/raid1/www/Hosts/bankrupt/TCRLA_Public/230309.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Thursday, March 9, 2023, Vol. 24, No. 50
Headlines
A R G E N T I N A
ARGENTINA: Strike Halts Bus Lines in Buenos Aires Metro Area
B R A Z I L
BRAZIL: Bank Lending Down for the First Time in a Year in January
BRAZIL: Closely Monitoring Credit Market to Ensure Liquidity
BRAZIL: Market Projects 11th Consecutive Inflation Hike for 2023
C H I L E
VTR FINANCE: Fitch Cuts LongTerm IDRs to 'B-', On Watch Negative
C O S T A R I C A
INSTITUTO COSTARRICENSE: Fitch Hikes IDRs to 'BB-', Outlook Stable
T R I N I D A D A N D T O B A G O
ATLANTIC LNG: To Lay Off Staff
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Strike Halts Bus Lines in Buenos Aires Metro Area
------------------------------------------------------------
Buenos Aires Times reports that bus workers in the Buenos Aires
Metropolitan Area (AMBA) launched strike action, bringing more than
50 lines to a halt and sparking transport chaos.
Unionised workers from the Doscientos Ocho Transporte Automotor S.
A. (DOTA) group walked off the job saying they were seeking the
payment of a salary debt and improved wages, according to Buenos
Aires Times. The strike affects a large part of the bus service
for Buenos Aires City and its surrounding suburbs, with more than
50 lines not running, the report notes.
The lines that are on strike are: 5, 6, 7, 8, 9, 20, 21, 23, 24,
25, 28, 31, 44, 50, 51, 56, 57, 57, 74, 76, 79, 84, 91, 99, 101,
107, 108, 117, 135, 135, 146, 150, 161, 164, 168, 177, 188, 263,
271, 299, 370, 373, 384, 385, 388, 403, 405, 421, 429, 435, 503 San
Vicente, 514 Almirante Brown, 520 Lanús, teh report notes. In
addition, some other lines of the DOTA Group, such as the 100, will
continue to operate but with less frequency, the report discloses.
The strike entered into force on midnight and will continue "until
the situation is resolved," the workers said in statement, the
report notes.
Thousands of passengers in the Buenos Aires Metropolitan Area have
already been affected by the action, and many more may join the
list, as several lines could join the measure if the wage conflict
is not resolved soon, the report relays.
According to an agreement signed in January, workers were to
receive a 10 percent increase that was to be paid over the course
of February, the report relays. This has not been paid, says the
workers, the report discloses. Until now, DOTA has not
communicated with the workers' representatives nor deposited the
claimed balance, they added.
The interruption to many bus lines sparked chaotic scenes, with the
strike falling on the day many children across the AMBA region
began the school year, tehr eport relays. Train lines were
overloaded, and the Panamericana and Western highways were busier
than usual, with delays at the junction with Avenida General Paz
and the area of Haedo, the report notes.
Following a threat of strike action from the the Union Tranviarios
Automotor (UTA), the government announced that it will grant a
total of 28 billion to urban and suburban public transport
companies in the interior of the country in the form of subsidies,
the report says. The measure envisages the payment of up to seven
billion pesos during January, February, March and April of this
year, 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.
S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign
currency and 'CCC-/C' local currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings remains negative.
S&P's 'CCC+' transfer and convertibility assessment is unchanged.
The negative outlook on the long-term ratings reflects risks
surrounding pronounced economic imbalances and policy uncertainties
before and after the 2023 national elections. Global capital
markets are closed to Argentina. Moreover, disagreement within the
government coalition and infighting among the opposition constrains
the sovereign's ability to implement timely changes in economic
policy.
Fitch Ratings, on the other hand, downgraded in October 2022
Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC)
Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade
reflects deep macroeconomic imbalances and a highly constrained
external liquidity position, which Fitch expects to increasingly
undermine repayment capacity as foreign-currency debt service ramps
up in the coming years.
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS 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.
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B R A Z I L
===========
BRAZIL: Bank Lending Down for the First Time in a Year in January
-----------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that outstanding
loans in Brazil decreased by 0.3% in January, according to central
bank data, marking the first decline in a year.
The result suggests a slowdown that is likely to gain momentum in a
scenario of high borrowing costs following the aggressive monetary
tightening implemented by the central bank to curb inflation,
according to globalinsolvency.com.
Outstanding loans fell to 5.3 trillion reais ($1 trillion) in
January, with loans to companies decreasing by 2.4%, while credit
to families rose by 1.1%. Over the past 12 months, total credit
expansion was 13.6%, down from 14.0% in the previous month, the
report notes.
Fernando Rocha, head of the central bank Statistics Department,
said that credit retraction to companies followed a seasonal
behavior, although the drop was "slightly greater" this time from
the same month in 2022, the report relays.
After Brazilian retailer Americanas SA entered into bankruptcy
protection in Brazil, Rocha stated that it is too soon to say
whether the case has impacted the credit market, the report
discloses. Bank loans in Latin America's largest economy have
decelerated amid more expensive credit, as the country's benchmark
interest rate stands at 13.75% from a record low of 2% in March
2021, the report adds.
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 was sworn in on January 1, 2023, as
the 39th president of Brazil, succeeding Jair Bolsonaro.
As recently reported in the Troubled Company Reporter-Latin
America, Fitch Ratings, in December 2022, affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Outlook. The ratings are constrained by high
government indebtedness, a rigid fiscal structure, weak economic
growth potential, and a record of governability challenges that
have hampered efforts to address these fiscal and economic issues
and clouded policy predictability. The Stable Outlook reflects
Fitch's expectation that growth will slow in the coming year and
that recent fiscal improvement will erode under a new government,
but within a margin consistent with the current rating, and from a
better starting point than previously expected. Uncertainty is
elevated regarding the plans of the incoming government and the
extent to which these could ease or aggravate fiscal and economic
challenges. However, Fitch does not expect policies that
jeopardize broad economic stability.
Standard & Poor's affirmed its 'BB-/B' long- and short-term
foreign and local currency sovereign credit ratings on Brazil, and
the outlook remains stable (June 2022). The stable outlook
reflects S&P's base-case assumption that Brazil will maintain its
fiscal anchors over the next two years despite an increasing
interest burden, preventing significant fiscal slippage and
limiting the rise in its already high debt burden.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS's credit rating for Brazil is BB (low) with stable outlook
(March 2018).
BRAZIL: Closely Monitoring Credit Market to Ensure Liquidity
------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that the Brazilian
government is closely monitoring the credit market to ensure
liquidity and considering measures for specific sectors, Treasury
Secretary Rogerio Ceron said.
Ceron's comments come amid concerns of the new leftist
administration of President Luiz Inacio Lula da Silva regarding the
impact of high borrowing costs on economic growth, as the country's
benchmark interest rate remains at a six-year high of 13.75% to
combat inflation, according to globalinsolvency.com.
"The government is carefully monitoring the credit market to ensure
liquidity and access," Ceron told a news conference, the report
notes.
"Possible needs for specific sectors are being discussed, such as
small and medium-sized companies, but this is still in the initial
stage of discussion," he added.
Outstanding loans in Brazil decreased by 0.3% in January, marking
the first decline in a year, the report notes. However, the
central bank highlighted the seasonal aspect of the result and said
it was still too early to evaluate whether Brazilian retailer
Americanas SA bankruptcy protection is impacting the credit market,
the report relays.
During the press conference, Ceron stated that a broad consumer
debt renegotiation program is in its final stage and will be
announced soon, the report discloses.
The government's idea is to use public funds that already exist to
guarantee the renegotiation without any fiscal impact, although
Ceron did not rule out the need for new contributions from the
Treasury this year or next to make the program viable, the report
adds.
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 was sworn in on January 1, 2023, as
the 39th president of Brazil, succeeding Jair Bolsonaro.
As recently reported in the Troubled Company Reporter-Latin
America, Fitch Ratings, in December 2022, affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Outlook. The ratings are constrained by high
government indebtedness, a rigid fiscal structure, weak economic
growth potential, and a record of governability challenges that
have hampered efforts to address these fiscal and economic issues
and clouded policy predictability. The Stable Outlook reflects
Fitch's expectation that growth will slow in the coming year and
that recent fiscal improvement will erode under a new government,
but within a margin consistent with the current rating, and from a
better starting point than previously expected. Uncertainty is
elevated regarding the plans of the incoming government and the
extent to which these could ease or aggravate fiscal and economic
challenges. However, Fitch does not expect policies that
jeopardize broad economic stability.
Standard & Poor's affirmed its 'BB-/B' long- and short-term
foreign and local currency sovereign credit ratings on Brazil, and
the outlook remains stable (June 2022). The stable outlook
reflects S&P's base-case assumption that Brazil will maintain its
fiscal anchors over the next two years despite an increasing
interest burden, preventing significant fiscal slippage and
limiting the rise in its already high debt burden.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS's credit rating for Brazil is BB (low) with stable outlook
(March 2018).
BRAZIL: Market Projects 11th Consecutive Inflation Hike for 2023
----------------------------------------------------------------
Rio Times Online reports that for the 11th consecutive week, market
analysts are projecting higher inflation for Brazil for 2023.
In the Focus Bulletin, by the Central Bank, the projection is for
inflation to close the year at 5.9%, according to Rio Times
Online.
The projection was 5.89%, and four weeks ago, 5.74%, the report
notes.
As for inflation in 2025 and 2026, the analysts projected a new
high, the report discloses.
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 was sworn in on January 1, 2023, as
the 39th president of Brazil, succeeding Jair Bolsonaro.
As recently reported in the Troubled Company Reporter-Latin
America, Fitch Ratings, in December 2022, affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Outlook. The ratings are constrained by high
government indebtedness, a rigid fiscal structure, weak economic
growth potential, and a record of governability challenges that
have hampered efforts to address these fiscal and economic issues
and clouded policy predictability. The Stable Outlook reflects
Fitch's expectation that growth will slow in the coming year and
that recent fiscal improvement will erode under a new government,
but within a margin consistent with the current rating, and from a
better starting point than previously expected. Uncertainty is
elevated regarding the plans of the incoming government and the
extent to which these could ease or aggravate fiscal and economic
challenges. However, Fitch does not expect policies that
jeopardize broad economic stability.
Standard & Poor's affirmed its 'BB-/B' long- and short-term
foreign and local currency sovereign credit ratings on Brazil, and
the outlook remains stable (June 2022). The stable outlook
reflects S&P's base-case assumption that Brazil will maintain its
fiscal anchors over the next two years despite an increasing
interest burden, preventing significant fiscal slippage and
limiting the rise in its already high debt burden.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS's credit rating for Brazil is BB (low) with stable outlook
(March 2018).
=========
C H I L E
=========
VTR FINANCE: Fitch Cuts LongTerm IDRs to 'B-', On Watch Negative
----------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Local Currency and
Foreign Currency Issuer Default Ratings (IDRs) of VTR Finance N.V.
to 'B-' from 'B'. Fitch has also downgraded VTR Finance's senior
USD483 million notes due in 2028 to 'CCC+'/'RR5' from 'B-'/'RR5' as
well as VTR Comunicaciones SpA's revolving credit facilities,
senior secured notes of USD474 million (2028) and senior secured
notes for USD391 million (2029) to 'B'/'RR3' from 'B+'/'RR3'. The
Rating Watch Negative (RWN) has been maintained.
The downgrades reflect a change in the ESG Relevance Score to '5'
from '4' for Financial Transparency as a result of the very limited
disclosure surrounding VTR's group structure and its financial
strategy in the context of its combination with Claro Chile.
The RWN reflects the competitive pressures in the Chilean broadband
market that could further pressure VTR's operating performance and
credit metrics.
KEY RATING DRIVERS
ESG - Transparency: VTR's disclosure of its financial policy and
future capital structure following its combination with Claro Chile
in October 2022 has been limited. The lack of information
surrounding these key credit considerations has occurred despite
high leverage and significant pressure on operating metrics and
cash flows.
High Leverage: Fitch estimates VTR's net leverage to be around 10x
as of YE 2022 based on expectations of operating EBITDA
approximately CLP 100 billion and debt of CLP1.1 trillion. The
company's FCF is projected by Fitch to be negative CLP80 billion
based on capex of around CLP100 billion and interest of around
CLP80billion. Fitch expects Claro to add approximately CLP100
billion in EBITDA to the joint venture.
For 2023, Fitch projected a combined net leverage of around 7.5x.
Given the investment needs to remain competitive in an extremely
competitive market, the deleveraging capacity of the joint venture
(JV) over the next two-three years will likely require
extraordinary shareholder measures as well as a swift
materialization of synergies. The extent of the benefits that VTR
individually would derive from these synergies is highly
uncertain.
Weak Operating Performance: VTR has been unable to halt the loss of
clients and the deterioration of its EBITDA margin. Most of the
decline has been driven by fierce price competition which has hurt
VTR's ARPU since the beginning of the pandemic. Broadband
subscribers declined to less than 1.2 million from 1.3 million
since the start of the pandemic also pressuring earnings. As a
result, VTR's EBITDA margin has declined to 24% for the LTM ended
Sept. 30, 2022 from 40% in 2019, while its EBITDA has declined to a
forecasted CLP100 billion in 2023 from CLP260 billion before the
pandemic.
Shareholder Alignment: Uncertainty around the business strategy and
capital structure that the JV shareholders will pursue in the
medium term is a key credit concern. The merged entity is 50% owned
by Liberty Latin America (LLA) and 50% by America Movil S.A.B. de
C.V. (AMX; A-). Both are large telecom operators in Latin America,
but have differences in their business model and capital
structures.
LLA has a higher appetite for leverage and independent management
of each affiliate, with movements of cash around the group for
investments and acquisitions. AMX has a strong credit profile due
to its solid business position in most markets in Latin America and
the low level of leverage it has operated with historically.
DERIVATION SUMMARY
VTR's ratings are on Negative Watch as the competitive pressures in
the Chilean broadband market could further pressure its operating
performance and credit metrics. It is uncertain how much VTR's
credit profile can benefit from its combination with Claro Chile
given the lack of transparency. VTR's financial profile is one of
the most levered in the region.
VTR has a similar fixed-line operating profile to Telefonica
Moviles Chile (BBB+/Negative), although Telefonica Chile benefits
from leverage metrics around 2.0x-2.5x. The combined business with
Claro Chile should reach a similar scale and diversification as
Telefonica Moviles Chile S.A. (BBB+).
Compared with WOM Mobile S.A. (WOM; BB-/Stable), VTR/Claro's
combined operation should have higher diversification and scale,
and a similar EBITDA margin. WOM's ratings reflect the company's
short but solid track record in Chile, taking on much larger
competitors. WOM's ratingsincorporate Fitch's expectations that the
company will be managed to moderately high levels of net leverage.
When compared to Millicom International Cellular S.A.'s
(BB+/Stable) subsidiaries, Comcel (CT Trust; BB+/Stable) and
Telefonica Celular del Paraguay (Telecel; BB+/Stable), VTR is less
diversified and operates in a more competitive market, but in a
stronger operating environment. Comcel and Telecel have more
dominant market positions and significantly lower net leverage at
around 2x and 3x, respectively. Comcel's and Telecel's ratings
reflect a strong linkage with their parent as Millicom as it
heavily relies on these two wholly-owned subsidiaries' dividend
upstream to service its debt.
KEY ASSUMPTIONS
- Revenue declines around 15% in 2022 and mid-single
digits in 2023;
- Operating EBITDA margins around 20%;
- Capex in a range of 20% to 23%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Stabilization of subscriber base and EBITDA margin
in the following 12 months-18 months, and the ability
of the combined operation to reach relevant synergies;
- Shareholder support that strengthens financial
flexibility and reduces leverage;
- Maintain a strong liquidity position;
- Positive rating actions are possible to the extent
that net debt to EBITDA sustained below 6.0x.
- Consistent and improved depth of disclosure surrounding
strategy and other credit considerations.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The inability to halt the client losses and stabilize
its EBITDA margin;
- Relevant Deterioration in cash position;
- Lack of evidence to return to net debt/EBITDA ratios
below 7.0x, in a sustained basis, at VTR;
LIQUIDITY AND DEBT STRUCTURE
Pressured Liquidity: Fitch expects VTR to generate negative FCF of
about CLP80 billion in 2023. The company will likely need to add
debt to its capital structure to fund at least part of the
shortfall as its cash was only CLP61 billion as of 3Q22, absent
extraordinary measures by shareholders. In the 3Q22, VTR delisted
USD91 million at face value of capital markets debt which it funded
mainly by monetizing foreign exchange derivatives when the CLP was
around CLP950/USD1. VTR does not face material debt maturities
until 2028.
ISSUER PROFILE
VTR is a relevant Telecom operator in Chilean Market. With around
2.8 million RGUs (1.2 million of internet, 1.0 million of pay TV
and 0.5 million fixed telephony), the company is the second largest
provider of fixed internet services (with 26.2% market share),
closely following the leader, Telefónica Group (30.3%), and the
largest provider of multi-channel video services with a 29% market
share. The company offers its services mainly through Hybrid Fiber
Coaxial network developed in Santiago and in the main Chilean
cities.
ESG CONSIDERATIONS
VTR Finance N.V. has an ESG Relevance Score of '5' for Financial
Transparency as a result of the very limited disclosure surrounding
VTR's group structure and its financial strategy in the context of
its combination with Claro Chile, which has a negative impact on
the credit profile, and is highly relevant to the rating[s],
resulting in an implicitly lower rating.
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 Recovery Prior
----------- ------ -------- -----
VTR Comunicaciones SpA
senior secured LT B Downgrade RR3 B+
VTR Finance N.V. LT IDR B- Downgrade B
LC LT IDR B- Downgrade B
senior secured LT CCC+ Downgrade RR5 B-
===================
C O S T A R I C A
===================
INSTITUTO COSTARRICENSE: Fitch Hikes IDRs to 'BB-', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has upgraded Instituto Costarricense de Electricidad
y Subsidiarias' (ICE) Long-Term Foreign-Currency and Local-Currency
Issuer Default Ratings (IDRs) to 'BB-' from 'B' and senior
unsecured bonds to 'BB-' from 'B'/'RR4'. In addition, Fitch
assessed ICE's consolidated Standalone Credit Profile (SCP) at
'b+'.
The upgrade reflects ICE's strong linkage to the Costa Rican
sovereign rating. Fitch upgraded Costa Rica's IDR to 'BB-' from 'B'
on March 2, 2023. The Rating Outlook is Stable.
ICE's ratings incorporate its strategic importance to the country
and the potentially significant negative socio-political and
financial implications to the sovereign if there is any financial
distress at the company level. Additionally, the ratings reflect
the company's diversified asset portfolio, moderate capex program
and its strong market share position in both the electricity and
the telecommunications business.
KEY RATING DRIVERS
Rating Equalization: ICE's ratings reflect its strong linkage with
the sovereign of Costa Rica, as the company is an autonomous entity
owned by the Costa Rican State. As per Fitch's Government Related
Entity Criteria (GRE Criteria), ICE has an Overall Support Score of
45 IDRs that results in an equalization to Costa Rica's sovereign
rating at 'BB-'.
ICE is a strategic asset to the country due to its essential role
in the domestic electricity market, and it is the incumbent
participant in the telecommunications sector, which is an incentive
for the government to support the company if necessary. Fitch
believes that an event of default at ICE would have a very strong
negative impact for the sovereign on the availability and cost of
funding.
Profitability Sensitive to Tariff Adjustments: ICE's LTM revenue as
of September 2022 grew by 5.0%, as the regulator approved an
increase of 11.3% and 7.3% on generation and distribution tariffs,
respectively, as the electricity business accounted for 60% of
ICE's total revenue. At the same time, operating costs increased by
3.1% and while expenses were 6.2% lower compared with 2021, mainly
related to the electricity business. In terms of profitability,
ICE's EBITDA (pre-IFRS 16) was CRC569 billion with a margin of
41.2% (FY2021: CRC432 billion and margin of 33.4%), reflecting the
impact of the tariffs' adjustment.
For 2022, Fitch estimates revenue will increase 10%, mostly
reflecting an electricity tariff increase, plus a modest
improvement in the telecommunications business.
Leverage Profile: ICE's leverage, calculated as total debt/EBITDA
(pre-IFRS 16), as of December 2021 peaked at 6.8x on lower EBITDA.
In previous years the company's indebtedness was driven by
aggressive capex in the electricity sector. However, adjustments in
expansion plans have led to a reduction in investment requirements
and less pressure on the leverage metric.
Fitch's base case estimates ICE's leverage will be close to 5.0x in
2022, reflecting higher EBITDA as 2022 tariff adjustment recognizes
CRC50 billion in additional revenue, and remaining close to that
level in in 2023 on the assumption that tariffs will be line with
2022 tariff levels and annual debt amortizations around CRC245
billion. Fitch estimates that capex levels for 2023 to 2026 will be
around CRC250 billion annually on average, which is equivalent to
about 17% of revenues, and will be funded with a combination of
internally generated cash and debt.
High Exposure to Regulatory and Political Interference: ICE is
exposed to the risk of regulatory interference due to the lack of
transparency and clarity in the processes for determining tariffs
adjustment schemes in previous years. The company proposes
electricity tariffs for end-users to the regulator annually.
Electricity tariffs are set through the quarterly adjustment of
variable costs of electric generation (energy imports and fuel) and
through an ordinary tariff review that considers the company's
operating costs.
Diversified Asset Portfolio: ICE is a vertically integrated
monopoly in the electricity industry and an incumbent player in the
telecommunications industry in Costa Rica. As of December 2022, the
company accounted for 72% of the National Electric System's
installed capacity and produced 84% of the total electricity
consumed in Costa Rica. ICE's mobile market share in terms of
subscribers was approximately 41% according to most recent data
from Superintendencia de Telecomunicaciones (SUTEL). The ratings
reflect the company's low business risk resulting from its business
diversification and positive characteristics as a utility service
provider.
DERIVATION SUMMARY
ICE's linkage to the sovereign is similar to Comision Federal de
Electricidad (CFE; BBB-/Stable). Similar to ICE, CFE is highly
important to Mexico as its largest integrated electric utility, and
it is the only domestic entity allowed to both transmit and
distribute electricity.
ICE's ratings reflect its strong linkage to Costa Rica's sovereign
rating, which stems from the company's government ownership and the
implicit and explicit expectation of government support. The
ratings reflect the company's diversified asset portfolio, moderate
capex program, and its monopoly position in the electricity
industry and strong market share position in the telecommunications
business. ICE has a lower scale of operations compared with its
peers. ICE's EBITDA leverage as of LTM September 2022 of 4.9x was
materially lower than CFE's.
KEY ASSUMPTIONS
- ICE remains important to the government as a strategic asset for
the country;
- In 2022, revenues grow by 10% on power tariff adjustments;
- Leverage close to 5.0x in 2022; and remaining close to that level
in 2023;
- ICE's Telco market share remains strong.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrade of the sovereign's ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A sovereign downgrade;
- Weakening of the linkage between ICE and the sovereign and a
material deterioration of ICE's operating and financial profile;
- Regulatory intervention that negatively affects the company.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: ICE's liquidity position is adequate, with a
cash and equivalents balance of CRC373 billion plus short-term
investments of CRC216 billion as of September 2022 and total debt
of CRC2,768 billion, of which CRC158 billion was short-term debt.
Historically, ICE has financed capital expenditure with its own
resources and new debt, where the debt related to electrical
projects represents approximately 90% and the rest to the Telco
segment.
ISSUER PROFILE
ICE is a government-owned, vertically integrated monopoly in the
electricity industry in charge of developing, constructing and
operating an electric power generation, transmission and
distribution system and the incumbent player in the
telecommunications industry.
ESG CONSIDERATIONS
ICE has an ESG Relevance Score of '4' for Governance Structure and
Group Structure due to ownership concentration, as a majority
government-owned entity and due to the inherent governance risks
that arise with a dominant state shareholder. This has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
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
----------- ------ -----
Instituto
Costarricense de
Electricidad y
Subsidiarias LT IDR BB- Upgrade B
LC LT IDR BB- Upgrade B
senior unsecured LT BB- Upgrade B
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T R I N I D A D A N D T O B A G O
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ATLANTIC LNG: To Lay Off Staff
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Andrea Perez-Sobers at Trinidad Express reports that Atlantic LNG
(Atlantic) has confirmed that it is laying off staff and has
already offered all employees voluntary separation of employment
packages (VSEP) to go home over the next two months.
The VSEP comes as the company has moved from operating four LNG
Trains to three, and even with three, its president, Ronald Adams,
recently admitted that it is only getting enough natural gas to
meet 70 per cent of the capacity of the reduced number of Trains,
according to Trinidad Express. It also continues a trend in the
local energy sector of retrenchment of staff, the report notes.
In response to questions from Sunday Business, the company did not
say how many workers would be asked to leave but noted a further
review would be conducted with the possibility that if it did not
get enough numbers accepting its offer, some may have to be cut,
the report relays.
Atlantic said, "As recent global events have demonstrated, the LNG
industry is dynamic. To keep pace with peers internationally and
ensure that Atlantic achieves its goal of sustaining world-class
LNG operations to the benefit of Trinidad and Tobago, a
comprehensive revision of the company's corporate strategy was
undertaken in 2022, which is now well into implementation. This
necessitated a review of the organizational structure to ensure
alignment to the refreshed strategy," the report notes.
The LNG company told Sunday Business while a review of resourcing
for the revised organizational structure is ongoing, permanent
staff have been offered the opportunity to voluntarily express
interest in separating from the organization, the report relays.
"Following completion of the voluntary separation process by the
end of April 2023, it will then be determined whether the revised
structure necessitates any further impact on resources. It is
anticipated that the impact, if any, will be minimal," Atlantic
concluded, the report discloses. Sunday Business was told that the
VSEP packages that were being offered by Atlantic closed recently
and many of the operations staff applied to leave, the report
says.
Atlantic is one of the world's largest producers of Liquefied
Natural Gas (LNG) and it is owned by the National Gas Company of
Trinidad and Tobago (NGC Trinidad and Tobago), Shell, BP, and the
Chinese Investment Corporation (CIC), the report relays.
An Agreement
Just last December, Energy Minister Stuart Young announced that the
Government had reached an agreement with Atlantic's shareholders on
substantive commercial terms for the revised structure of the
Atlantic LNG venture, the report says. This followed the signing
of a Heads of Agreement in January 2022.
According to Young, this was the culmination of discussions that
the Government initiated, in 2018, with the major Atlantic
shareholders, following which, the parties agreed that the Atlantic
facilities and its complex shareholder structure and commercial
agreements needed to be simplified, the report relates.
At that time, Young said, the Government and Atlantic shareholders
(inclusive of companies affiliated with BP Trinidad and Tobago,
Shell Trinidad, and Tobago Limited, and The National Gas Company of
Trinidad and Tobago Limited), have agreed on a restructured
ownership and commercial framework to see the Atlantic business
operations consolidated into a single entity, the report notes.
In the revised structure, Young said NGC increased its equity share
in Atlantic, consistent with the commitment by the Government to
maximise value to the country from the sale of hydrocarbon
resources and the new construction will also facilitate a
market-reflective pricing mechanism that provides fair value from
the sale of LNG for both the country and the shareholders, the
report adds.
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