/raid1/www/Hosts/bankrupt/TCRLA_Public/230328.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, March 28, 2023, Vol. 24, No. 63
Headlines
A R G E N T I N A
ARGENTINA: Fitch Lowers LongTerm Foreign Currency IDR to 'C'
ARGENTINA: Race Against Time to Rescue Wine Grapes
TARJETA NARANJA: Moody's Withdraws 'Caa2' Corporate Family Rating
B E R M U D A
INTEGRO PARENT: New Mountain Marks $11.5M Loan at 24% Off
B O L I V I A
BOLIVIA: Moody's Cuts Issuer & Sr. Unsecured Debt Ratings to Caa1
B R A Z I L
AMERICANAS SA: Proposes Steep Losses for Creditors in Debt Plan
BANCO TOPAZIO: Moody's Assigns First Time 'B1' Deposit Ratings
BRAZIL: Cuts Primary Deficit Forecast for 2023 by More Than Half
COMPANHIA ENEGERTICA: Fitch Affirms LT Foreign Currency IDR at 'BB'
J A M A I C A
JAMAICA: Tax Revenue $4.4 Billion More Than Projected
P A N A M A
PANAMA: IMF Says Real GDP Shrinking by 18%
P E R U
TELEFONICA DEL PERU: Moody's Cuts CFR & Sr. Unsecured Bond to B2
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: 'Millions' Lost to Illegal Quarrying
V E N E Z U E L A
VENEZUELA: Power Struggle and Missing Billions Roil Ruling Elite
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A R G E N T I N A
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ARGENTINA: Fitch Lowers LongTerm Foreign Currency IDR to 'C'
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Fitch Ratings has downgraded Argentina's Long-Term Foreign Currency
Issuer Default Rating (IDR) to 'C' from 'CCC-', and has affirmed
the Long-Term Local Currency IDR at 'CCC-'.
KEY RATING DRIVERS
Downgrade to 'C': The downgrade of Argentina's rating to 'C' from
'CCC-' follows an executive decree that forces domestic
public-sector entities into operations involving their holdings of
sovereign debt securities, which would involve unilateral exchanges
and forced currency conversion that constitute default events under
Fitch's criteria. The 'C' rating reflects Fitch's view that default
is thus imminent. The rating would be downgraded to 'Restricted
Default' (RD) upon execution of the exchanges.
Coercive Debt Operations: On March 22, Argentina's federal
government issued two decrees that force specified public-sector
entities (most notably including the social security agency, among
many others) to enter into a series of operations involving
sovereign debt securities. The authorities' stated objectives with
this measure include securing new financing and exerting greater
control over the parallel-market exchange rates (which are derived
from transactions involving the securities in question).
These decrees will affect various types of debt securities. First,
public sector creditors will be required to exchange their holdings
of foreign-law USD sovereign bonds (USD4 billion according to the
authorities) for domestic-law bonds that settle in pesos. Second,
these creditors will be required to sell their holdings of
domestic-law USD bonds on the secondary market; of the proceeds on
these sales, 70% must be used to buy new peso securities from the
sovereign, and the other 30% can be used for these entities' own
expenses (thus reducing assistance from the treasury that they
could otherwise need). Third, the debt service on non-marketable
USD securities (USD4.3 billion according to the decree) held by the
central bank (letras intransferibles) can be paid for with new peso
securities.
Potential Default Event: The events of default specified in Fitch's
Sovereign Rating Criteria include "a unilateral exchange…
initiated by the sovereign on a public debt security" and "a forced
redenomination of sovereign debt into a different currency." The
exchange of global USD bonds for peso bonds, and the required sale
of domestic USD bonds and required use of proceeds, would
constitute unilateral exchanges that are default events. They would
also result in an effective conversion of the settlement currency
on public entities' holdings of sovereign bonds (as well as the law
they are subject to), which constitutes an adverse change in terms
and an event of default.
The events of default listed in Fitch's Sovereign Rating Criteria
generally relate to debt obligations owed to private creditors, but
do not exclude operations with public-sector creditors when they
involve commercial debt securities.
Persisting Uncertainty: The decrees do not set out a timetable for
these debt operations. While they specify the public-sector
creditors that could be affected, it is possible that some
discretion could be exercised regarding who will be forced to
participate, as well as when and for how much. Furthermore,
opposition parties in the congress have expressed their strong
disapproval of the decrees and have some legislative means of
overturning them, but it remains unclear if they will effectively
pursue this course of action.
Local-Currency Rating Affirmed: The affirmation of the Long-Term
Local Currency IDR at 'CCC-' reflects the fact that existing
peso-denominated public debt securities will not be affected by the
executive decrees, but that repayment capacity remains highly
compromised.
ESG - Governance: Argentina 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.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in Fitch's proprietary Sovereign Rating
Model (SRM). Argentina has a medium WBGI ranking at the 46th
percentile, balancing moderately high voice and accountability, a
moderate level of corruption, and a recent track record of peaceful
political transitions with weak institutional capacity and uneven
application of the rule of law.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Execution of the debt operations detailed in the executive
decrees would result in a downgrade of the Long-Term Foreign
Currency IDR to 'RD'.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Official confirmation that the debt operations required by the
executive decrees will not take place.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Argentina a score equivalent to a
'B-' Long-Term Foreign Currency IDR. However, in accordance with
its rating criteria, Fitch's sovereign rating committee has not
utilized the SRM and Qualitative Overlay (QO) to explain the
ratings in this instance. Ratings of 'CCC+' and below are instead
guided by the rating definitions.
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
Argentina has an ESG Relevance Score of '5' for Political Stability
and Rights as WBGIs 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 Argentina has a percentile rank below 50 for
the respective Governance Indicator, this has a negative impact on
the credit profile.
Argentina has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
WBGIs have the highest weight in Fitch's SRM and are therefore
highly relevant to the rating and are a key rating driver with a
high weight. As Argentina has a percentile rank below 50 for the
respective Governance Indicators, this has a negative impact on the
credit profile.
Argentina has an ESG Relevance Score of '4' [+] for Human Rights
and Political Freedoms as the Voice and Accountability pillar of
the WBGIs is relevant to the rating and a rating driver. As
Argentina has a percentile rank above 50 for the respective
Governance Indicator, this has a positive impact on the credit
profile.
Argentina 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 Argentina, as for all sovereigns. As
Argentina has a fairly recent restructuring of public debt in 2020,
this has a negative impact on the credit profile.
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
----------- ------ -----
Argentina LT IDR C Downgrade CCC-
ST IDR C Affirmed C
LC LT IDR CCC- Affirmed CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
ARGENTINA: Race Against Time to Rescue Wine Grapes
--------------------------------------------------
Buenos Aires Times reports that in Argentina's Valle de Uco wine
region, at the foot of the Andes, frantic picking is under way to
try and save what remains of what is predicted to be the worst
grape harvest in decades.
It is a race against time in the fabled Mendoza wine region in the
west of the country once again in the grip of La Nina, a periodic
weather phenomenon that cools surface temperatures and intensifies
drought, according to Buenos Aires Times.
"We hurry . . . because we are afraid of another frost," said
enologist Marcelo Pelleriti of the Monteviejo winery, the report
notes.
"In a year like this, anything is possible," he added of "one of
the most difficult [seasons] in the wine history of the province of
Mendoza" where 78 percent of Argentina's wine comes from, mainly
reds, the report relays.
Frost, hail, extreme temperatures and drought . . . the vines
suffered much these past months, the report notes.
Cellar master Jose Mounier shows off the damage caused by frost at
the flowering stage to a cluster of cabernet franc grapes,
misshapen beyond recognition, the report notes.
"Fewer grapes means more work," he explained -- with pickers having
to separate healthy grapes from damaged ones by hand. We must
still create a wine with these problems in mind," the report
relays.
Monteviejo, a large vineyard between 1,000 and 1,200 metres above
sea level, expects to have a harvest 50 percent smaller than last
year, the report note. Some others in the region lost everything,
the report says.
Worst Harvest
For Argentina as a whole, the 2023 harvest will not exceed 15.4
million tons of grapes, according to projections by the National
Institute of Vitiviniculture (INV), the report discloses.
This is about 40 percent less than a "normal" year for a country
that oscillates between five and seven on the world's top-10 wine
producers' list. The final numbers will be known in May, the report
notes. In 2021, the harvest was 22.2 million tonnes, the report
says.
"We are looking at the worst harvest in more than 20 years, perhaps
in 60," said Mario Gonzalez, president of the Argentine Wine
Corporation (COVIAR), the report notes.
The country has just emerged from two good commercial wine years,
linked directly to increased home consumption during the Covid-19
pandemic, the report relays.
The domestic market accounts for about 70 percent of Argentine wine
sales, and in 2020 and 2021 reached some 20 or 21 litres per person
per year, the report discloses. In 2022, that was down again to
about 18 litres. In 1977, when consumption peaked, Argentines drank
some 88 bottles each on average, the report relays.
The 2022 drop "will have a strong impact" on the industry, said
Gonzalez, the report says.
In addition, soaring inflation - reaching 94.8 percent in 2022 - is
eroding Argentine purchasing power, the report notes.
'Malbec Dollar'
A worried wine sector has received a welcome boost from Economy
Minister Sergio Massa in recent days, the report says.
As it did last year with soy, the main export product of a country
subject to wild exchange rate swings, the government announced it
would apply a separate, preferential rate for wine exporters more
favourable than the official rate of 210 pesos to the US dollar,
the report relays. It has been dubbed the "Malbec dollar" by local
media.
Yet, wine producers expect the hardships will continue this coming
season, the report discloses.
First, farmers will have to decide whether or not to replant vines
that froze irreparably, keeping in mind that profitability has been
on the decline for years. And with a wary eye on a changing
climate, the report notes.
Spells of frost or hail that once came only about every five or ten
years, said Pelleriti, now hit vineyards "in a more repetitive
way," 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.
TARJETA NARANJA: Moody's Withdraws 'Caa2' Corporate Family Rating
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Moody's Investors Service has withdrawn Tarjeta Naranja S.A.'s Caa2
long-term corporate family rating. Prior to the withdrawal, the
outlook on the rating was stable.
RATINGS RATIONALE
Moody's has decided to withdraw the rating for its own business
reasons.
Tarjeta Naranja S.A. is headquartered in Codoba, Argentina, and is
one of the leading providers of credit cards, purchase cards and
related consumer credit to retail customers in Argentina. The
company, which reported total assets of ARS409 billion and
shareholders' equity of ARS76 billion as of December 2022, is
ultimately owned by Grupo Financiero Galicia S.A.
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B E R M U D A
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INTEGRO PARENT: New Mountain Marks $11.5M Loan at 24% Off
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New Mountain Finance Corporation has marked its $11,510,000 loan
extended to Integro Parent Inc. to market at $8,718,000 or 76% of
the outstanding amount, as of December 31, 2022, according to a
disclosure contained in New Mountain's Form 10-K for the fiscal
year ended December 31, 2022, filed with the Securities and
Exchange Commission on February 27, 2023.
New Mountain is a participant in a Second Lien Loan to Integro
Parent Inc. The loan accrues interest at a rate of 16.83%
(SOFR(Q)(42)*+ 12.25%/Payment In Kind)) per annum. The loan matures
in October 2023.
"During the second quarter of 2022, we placed an aggregate
principal amount of $4.0 million of our second lien position on
non-accrual status. As of December 31, 2022, our position in
Integro on non-accrual status had an aggregate cost basis of $3.9
million, an aggregate fair value of $3.1 million, total unearned
interest income of $0.4 million and total unearned other income of
$0.0 million for the year then ended," New Mountain disclosed.
New Mountain is a Delaware corporation that was originally
incorporated on June 29, 2010 and completed its initial public
offering on May 19, 2011. New Mountain is a closed-end,
non-diversified management Investment Company that has elected to
be regulated as a business development company under the Investment
Company Act of 1940, as amended. New Mountain Finance Advisers BDC,
L.L.C., its Investment Adviser, is a wholly owned subsidiary of New
Mountain Capital Group, L.P. New Mountain Capital is a firm with a
track record of investing in the middle market. New Mountain
Capital focuses on investing in defensive growth companies across
its private equity, credit and net lease investment strategies.
US-based Integro is the holding company parent of Tysers Insurance
Brokers Ltd, a 200-year-old Lloyd's of London specialist broker
that generated revenues of $241 million for the 12 months through
September 2020. Tysers is largely a wholesale broker with local
offices in Asia, Middle East, Australia, Europe, Latin America and
Bermuda.
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B O L I V I A
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BOLIVIA: Moody's Cuts Issuer & Sr. Unsecured Debt Ratings to Caa1
-----------------------------------------------------------------
Moody's Investors Service has downgraded the Government of
Bolivia's long-term local and foreign currency issuer and senior
unsecured debt ratings to Caa1 from B2 and placed them on review
for downgrade.
The decision to downgrade the ratings reflects Moody's assessment
that a range of factors related to very weak governance have
contributed to dwindling availability of hard currency and raised
external liquidity pressures to a point that threatens
macroeconomic stability. Unsustainable defense of the exchange rate
peg to the US dollar has caused the central bank's stock of foreign
exchange reserves to drop significantly since the beginning of the
year, coming to $372 million as of February 8 (latest available
data) from $709 million as of end-2022, and covering only a few
weeks of the country's imports. The drop in liquid international
reserves has precipitated a confidence shock that has undermined
macrofinancial stability. Without prompt and significant action to
reverse the situation and restore stability, the sovereign's
capacity to service its debt is at risk.
The initiation of the review for downgrade is prompted by the risk
that the ongoing deterioration in external liquidity is not
reversed, further threatening the sovereign's ability to service
its debt. The review will focus on assessing whether inflows from
International Financial Institutions (IFIs) and complementary
policy measures will sufficiently stabilize external finances such
that hard currency resources remain available to support economic
activity and ensure full and timely debt repayment by the sovereign
over the near and medium term.
Concurrent to the action, Moody's has lowered Bolivia's local and
foreign currency country ceilings to B2 and Caa1 from Ba3 and B2,
respectively. The relatively narrow two-notch gap between the local
currency ceiling and issuer rating reflects the risks that
political events could disrupt the policymaking environment given
weak institutions; and a significant government footprint in the
economy. The two-notch gap between the foreign currency and local
currency ceiling positioning the foreign-currency ceiling at Caa1
reflects material transfer and convertibility risks given
persistent balance of payment pressures and very low policy
effectiveness.
RATINGS RATIONALE
RATIONALE FOR THE DOWNGRADE TO Caa1
UNSTAINABLE POLICY STANCE CONTRIBUTES TO DWINDLING AVAILABILITY OF
HARD CURRENCY WHICH JEOPARDIZES MACROFINANCIAL STABILITY
The deterioration in Bolivia's external liquidity has accelerated
substantially since the end of 2022 as foreign exchange reserves
have reached very low levels, their lowest in over 20 years, and a
confidence shock has led to increased demand for hard currency from
the general public. A confluence of factors is behind these
developments, including the maintenance of a currency peg by the
central bank at significant, and in Moody's view, unsustainable
costs; loose fiscal policy that fuels demand and undermines the
stability of the currency peg; lack of adequate policies in the
energy sector that are the hindering the sector's potential to
generate foreign currency.
The latest data from the central bank suggest that liquid foreign
currency reserves shrank by nearly half to $372 million as of 8
February from $709 million on December 31, 2022. The central bank
has since stopped reporting reserve figures. Overall reserves on 8
February were $3.54 billion, but the bulk, approximately $2.59
billion, were made up of gold. Although the sovereign's payments on
external market debt amount to a manageable $303 million in 2023
($183 million in principal and $120 million in interest), the
drawdown of foreign exchange liquidity has significantly reduced
coverage of external debt service. Also, significant demand for
foreign currency stems from non-government external debt payments.
Moody's estimates that liquid reserves represent only a few weeks
of Bolivia's imports, highlighting the severe balance of payments
stress.
Moody's believes that the confidence shock and the loss of hard
currency reserves have put Bolivia's overall macro stability at
risk. Large fiscal deficits and a continued increase in public debt
will further undermine fiscal strength and deplete buffers.
Although debt affordability remains favorable for Bolivia when
compared to peers, a forced abandonment of the fixed exchange rate
would likely cause a sizable depreciation given the very low
availability of hard currency, prompting a disorderly and costly
adjustment that could jeopardize the authorities' willingness to
continue servicing external debt.
RATIONALE FOR THE REVIEW FOR DOWNGRADE
The review for downgrade reflects the risk that the sovereign may
be unable to implement forceful adjustments to the current policy
mix that has fostered imbalances and led to the loss of
international reserves, eventually triggering an economically
costly and potentially disorderly adjustment in the external
position.
The review will focus on assessing whether IFI inflows expected by
the authorities and complementary policy measures will sufficiently
stabilize external finances. In this regard, the very tight
external liquidity situation could temporarily ease if the
legislature were to approve disbursal of multilateral credit and a
bill that would allow the Central Bank of Bolivia to monetize its
gold holdings. In recent days the legislature approved a loan from
Agence Française de Developpement (AFD) for EUR200 million that is
ready for imminent disbursement, while the authorities have stated
that approximately $600 million in loans from other institutions
are pending legislative approval for quick disbursement.
Additionally, the ministry of finance is in the process of
negotiating a contingent credit line from Corporacion Andina de
Fomento (CAF, Aa3 stable).
However, at this point, increased external borrowing would provide
only a temporary respite if not complemented by significant fiscal
and monetary tightening, along with potential longer-term changes
to the current exchange rate regime which are politically
challenging. The review period will also allow Moody's to assess if
such pronounced changes in policy and governance are likely.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Bolivia's ESG Credit Impact Score is very highly negative (CIS-5)
reflecting its very weak governance profile which significantly
weighs on the rating.
Bolivia's exposure to environmental risks is moderately negative
(E-3 issuer profile score), driven by risks related to carbon
transition and natural resources management. The government and
overall economy's high reliance on hydrocarbon sector revenues and
exports exposes the sovereign to carbon transition risks. Natural
resources mining, water management, increased deforestation and
large forest fires in the Bolivian Amazon rainforest also
contribute to environmental risks.
Exposure to social risks is highly negative (S-4 issuer profile
score) and stems from a long-history of relatively high levels of
poverty, economic inequality, and social exclusion. Despite
material improvements in recent years, Bolivia is characterized by
relatively high levels of poverty, limited educational outcomes,
and lack of sufficient access to basic services and housing. Like
many other emerging economies, Bolivia benefits from a benign
demographic structure.
The influence of governance on Bolivia's credit profile is very
highly negative (G-5 issuer profile score), which reflects very
weak policy effectiveness, weak institutional arrangements, a high
incidence of corruption and a generally weak rule of law.
GDP per capita (PPP basis, US$): 9,056 (2021) (also known as Per
Capita Income)
Real GDP growth (% change): 6.1% (2021) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.9% (2021)
Gen. Gov. Financial Balance/GDP: -8.5% (2021) (also known as Fiscal
Balance)
Current Account Balance/GDP: 2.1% (2021) (also known as External
Balance)
External debt/GDP: 39.5% (2021)
Economic resiliency: b1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On March 21, 2023, a rating committee was called to discuss the
rating of the Bolivia, Government of. The main points raised during
the discussion were: The issuer's institutions and governance
strength, have materially decreased. The issuer has become
increasingly susceptible to event risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
The review for downgrade indicates that an upgrade is unlikely in
the near term.
Moody's would likely confirm Bolivia's rating at the current level
if there were evidence of an increase in external funding flows
that lead to an easing of external liquidity pressures, accompanied
by indications of significant policy change. In particular, a set
of credible policy measures that help stabilize or rebuild hard
currency reserves and relieve external liquidity pressures could
lead to confirmation of the rating.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Continued reserve depletion or signals that suggest a decreased
ability or willingness of the sovereign to meet its external debt
repayments would likely lead to a downgrade.
The principal methodology used in these ratings was Sovereigns
published in November 2022.
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B R A Z I L
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AMERICANAS SA: Proposes Steep Losses for Creditors in Debt Plan
---------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that
Americanas SA, the embattled Brazilian retailer, proposed a plan to
restructure its 42.3 billion real ($8.1 billion) debt load some two
months after obtaining bankruptcy protection that includes losses
for unsecured creditors, a capital injection and asset sales.
The plan, released in a securities filing, foresees a capital
injection of 10 billion reais and potential asset sales including
its Hortifruti Natural da Terra food markets, stake in Uni.Co and
corporate jet, according to globalinsolvency.com.
Americanas plans to impose losses of between 60% and 80% on
unsecured financial creditors depending on a series of options to
be chosen including a reverse auction, the report notes.
"With this the company intends to reduce its market debt,
post-restructuring, to 4.9 reais billion," Americanas said, the
report relays. While the retailer has held talks with banks to
discuss solutions, the 10 billion real capital injection proposed
by the top shareholders - billionaires Jorge Paulo Lemann, Marcel
Telles and Carlos Sicupira - has remained below expectations, the
report says.
A capital injection of 12 billion reais could be accepted by banks,
according to people with direct knowledge of the matter, the report
notes.
Americanas was plunged into crisis at the turn of the year after
its new Chief Executive Officer Sergio Rial said he discovered
"accounting inconsistencies" estimated at some 20 billion reais -
roughly doubling the debt of the firm, the report relays. The trio
of billionaires, worth a collective $38.9 billion, has so far
remained quiet on the issue beyond a statement that said they had
no prior knowledge of the accounting problem, the report adds.
About Americanas SA
Americanas was one of the largest diversified retail chains in
Brazil, with a wide platform of physical stores, robust e-commerce,
fintech, and has just entered into the niche food retail. It is
listed on B3, being indirectly controlled by billionaire Jorge
Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles.
The retailer nosedived in January 2023 after becoming mired in an
accounting scandal. The firm filed for bankruptcy at a court in
Rio de Janeiro on Jan. 19, 2023.
Americanas sought protection under Chapter 15 of the U.S.
Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25,
2023. White & Case LLP, led by John K. Cunningham, is the U.S.
counsel.
BANCO TOPAZIO: Moody's Assigns First Time 'B1' Deposit Ratings
--------------------------------------------------------------
Moody's Investors Service has assigned first-time B1 long-term and
Not Prime (NP) short-term local and foreign currency deposit
ratings to Banco Topazio S.A., as well as Ba3 and Not Prime
counterparty risk ratings, for long and short-term, respectively.
At the same time, Moody's also assigned baseline credit assessment
(BCA) and adjusted BCA of b1 as well as long and short-term
counterparty risk assessments (CRA) of Ba3(cr) and Not Prime(cr),
respectively. The outlook on the deposit ratings is stable.
RATINGS RATIONALE
Topazio's b1 BCA incorporates the bank's recurring earnings
generation over the past two years, supported by a strategy
primarily focused on providing foreign exchange services, as well
as extending short-term credit facilities to small and medium size
enterprises (SMEs). The bank has explored business synergies with
Ebanx, a Brazilian cross-border payment platform for global
technology firms that acquired a 30% equity stake at the bank in
2021, and other well-established companies, including Ticket
Solucoes and Saque e Pague, to reinforce Topazio's credit strategy
and its operation of "Bank-as-a-Service". The b1 BCA also reflects
the bank's limited funding diversification, that relies on brokered
deposits, a negative driver on its financial profile that is
counterbalanced by its prudent liquidity management.
Since January 2019, Topazio has reduced loan origination, resulting
in a 73% decline of its loan book up to December 2022, which
resulted in a lower 0.5x leverage to tangible common equity (TCE),
from 6x in 2019. The bank has tightened the underwriting standards
of its traditional short-term working capital financing business
and increased focus on discount of self-liquidating credit card
receivables of SMEs and commercial merchants. While this strategy
has helped Topazio improve nonperforming loans to 1.9% of gross
loans at the end of 2022, from as high as 6.5% in December 2019,
its credit business remains largely sensitive to the challenging
economic cycle in 2023. To help mitigate credit risk, the bank's
loan loss reserves accounted for 445% of nonperforming credits in
December 2022. Moreover, the short-term nature and high granularity
of its loan book also aid in offsetting the rising asset risks
Topazio faces amid high interest rates and slow economic activity.
In addition, the moderation in loan origination has been
compensated by the strong growth of its fee-based activities
related to foreign-exchange (FX) operations, largely associated
with Ebanx. The bank reinforced its governance and risk management
structure over the past two years to support this enhanced FX
business platform, although operational risks related to these
activities remain high.
The BCA of b1 also acknowledges Topazio's strong profitability
ratio reported over the past two years that averaged over 2% of
tangible banking assets, but also takes into account the short
track record of this new strategy that will continue to face strong
competition. As the bank's business strategy matures, Moody's
expect earnings recurrence to provide consistent capital
replenishment that will continue to support growth. In December
2022, Topazio's ratio of TCE to risk-weighted assets (RWAs) was
16.2%, with RWAs factoring 100% risk-weighting on the bank's
sizeable holdings of government securities. In addition,
shareholders have historically supported the bank's growth strategy
through capital injections and maintained low average dividend
payout ratio of 11.8% in the last two years.
The short-term profile of credit portfolio and diligent management
of maturity mismatches and concentrations, combined with an
adequate liquidity position fully made up from government
securities partially offset the predominance of broker-deposits,
which could expose the bank's liquidity profile to changes in the
commercial strategy of a few market-dominant investment houses.
The assigned ratings also incorporate environmental, social and
governance (ESG) considerations, as per Moody's Investors Service's
General Principles for Assessing Environmental, Social and
Governance Risks Methodology. Moody's assessment of the bank's
exposure to governance risks is moderately negative, reflected in a
Governance Issuer Profile Score (IPS) of G-3, largely stemming from
the controlling ownership by one-single family, limited track
record after the bank's strategic repositioning in recent years,
and relevant partnerships with related-parties that can give rise
to conflicts of interest. The bank's risk management, compliance
and reporting policies are in line with industry best practices.
The stable outlook is a reflection of Moody's view that Topazio's
credit profile will remain stable over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on Topazio's b1 BCA could arise from a consistent
and sustainable growth in its Bank-as-a-Service and lending
businesses, increasing business diversification and recurrent
earnings generation capacity. Enhanced access to a more diverse
funding mix and lower reliance on third party brokers deposits
could also be positive for the BCA.
Evidence of weakening in credit underwriting standards or
operational controls, or a sudden deterioration in the bank's
earnings potential that could result from changes in the regulatory
framework or termination of key business partnerships could have a
negative pressure on Topazio's BCA. A sustained decline in capital
or liquidity position could also add downward rating pressure.
METHODOLOGY USED
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
BRAZIL: Cuts Primary Deficit Forecast for 2023 by More Than Half
----------------------------------------------------------------
Lachlan Williams at Rio Times Online reports that the Brazilian
government reduced to BRL107.6 billion (US$20.546 billion) the
primary deficit forecast for this year, less than half of the
BRL228.1 billion (US$43.555 billion) previously forecast, informed
the Ministry of Planning and Budget.
The revision places the primary deficit at one percent of Brazil's
Gross Domestic Product (GDP), according to Rio Times Online.
The primary deficit is the negative result of the government's
accounts, excluding interest on public debt, the report notes.
The lowering is due to an increase in the revenue forecast of
BRL110 billion (US$21 billion) and a reduction in expenditures, the
report relays.
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).
COMPANHIA ENEGERTICA: Fitch Affirms LT Foreign Currency IDR at 'BB'
-------------------------------------------------------------------
Fitch Ratings has affirmed Auren Energia S.A.'s (Auren) Long-Term
National Scale Rating at 'AAA(bra)' and affirmed Companhia
Energetica de Sao Paulo's (CESP) ratings, including its Long-Term
Local Currency (LC) Issuer Default Rating (IDR) at 'BBB-', its
Long-Term Foreign Currency (FC) IDR at 'BB', its National Scale
Rating at 'AAA(bra)' and the National Scale Rating of its 12th
debentures issuance at 'AAA(bra)'. The Rating Outlook of Auren and
CESP's corporate ratings is Stable.
Auren's rating incorporates its sizable and diversified asset base
within the power generation segment, highly predictable revenues,
strong cash flows and conservative financial leverage. Its credit
profile benefits CESP's ratings, based on the strong strategic and
operational incentives to support this wholly-owned subsidiary, if
needed. CESP's FC IDR is constrained by Brazil's country ceiling of
'BB', while Brazil's operating environment limits the LC IDR.
KEY RATING DRIVERS
Credit Linkage With Auren: CESP's ratings reflects Auren's
consolidated credit profile, based on high strategic and
operational incentives that the parent would have to provide
support, if necessary. CESP is Auren's main asset and will likely
generate around half of the group's EBITDA over the next years. The
subsidiary operates Porto Primavera hydro plant, which represents
51% of the Auren's installed capacity of 3.0 GW in operation
(proportional to equity stakes in operating assets) and reduces the
group's business risk due to the complementary seasonality between
hydro and wind generation, besides being a key supplier for Auren's
high-growth trading business.
Robust Business Profile: Auren's rating benefits from highly
predictable revenues, relevant scale and an increasing asset
diversification in the electric power generation segment in Brazil.
Wind and solar energy should represent 43% of the group`s installed
capacity as of 2025, from 32% in 2022, reducing its exposure to
hydrological risk. Fitch's projections consider that solar projects
should add 276 MW in 2024 and 272 MW in 2025. Around one third of
Auren's energy to be settled through 2025 was sold in the Regulated
Contracting Environment (ACR), which offers low counterparty risk
and longer terms relative to bilateral contracts. The expected
expansion of the trading business might add some volatility.
Resilience Against Low Prices: Auren is well protected against the
current downward pressure on energy prices driven by oversupply in
Brazil. The company sold 91% of its total resources (assured energy
and purchases), including the trading activity. These levels
compare favorably with those of Auren's peers, as well as its
contracted sales prices, which average BRL225/MWh over the same
period, benefited from higher prices in the ACR market. Fitch
estimates that the company has contracted more than 80% of total
revenues through 2026 and that it will maintain an EBITDA margin in
the 25% to 30% range.
Negative FCFs: Fitch expects Auren to conclude an investment cycle
in 2024, after which cash flows from operations (CFFO) should
exceed investments. FCFs should turn positive as of 2025,
disregarding the execution of additional projects. EBITDA and CFFO
are estimated at BRL1.6 billion and BRL1.0 billion in 2023. In
2024, EBITDA is expected to slightly decline to BRL1.5 billion due
to lower energy prices, and CFFO should reduce to around BRL630
million after the settlement of deficits in wind generation (BRL360
million).
Fitch's base case considers the receipt of Tres Irmaos's
indemnification (BRL3.9 billion at Dec/22). Projections also
include annual payments of around BRL300 million, mostly related to
litigations and pension contributions. Investments for Sol de Jaiba
and Sol do Piaui projects (548 MW) should amount BRL2.6 billion,
more concentrated in 2023.
Comfortable Leverage: Fitch expects Auren to maintain adjusted net
leverage below 3.0x on a consolidated basis, even considering
potential M&A activity, which might be an important growth avenue
for the group. This ratio is estimated at 1.8x in 2023 and 2.1x in
2024, from 1.5x in 2022, after significant distribution of
dividends in 2023, and includes in adjusted EBITDA recurring
dividends received from unconsolidated hydro plants, estimated at
around BRL280 million annually. Dividend projections as of 2024
consider a 95% pay-out ratio. Gross leverage is estimated at 3.4x
and 3.0x in 2023 and 2024, respectively.
DERIVATION SUMMARY
Auren's credit profile is similar to Engie Brasil Energia S.A.'s
(Engie BR; FC IDR bb/Stable; LC BBB-/Stable; National Scale Rating
AAA(bra)/Stable). Auren's scale (3.0 GW in operation) is lower than
that of Engie BR (8.5 GW), but both generation companies have
70%-75% of their assured energy allocated in hydro plants. Engie
also benefits from relevant cash generation from energy
transmission and gas midstream, which adds to revenues
predictability. Auren's EBITDA margin is lower than Engie's (26%
and 55% projected for 2023, respectively) due to the greater
importance of the trading business in Auren's consolidated results.
On the other hand, Fitch forecasts higher net leverage for Engie
BR, around 2.5x in 2023-2024, reflecting higher capex intensity.
CESP's LC IDR is the same as that of AES Andes, the third largest
electricity generation company in Chile, with 5.1 GW of installed
capacity, including its operations in Colombia (1.1 GW) and
Argentina (0.6 GW), and 1.4 GW of coal assets, to be decommissioned
by 2025. AES Andes has larger scale, with EBITDA equivalent to 2.5x
that of Auren's, and operates with similar EBITDA margin (around
30%), but carries higher financial leverage, with net debt/ EBITDA
estimated at around 3.0x, on average, over 2023-2025.
KEY ASSUMPTIONS
- Generation scaling factor (GSF) of 0.85 in 2023 and 0.93 as of
2024;
- Wind generation at 10-year P-90 generation;
- Assured energy of 1.6 aGW in 2023 and 1.7 aGW as of 2024;
- Capacity factors of 57%, 47% and 30% for hydro, wind and solar
assets, respectively;
- Contracted annual sales of around 2.7aGW, with average prices of
BRL225/MWh in 2023-2026, including trading;
- Prices for new sales contracts in 2023-2026 (BRL/MWh): 107; 102;
130; 137;
- Average short-term prices in 2023-2026 (BRL/MWh): 69; 92; 64;
66;
- Sol de Jaiba and Sol do Piaui projects to start operation in 3Q23
and 1Q24, respectively;
- Total capex of BRL2.6 billion in 2023-2024, more concentrated in
2023;
--Dividend payout of 95% as of 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of Auren or CESP's National Scale Rating is not
possible as they are at the top of the national scale;
- Positive rating action for CESP's FC IDR or LC IDR could be
associated with improvements of Brazil's country ceiling or its
operating environment, respectively.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A deterioration in Auren's financial profile, with debt/EBITDA
and/or net debt/EBITDA ratios consistently above 4.0x or 3.0x,
respectively, could trigger a negative rating action on CESP's LC
IDR;
- A more severe deterioration in Auren's financial profile, with
debt/EBITDA and/or net debt/EBITDA ratios consistently above 5.0x
or 4.0x, respectively, could trigger a negative rating action on
National Scale ratings for both companies;
- A weaker operating environment in Brazil could lead to a
downgrade of CESP's LC IDR;
- A downgrade on Brazil's sovereign rating could result in a
similar rating action on CESP's FC IDR.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Auren should maintain comfortable liquidity
levels and ample access to several sources of financing to meet its
financial and investment obligations. The group's consolidated cash
and equivalents were BRL3.4 billion at Dec. 31, 2022, which covered
more than six years of debt amortizations. Short-term debt was only
BRL247 million. Fitch expects the company to raise BRL700 million
in 2023 from development banks for Sol de Jaiba and Sol do Piaui
projects. Consolidated debt of BRL5.8 billion was composed of
project financing from BNDES (BRL3.1 billion) and debentures
(BRL2.7 billion).
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
----------- ------ -----
CESP - Companhia
Energetica de
Sao Paulo LT IDR BB Affirmed BB
LC LT IDR BBB- Affirmed BBB-
Natl LT AAA(bra) Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra) Affirmed AAA(bra)
Auren Energia
S.A. Natl LT AAA(bra) Affirmed AAA(bra)
=============
J A M A I C A
=============
JAMAICA: Tax Revenue $4.4 Billion More Than Projected
-----------------------------------------------------
RJR News reports that Jamaica continues to rake in more taxes than
budgeted.
Keith Duncan, Chairman of the Economic Program Oversight Committee
(EPOC), says up to the start of 2023, income from taxes was more
than $4 billion more than programmed, according to RJR News.
"For the period April through January 2023, tax revenues were $583
billion, which was $4.4 billion ahead of the third supplemental
budget, and $115 billion - 24 per cent ahead of receipts collected
for April to January, the same period [in] 2022," he revealed, the
report notes.
Mr. Duncan was speaking at EPOC's quarterly press briefing.
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.
===========
P A N A M A
===========
PANAMA: IMF Says Real GDP Shrinking by 18%
------------------------------------------
On February 22, the Executive Board of the International Monetary
Fund (IMF) concluded the Article IV consultation.
In the decade-and-half preceding the Covid-19 pandemic, an
unprecedented construction and investment boom precipitated a rapid
economic expansion in Panama. The Panama Canal and Tocumen Airport
were expanded, there was large scale building of new skyscrapers in
Panama City, and one of the largest copper mines in the world was
constructed. Economic growth was further supported by the expansion
of the services and logistics sectors, which benefited from the
widening of the Panama Canal. With a rapid expansion of the capital
stock, real GDP grew by 6 percent annually, poverty declined
sharply, and income levels rapidly converged with those in advanced
countries.
The Covid-19 pandemic led to a deep downturn, with real GDP
shrinking by 18 percent and unemployment spiking to 18 1/2 percent
in 2020, from 7 percent in 2019.
The recovery has been very strong, but the outlook is uncertain.
Output expanded by 15 percent in 2021 and a projected 9 percent in
2022. Employment has rebounded strongly, while inflation remained
low compared with other countries. The fiscal deficit declined to
from 10.4 percent of GDP in 2020 to 4 percent of GDP in 2022.
Nonetheless, risks of new external shocks have emerged, including a
sharper than expected downturn of the world economy, renewed surges
of food and energy prices, and disruptions to global capital
markets. There are also uncertainties about when the rebound of the
deep Covid-related downturn will have run its course, and what the
medium-term growth potential of Panama will be given that
construction is unlikely to provide the same support to growth as
it has in the past decade and a half. Other domestic risks include
a prolonged inclusion of Panama in the Financial Action Task Force
(FATF) grey list and disruptions to copper mining activities after
negotiations between the government and Minera Panama on a new
contract failed to meet a mid-December 2022 deadline.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal.
Panama witnessed a strong post- pandemic economic recovery,
supported by a rebound in the global economy. However, the outlook
remains uncertain, with risks of new external shocks,
vulnerabilities from a prolonged inclusion in the Financial Action
Task Force (FATF) grey list, and possible disruptions to copper
mining activities following delays in reaching a new mining
agreement. Looking ahead, Directors concurred that policies should
focus on rebuilding buffers and ensuring the convergence of
Panamanian income levels with those in advanced countries
continues. While welcoming the recent progress, they underscored
the critical importance of prioritizing an exit from the FATF grey
list at the earliest date possible by expeditiously addressing the
remaining deficiencies in the AML/CFT regulatory framework.
To ensure debt sustainability in the medium term, Directors
highlighted the importance of further reducing the fiscal deficit,
in accordance with the fiscal rule. They agreed that tax revenue
will need to increase to sustainably reduce the fiscal deficit
while preserving social spending and creating room for more
education spending. In this context, Directors stressed the
importance of improving tax and customs collection efficiency;
broadening the tax base by reducing exemptions, deductions, and tax
expenditures; and addressing the deficits in the defined-benefit
pension component of the social security system.
Directors noted that capital adequacy and liquidity indicators in
the banking sector are well above regulatory minima. As Panama does
not have a lender of last resort and deposit insurance, they
emphasized the importance of keeping the banking system well
capitalized and liquid. In this context, they highlighted the need
for continued intensive supervision and monitoring and expanding
the macroprudential policy toolkit to mitigate future asset quality
and liquidity risks. They also urged AML/CFT regulation and
supervision to be applied to Fintech companies.
Directors noted that Panama's past income convergence to
advanced-economy levels was driven by an unprecedented construction
boom. To sustain convergence, Directors underscored the necessity
for other productive sectors to take over, and for governance and
human capital to improve. They also called for structural reforms
to enhance innovation, improve critical infrastructure, and
strengthen labor policies to bolster competitiveness and growth
potential. Directors encouraged the authorities to work toward SDDS
subscription, and stressed the importance of more timely
statistics, which would reinforce transparency.
=======
P E R U
=======
TELEFONICA DEL PERU: Moody's Cuts CFR & Sr. Unsecured Bond to B2
----------------------------------------------------------------
Moody's Investors Service downgraded Telefonica del Peru S.A.A.'s
Corporate Family Rating and senior unsecured ratings to B2 from Ba3
and changed the outlook to negative from rating under review.
Downgrades:
Issuer: Telefonica del Peru S.A.A.
Corporate Family Rating, Downgraded to B2 from Ba3
Senior Unsecured Regular Bond/Debenture, Downgraded to B2 from
Ba3
Outlook Actions:
Issuer: Telefonica del Peru S.A.A.
Outlook, Changed To Negative From Rating Under Review
RATINGS RATIONALE
The downgrade to B2 reflects Telefonica del Peru's persistently
weak operating performance, which has been consistently below
Moody's original expectations and the average for industry peers.
Despite the recent improvement in cost structure and recovery in
service revenues when compared to pandemic lows, Moody's believes
that operating performance will remain pressured over the next
12-24 months given the intense market competition and challenging
macroeconomic environment in Peru. EBITDA margin, as adjusted by
Moody's, is expected to remain around 22.5% over the next 12-24
months. Although an improvement when compared to the 19.5% reported
in 2021, this level is low when compared to peers and the company's
own pre-pandemic levels of 24.5% in 2019 and 36.4% in 2016, when
competition from new entrants was limited.
In addition, Moody's expects deterioration in liquidity and
leverage over the rating horizon given the need to settle a large
tax dispute with the tax authority, SUNAT. This settlement is
estimated at about PEN2.8 billion (USD 718 million), according to
the company's provisions on balance sheet. Although the timing and
terms of this settlement are still not finalized, a significant
portion of the amount due will need to be settled over the course
of 2023 pressuring the company's liquidity and leverage. Despite
the additional liquidity provided by Telefonica del Peru's main
shareholder, Telefonica Hispanoamerica, in the form of a
convertible intercompany loan, Moody's expects a significant
portion of the settlement to be debt-financed, further increasing
Moody's adjusted leverage to around 4.0x in 2023, up from 2.6x as
of December 2022.
This action concludes the review for downgrade initiated in
December 2022 to assess Telefonica del Peru´s progress towards
improving margins and FCF generation and its plans to secure
financing sources to timely meet the tax settlement with the SUNAT,
as well as for upcoming debt amortizations and capex needs.
The negative outlook considers Telefonica del Peru's challenges to
continue improving profitability in the context of intense
competition and a challenging economic environment with expected
high inflation, FX volatility, persistent unemployment, and
political instability. Furthermore, the negative outlook considers
the increase in liquidity risk steaming from the short-term cash
needs to face the SUNAT settlement and upcoming debt amortizations.
Moody's expects the company to need to raise debt in the near-term
to face these obligations.
Although Telefonica del Peru benefits from its scale as the largest
telecommunications operator in Peru, the company faces significant
competitive challenges to revert the deterioration in operating
metrics and loss of market share that started in 2014 with the
entry of two new and aggressive competitors that disrupted the
competitive landscape. This persisted until recently, aggravated by
the coronavirus pandemic. To combat this trend, the company has
executed a well-defined strategy to prioritize profitability
growth, focusing on cost reductions, as well as on improvements in
the commercial strategy to reduce churn and grow revenue.
Throughout 2022, this new strategy delivered modest but steady
improvements in profitability. Moody's-adjusted EBITDA margin
increased to 22.4% in 2022, which negatively compares with the
24.5% reported as of year-end 2019 but is an improvement when
compared to the 19.5% reported in 2021.
Telefonica del Peru posted negative free cash flow as adjusted by
Moody's in 2022, a trend that Moody´s expect to continue in 2023
given their need to continue to invest to maintain competitiveness
and expand network coverage. Moody's believes low capital intensity
increases the risk of technological obsolescence and may undermine
the company's competitive position over time. The rating agency
forecasts 2023 capex to be slightly below 10% of revenues.
As of December 2022, Telefonica del Peru had PEN433 million ($124
million) in cash on hand, which was sufficient to cover its debt
maturities until 2023. However, Moody's expects the cash position
to deteriorate over the course of 2023 due to the settlement of tax
liabilities with the SUNAT. Moody's expects a significant portion
of this settlement to be debt-financed, increasing leverage from
around 2.6x in December, to about 4.0x.
Following the Supreme Court's decision in favor of the SUNAT in
January 2023, Telefonica del Peru's shareholders determined that
the company will seek additional financing and potential additional
capital contributions to service these payments. In February, the
Board of Directors approved a PEN1 billion ($265 million)
convertible loan from Telefonica Hispanoamerica to Telefonica del
Peru, of which PEN365 million ($92 million) was disbursed
immediately.
Since 2019, Telefonica del Peru's ultimate parent company,
Telefonica S.A. (Baa3 stable), has prioritized markets where it
perceives long-term sustainable growth and has worked to spinoff of
its businesses in Hispano America, including Telefonica del Peru.
Given this context, the rating incorporates no support from the
parent.
Governance factors are important considerations for Telefonica del
Peru´s rating and reflect the company's operating track record,
which has been impacted by loss of profitability and market share
since 2014, as well as the company´s tolerance for higher
liquidity risk and leverage resulting from the tax settlement with
the SUNAT.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely at this point given the negative outlook.
However, Moody´s could stabilize the rating outlook if there is
strong evidence that the company will be able to sustain positive
revenue growth and steady improvement in profitability over the
rating horizon, while maintaining leverage below 3.5x and interest
coverage measured by (EBITDA-CAPEX)/Interest Expense at 2.5x or
higher on a sustained basis. In addition, the company needs to
demonstrate adequate liquidity and the ability to secure financing
to timely meet the tax settlement with the SUNAT as well as
upcoming debt amortization and capex needs.
The ratings could be downgraded if there is further deterioration
in liquidity due to persistent negative free cash flow generation
driven by weaker performance, higher capex needs, or additional
claims related to the company's tax proceedings. Ratings could also
be downgraded if the company is not able to secure financing to
meet SUNAT obligations or leverage is expected to increase to a
level higher than 4.0x without a clear path for deleveraging.
Telefonica del Peru is the largest telecommunications company in
Peru, with a mobile market share of around 30% and 54.5% in the
fixed internet segment as of December 2022, according to the
Peruvian telecommunications regulator — OSIPTEL. The company is
an integrated telecommunications service provider offering mobile,
fixed, pay-TV and business-to-business services through its
Movistar brand. Telefonica del Peru is Peru's largest
telecommunications company in terms of revenue, and a leader in all
segments, with more than 12.6 million revenue-generating units
(RGUs) in mobile and almost 3.3 million RGUs in fixed broadband and
pay TV. In 2022, the company generated revenue of around PEN7.17
billion ($1.8 billion). Telefonica del Peru is controlled by
Telefonica Hispanoamerica which indirectly holds 98% of its shares.
The remaining are traded on the Lima Stock Exchange — Bolsa de
Valores de Lima.
The principal methodology used in these ratings was
Telecommunications Service Providers published in September 2022.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: 'Millions' Lost to Illegal Quarrying
-------------------------------------------------------
Trinidad Express reports that the Ministry of Energy and Energy
Industries (MEEI) was criticised for the "baby steps" it appeared
to be taking to stamp out illegal quarrying.
It came from Member of Parliament for Oropouche West Davendranath
Tancoo at a Public Accounts Committee (PAC) meeting with the
ministry, according to Trinidad Express.
The meeting was a follow-up enquiry on the ministry's
implementation of recommendations contained in the 30th Report of
the PAC, with reference to the concerns raised in reports of the
Auditor General, the report relays.
The PAC's last public hearing with MEEI officials was held on
November 27, 2019.
Tancoo, who chaired the meeting, pointed out that Trinidad and
Tobago has been dealing with the problem of illegal quarrying for
decades, the report disclsoes.
"The ministry has been in charge of quarrying for decades, from
time immemorial, and still it does not seem that we have put
sufficient emphasis on dealing with the scourge of illegal
quarrying," he said, the report notes.
"We are now appearing to be taking baby steps forward in a
multi-million-dollar industry, where the State and taxpayers of
Trinidad and Tobago are being denied access to substantial amounts
of funds that is going to fund persons involved in illegal
activity," he said, the report relays.
"I am very concerned that not enough has been done or not enough
aggression is being put in place, especially given that the Auditor
General's department has raised this very said issue since way
before 2019. It's been raised in several reports that I've seen so
far, and 2019 was just the last one because we treated with that in
2019," he added.
He made the comments after listening to the ministry's permanent
secretary, Penelope Bradshaw-Niles, and Director of Minerals Monty
Beharry detail the efforts undertaken by the ministry between 2019
and present to deal with illegal quarrying, the report relays.
Bradshaw-Niles said, firstly, the ministry had increased
collaboration with the Commissioner of State Lands and the Trinidad
and Tobago Police Service to treat with the problem "on the
ground," the report says.
She said the ministry also invited proposals from entities to
conduct aerial surveys of lands in Trinidad and Tobago, in order to
identify areas currently being illegally quarried, the report
notes.
She said the tender was awarded.
The third area, she said, was looking at the licensing of quarries,
the report relays.
"We have reviewed the regulations in terms of streamlining the
actual process for applications and renewals of applications. And
we came up with a comprehensive list of recommendations in terms of
areas of the regulations to be revised, and that is currently
before the (Law Reform Commission), and we expect during 2023 that
we will be able to streamline the licensing of quarries, based on
the recommendations that we have made for changes to the mineral
regulations," Bradshaw-Niles said, the report notes.
Director of Minerals Beharry said, based on the information from
the multi-agency task force, comprising Defence Force officers,
police officers and members of key ministries with responsibility
for land, several people have been investigated and held for
illegal quarrying, the report says.
"The TTPS officers are currently dealing with those persons at
various stages," he said, adding that he did not have an exact
figure but could provide this information in writing to the PAC,
the report discloses.
Slow Pace
Responding to questions from Independent Senator Charisse
Seepersad, Beharry also disclosed that the last aerial photography
taken by the Director of Surveys dated back to 2014, the report
notes.
"We at the Ministry of Energy do not have the technology to take
aerial photographs and that's why we have to outsource that. We
however use Google Earth, which is basically a free software. The
challenge with that is we don't have control over the dates that
the images are taken," he said, the report relays.
Seepersad pointed out that this was the "same thing" the ministry
told the PAC when interviewed in 2019, the report recalls.
"The difference between 2019 and now is that we actually have the
letter of award, so that work begins very shortly," Bradshaw-Niles
responded.
She said the ministry had also just begun discussions with other
State agencies on the use of satellite data, the report notes.
Seepersad posited that had the ministry moved a little faster to
get this technology in place years ago, T&T may not have lost
millions of dollars in revenue due to illegal quarrying, the report
relays.
Bradshaw-Niles said while the ministry may not have had aerial
photography, it had been responding to reports of illegal
quarrying, the report notes.
"We do have our mineral staff on the ground as well as we would
have members of the public or other quarry operators which will
report to us instances, and once that happens, or if we get any
indication that there's any illegal quarrying in any areas, we
would have responded by liaising with the TTPS," she said, the
report notes.
Asked by Minister in the Office of the Prime Minister Ayanna
Webster-Roy how much money the ministry had invested in new
technologies and research over the last fiscal year, to assist in
putting an end to illegal quarrying, Bradshaw-Niles could not say,
the report relays.
She noted, however, that the ministry had spent around $1 million
to train staff in geographical information systems (GIS) and other
technical areas, the report discloses.
It was at this point that Tancoo interjected and chastised the
ministry for the slow place at which it was tackling illegal
quarrying, the report relays.
He said the use of the technology the ministry mentioned should
have been a "done deal" in a small country like Trinidad, the
report adds.
=================
V E N E Z U E L A
=================
VENEZUELA: Power Struggle and Missing Billions Roil Ruling Elite
----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that a power
struggle and a trail of unpaid oil sales led Venezuela's ruling
elite to purge one of their own inner circle as the government
tries to recover billions in missing energy revenues.
Energy Minister Tareck El Aissami's resignation comes after months
of close oversight by Vice President Delcy Rodriguez, the regime's
most powerful official after President Nicolas Maduro. Rodriguez's
office was tasked with tracking unpaid oil cargoes, according to
people with knowledge of the matter, who asked not to be named
because the discussions are confidential, according to
globalinsolvency.com.
Rodriguez took charge after an internal audit revealed a financial
black hole at the state oil company, the government's most
important source of funding, the report notes.
The missing payments mostly date from between 2020 and 2022, when
Venezuela sought out new intermediaries to help get around US
sanctions and trade, ship and sell its oil, the people said, the
report relays.
That triggered a widening corruption investigation, in which at
least 19 people have been detained including judges, elected
officials, and the head of the nation's crypto regulator, the
report adds.
About Venezuela
Venezuela, officially the Bolivarian Republic of Venezuela, is a
country on the northern coast of South America, consisting of a
continental landmass and a large number of small islands and islets
in the Caribbean sea. The capital is the city of Caracas.
Hugo Chavez was president to Venezuela from 1999 to 2013. The
Chavez presidency was plagued with challenges, which included a
2002 coup d'etat, a 2002 national strike and a 2004 recall
referendum. Nicolas Maduro was elected president in 2013 after the
death of Chavez. Maduro won a second term at the May 2018
Venezuela elections, but this result has been challenged by
countries including Argentina, Chile, Colombia, Brazil, Canada,
Germany, France and the United States who deemed it fraudulent and
moved to recognize Juan Guaido as president.
The presidencies of Chavez and Maduro have challenged Venezuela
with a socioeconomic and political crisis. It is marked by
hyperinflation, climbing hunger, poverty, disease, crime and death
rates, social unrest, corruption and emigration from the country.
Moody's has withdrawn 'C' local currency and foreign currency
ceilings for Venezuela in September 2022. Standard & Poors has
also withdrawn its 'SD/D' foreign currency sovereign credit ratings
and 'CCC-/C' local currency ratings on Venezuela in September 2021
due to lack of sufficient information. Fitch withdrew its own
'RD/C' Issuer Default Ratings on Venezuela in June 2019 due to the
imposition of U.S. sanctions on the country's government.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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