Troubled Company Reporter-Latin America in March
2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
*********
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 2022. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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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 * * *