/raid1/www/Hosts/bankrupt/TCRLA_Public/230518.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, May 18, 2023, Vol. 24, No. 100
Headlines
A R G E N T I N A
ARGENTINA: Going Broke to Stall a Full-On Currency Collapse
ARGENTINA: Reserves Slump to 7-Year Low as Crisis Deepens
B R A Z I L
BRAZIL: General Price Index Registers Deflation of 1.01% in April
EMBRAER: Sale of Up to 250 Business Jets Worth US$5 Billion++
INTERCEMENT BRASIL: S&P Downgrades ICR to 'CCC-', Outlook Negative
LIGHT SA: Fitch Downgrades LongTerm IDRs to 'D'
LIGHT SA: Moody's Downgrades CFR to Ca Following Judicial Recovery
STATE OF MARANHAO: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: 20%++ Up in Minimum Wage for Tourism Sector
E C U A D O R
ECUADOR: Moody's Considers Debt Buyback a Distressed Exchange
M E X I C O
BANCO AZTECA: Fitch Assigns 'BB/B' IDRs, Outlook Stable
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Labor Force Fall is Cause for Concern
TRINIDAD & TOBAGO: Should Focus on Initiatives to Generate Income
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Going Broke to Stall a Full-On Currency Collapse
-----------------------------------------------------------
Buenos Aires Times reports that Argentina's fight to prevent its
problematic currency from a total meltdown is leaving the Central
Bank, by some estimates, broke.
The nation has already spent all of its liquid international
reserves, plus another estimated US$1 billion, according to Buenos
Aires-based consulting firm 1816 Economia & Estrategia — raising
the stakes as the nation contends with a historic drought and
impending recession, the report discloses.
Without easy-to-spend cash on hand, questions are swirling about
how much longer the government can continue to defend the peso from
an all-out collapse, according to Buenos Aires Times. At risk is a
currency devaluation that stands to fan 104 percent inflation and
exacerbate high levels of social unrest ahead of October's
presidential elections, the report relays.
"Fewer reserves leads to more pressure on the exchange rate, which
in turn leads to more pressure on inflation," said Fernando Losada,
a managing director at Oppenheimer & Co. "I see no possible
scenario under which inflation goes below three digits this year,"
the report notes.
Argentina has struggled to build and keep international reserves at
healthy levels for decades, running through cash piles to combat
rising prices and juggle obligations on overseas bonds, the report
says.
The nation now technically has less than US$34 billion in total
foreign reserves, but the majority is locked up in less-liquid
assets — such as gold, credit swap lines with China and the Bank
of International Settlements and the dollars Argentines have in
their savings accounts, the report notes.
That's a problem for a country in need of ready-to-spend cash, the
report discloses. Argentina's liabilities in foreign currency
already exceed total reserves by about US$1 billion — the worst
such ratio since the nation was wracked by economic crisis in the
early 2000s, according to the 1816 firm's report, Buenos Aires
Times says.
Argentina has been flying through its dollar reserves as it tries
to stop a slide in the peso's parallel-market exchange rate, which
has replaced the government's official currency rate amid draconian
capital controls, the report relays. The Central Bank sold about
US$470 million to support the currency in parallel markets, said
Fernando Marull, an economist at Buenos Aires-based consultancy
FmyA, the report says.
It's been difficult to measure the success of the government's
intervention, the report notes. The unofficial peso lost about 13
percent against the US dollar last month, and is down 33 percent so
far this year, by far the biggest decline in key emerging markets,
the report discloses.
President Alberto Fernandez has, in the past, attempted to beef up
reserves by forcing dollars earned from exports to flow into
Central Bank accounts and by accepting International Monetary Fund
cash injections, the report notes. But those measures are largely
falling flat. And Fernandez - who has already withdrawn his
candidacy for re-election - has no guarantees that talks to rework
a US$44-billion programme with the IMF will result in sped-up loan
disbursements to help ease the situation, the report notes.
A spokesperson for Argentina's Central Bank said the market's
calculation of net reserves doesn't properly reflect its balance
sheet because it fails to account for other sources of financing,
such as a currency swap line with China, the report discloses.
Officials have opted for other emergency measures in the meantime,
including tapping the China swap to finance US$1.8 billion of
imports from the country, the report relays. It's also working
with Brazil to boost bilateral trade with credit lines in reais,
allowing it to bypass the dollar, the report says.
For Argentines, the uncertainty is palpable, the report notes.
Scarred by the Central Bank's decision to freeze access to dollar
savings during the 2001 economic crisis, many Argentines are
already pulling cash from their savings, the report relays. They
yanked over US$1 billion of US dollar deposits from the banking
system from late March to the end of April, the report says.
There are also few signs that reserves can be rebuilt any time
soon. The worst drought of the century has all but removed any
possibility of an influx of cash from agricultural exports before
the elections, the report relays.
"The risk of having liquid reserves in negative territory is that
the Central Bank may not have the dollars needed to meet an even
stronger outflow of foreign-exchange deposits," said Juan Sola, an
economist at BancTrust & Co in Buenos Aires, 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 March 29, 2023, lowered its long-term
foreign currency sovereign credit rating on Argentina to 'CCC-'
from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency
sovereign credit rating and its 'CCC-/C' local currency ratings on
Argentina. The outlook on the long-term ratings is negative. S&P
also lowered the transfer and convertibility assessment to 'CCC-'
from 'CCC+'. The negative outlook on the long-term ratings reflects
risks
surrounding pronounced economic imbalances and policy uncertainties
before and after the 2023 national elections. Divisions across the
political spectrum constrain the sovereign's ability to implement
timely changes in economic policy. Global capital markets are
closed to Argentina. In the local market, swaps are being deployed
to manage large maturities before placing debt through traditional
auctions. The central bank continues to play a key role as a
backstop for local debt management in the secondary market. The
ongoing severe drought has exacerbated pressures in the already
disrupted foreign exchange (FX) market.
Fitch Ratings, on the other hand, 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-' on
March 24, 2023. Fitch's 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. Fitch said the rating would be downgraded to
'Restricted Default' (RD) upon execution of the exchanges.
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, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: Reserves Slump to 7-Year Low as Crisis Deepens
---------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that
Argentina’s international reserves have tumbled to their lowest
since 2016 as the central bank drains its coffers to defend the
increasingly beleaguered peso.
The currency tumbled 13% in parallel markets last month to a record
low as a historic drought sapped key crop exports, fueling a dollar
shortage at the same time that inflation accelerates past 100%,
according to globalinsolvency.com.
As the crisis deepens, Argentina and the International Monetary
Fund are discussing the possibility of bringing forward payments
from the multilateral lender ahead of presidential elections in
October, 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 March 29, 2023, lowered its long-term
foreign currency sovereign credit rating on Argentina to 'CCC-'
from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency
sovereign credit rating and its 'CCC-/C' local currency ratings on
Argentina. The outlook on the long-term ratings is negative. S&P
also lowered the transfer and convertibility assessment to 'CCC-'
from 'CCC+'. The negative outlook on the long-term ratings
reflects risks
surrounding pronounced economic imbalances and policy uncertainties
before and after the 2023 national elections. Divisions across the
political spectrum constrain the sovereign's ability to implement
timely changes in economic policy. Global capital markets are
closed to Argentina. In the local market, swaps are being deployed
to manage large maturities before placing debt through traditional
auctions. The central bank continues to play a key role as a
backstop for local debt management in the secondary market. The
ongoing severe drought has exacerbated pressures in the already
disrupted foreign exchange (FX) market.
Fitch Ratings, on the other hand, 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-' on
March 24, 2023. Fitch's 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. Fitch said the rating would be downgraded to
'Restricted Default' (RD) upon execution of the exchanges.
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, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
===========
B R A Z I L
===========
BRAZIL: General Price Index Registers Deflation of 1.01% in April
-----------------------------------------------------------------
Rio Times Online reports that the General Price Index - Domestic
Availability (IGP-DI) registered a deflation of 1.01% in April.
The data was released by the Brazilian Institute of Economics of
the Getulio Vargas Foundation (FGV Ibre), according to Rio Times
Online.
The drop in the IGP-DI was slightly higher than the median of the
estimates of 16 consulting and financial institutions, the reprot
notes.
Last month, the rate had been -0.34%. With the April result, the
index accumulates a variation of -1.26% in the year and -2.57% in
12 months, 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).
EMBRAER: Sale of Up to 250 Business Jets Worth US$5 Billion++
-------------------------------------------------------------
Richard Mann at Rio Times Online reports that Brazilian aircraft
manufacturer Embraer, the world's third largest aircraft builder,
announced an agreement with air cab company NetJets to sell up to
250 Praetor 500 model aircraft in a deal worth more than US$5
billion.
According to Embraer, deliveries will begin in 2025, and the
agreement includes service and support, the report notes.
NetJets already operates Embraer's Phenom 300 series of aircraft,
and this is the first time the company will use the Praetor 500,
according to Rio Times Online.
In a statement, the company reinforced its confidence in the most
advanced products in their respective segments and Embraer's
"support of excellence," the report adds.
INTERCEMENT BRASIL: S&P Downgrades ICR to 'CCC-', Outlook Negative
------------------------------------------------------------------
S&P Global Ratings lowered its global scale issuer and issue-level
credit ratings on InterCement Brasil S.A to 'CCC-' from 'CCC+'. S&P
also lowered its national scale rating to 'brCCC-' from 'brBB-'.
S&P's recovery rating on the 2024 senior unsecured notes remains
unchanged at '3'.
The negative outlook indicates that S&P could further downgrade
InterCement if it takes steps toward debt refinancing that it would
consider as distressed or if it misses principal or interest
payments in the next few months.
On May 10, 2023, the parent, InterCement Participacoes S.A.,
announced that it hired a financial advisor to assist in
discussions with banks to address its currently unsustainable
capital structure. The group's next maturities are a $19.2 million
bilateral bank loan from HSBC on May 25 at the holding level, which
S&P previously expected to be refinanced by April, and about $55
million (around R$270 million) of debentures' principal in Brazil
in June. Interest obligations total about $76 million (around R$380
million) at the holding and Brazilian subsidiary in the same
period.
Additionally, InterCement's senior notes of $550 million will
mature in July 2024, and debentures have a clause stating that if
the company doesn't refinance the notes by May 2024, debenture
maturities of R$4.5 billion will be mandatorily redeemable.
According to management, it has been trying to negotiate
refinancing with banks since June 2022, but delays occurred due to
tough global credit conditions and even stricter ones in Brazil
this year after several domestic defaults. As a result, S&P
believes there's a high likelihood of debt restructuring in the
very short term to protect group's cash position.
S&P believes the group's cash position has shrunk in the first
quarter 2023, despite the sale of Egyptian operations, the proceeds
of which were used to pay down debt and interest. The Brazilian
subsidiary had a significant cash burn in the period, given
seasonality, lower number days of payables due to weaker market
conditions with limited access to supply financing, and high
interest and inflation rates. Consequently, at the end of March
2023, InterCement Brasil's cash position plunged to about R$144
million from R$597.2 million at the end of 2022. Moreover, a large
portion of the group's cash--about $80 million--is in Argentina, a
country with severe transfer and convertibility restrictions.
The Argentine subsidiary has recently announced new dividends
distribution, but the expected dividends flow won't be sufficient
to cover the group's cash needs.
ESG credit indicators: E-3, S-2, G-3 (climate transition risks,
other government factors)
LIGHT SA: Fitch Downgrades LongTerm IDRs to 'D'
-----------------------------------------------
Fitch Ratings has downgraded the Local Currency and Foreign
Currency Long-Term Issuer Default Ratings of Light S.A. (Light) and
its wholly owned subsidiaries Light Servicos de Eletricidade S.A.
(Light Sesa) and Light Energia S.A. (Light Energia) to 'D' from
'C'. It also downgraded the Long-Term National Scale Ratings of
these entities and their unsecured debentures to 'D(bra)' from
'C(bra)'. Fitch has also affirmed the ratings of the unsecured
bonds at 'C'/'RR4'.
The downgrade follows a court's decision to grant bankruptcy
protection for Light S.A. on May 15, 2023, extending the protection
to its subsidiaries.
KEY RATING DRIVERS
Bankruptcy Protection: Light filed a petition for bankruptcy
protection after unsuccessful negotiations with bondholders. The
holding company filed for protection under the judicial
reorganization regime and requested the protection to be extended
to the subsidiaries.
Recovery Limited by Credit Environment: Fitch caps the recovery
ratings of Light's debt instruments at 'RR4', resulting in 'C'
rating for the bonds. This cap reflects concerns over the
enforceability of creditor rights in certain jurisdictions, where
average recoveries tend to be lower. Without the cap, recovery
rates of Light's debt instruments would be 'RR1' for secured debts
and 'RR3' for unsecured debts, resulting in 'CCC+' and 'CCC-'
ratings, respectively, according to Corporates Recovery Ratings and
Instrument Ratings Criteria. The above-average recovery prospect,
not incorporated in the instruments' ratings, reflects Light Sesa's
right to receive around BRL10.1 billion from the government, as
indemnity for unamortized assets in case of non-renewal
concession.
KEY ASSUMPTIONS
The recovery analysis assumes that the undergoing financial stress
could impair Light Sesa's regulatory leverage ratios and even exert
some negative impact on its operations, to an extent of making the
concession renewal less likely. In this bankruptcy -like scenario,
Fitch considered a BRL10 billion indemnity due to the
concessionaire with 80% advance rate, less 10% administrative
claims. The liability waterfall indicates a 'RR1' recovery for the
group's secured debt, mostly comprised of Light Sesa's FIDC (BRL323
million at March 2023) and 'RR3' for the group's unsecured debt
(BRL10.6 billion). The 'RR1' and 'RR3' Recovery Ratings reflect
recovery prospects ranging from 91%-100% and 51%-70%,
respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Success in completing a debt restructuring with creditors that
strengthens Light's liquidity and capital structure.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative rating actions are not possible as the company is the
lowest level of the rating scale.
LIQUIDITY AND DEBT STRUCTURE
Liquidity Compromised: The group's current financial situation
heavily reduces its ability to raise new debt. The company's
adjusted debt was BRL10.9 billion at the end of March 2023, mostly
concentrated in Light Sesa (BRL9.1 billion). Cash was BRL1.6
billion, down from BRL2.1 billion at December 2022, and covered
1.4x the short-term adjusted debt.
ISSUER PROFILE
Light Sesa is the fourth largest power concession in Brazil,
serving more than 70% of Rio de Janeiro's consumption and accounts
for about 60% of the group's EBITDA. Its concession expires on
June, 2026. Light Energia has 511 MW of assured energy, from
concessions expiring in 2028.
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 Recovery Prior
----------- ------ -------- -----
Light Servicos de
Eletricidade S.A. LT IDR D Downgrade C
LC LT IDR D Downgrade C
Natl LT D(bra) Downgrade C(bra)
senior
unsecured LT C Affirmed RR4 C
senior
unsecured Natl LT D(bra) Downgrade C(bra)
Light Energia S.A.
LT IDR D Downgrade C
LC LT IDR D Downgrade C
Natl LT D(bra) Downgrade C(bra)
senior
unsecured LT C Affirmed RR4 C
senior
unsecured Natl LT D(bra) Downgrade C(bra)
Light S.A. LT IDR D Downgrade C
LC LT IDR D Downgrade C
Natl LT D(bra) Downgrade C(bra)
LIGHT SA: Moody's Downgrades CFR to Ca Following Judicial Recovery
------------------------------------------------------------------
Moody's Investors Service has downgraded to Ca from Caa3 Light
S.A.'s (Light) Corporate Family Rating, the Issuer Ratings and
Backed Senior Unsecured ratings of its operating subsidiaries Light
Servicos De Eletricidade S.A. (Light SESA) and Light Energia S.A.
(Light Energia), both guaranteed by Light. The outlooks remain
negative.
These actions follow the court approval of Light's judicial
recovery request under the Brazilian Bankruptcy and Reorganization
Law. The judicial recovery in Brazil is the closest equivalent to
Chapter 11 of the US Bankruptcy Code.
Subsequent to the actions, Moody's will withdraw the ratings due to
Light's bankruptcy filing.
Downgrades:
Issuer: Light S.A.
Corporate Family Rating, Downgraded to Ca from Caa3
Issuer: Light Servicos De Eletricidade S.A.
Issuer Rating, Downgraded to Ca from Caa3
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Ca
from Caa3
Issuer: Light Energia S.A.
Issuer Rating, Downgraded to Ca from Caa3
Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Ca
from Caa3
Outlook Actions:
Issuer: Light S.A.
Outlook, Remains Negative
Issuer: Light Servicos De Eletricidade S.A.
Outlook, Remains Negative
Issuer: Light Energia S.A.
Outlook, Remains Negative
RATINGS RATIONALE
The downgrade of Light's CFR rating and Backed Senior Unsecured
debt ratings of Light SESA and Light Energia to Ca from Caa3 and
outlook negative reflect Moody's view on recovery expectations.
COMPANY PROFILE
Headquartered in Rio de Janeiro - Brazil, Light is an integrated
utility company with activities in generation, distribution and
commercialization of electricity. Light SESA and Light Energia are
wholly owned subsidiaries of Light. As of December 2022, Light
reported consolidated net debt of BRL10.2 billion, according to
Moody's standard adjustments.
The principal methodology used in rating Light S.A. and Light
Serviços De Eletricidade S.A. was Regulated Electric and Gas
Utilities published in June 2017.
STATE OF MARANHAO: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed the Brazilian State of Maranhao's
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-' with a Stable Rating Outlook and its Short-Term Foreign
and Local Currency IDRs at 'B'. Fitch has also affirmed Maranhao's
National Long-Term Rating at 'AA-(bra)' with a Stable Outlook and
its National Short-Term Rating at 'F1+(bra)'. Maranhao's Standalone
Credit Profile (SCP) is assessed at 'bb-'; no other factors affect
the state´s ratings.
The State of Maranhao benefited from the use of federal guarantees
in the amount of BRL 962.88 million in the second half of 2022 and
early 2023 as a compensation for tax losses associated to the ICMS
(tax on the circulation of goods and services) tax tariff ceiling
on fuels, electricity, telecommunications and transport. Fitch has
determined that the use of federal guarantees as compensation for
Brazil's ICMS tax loss does not constitute a 'restricted default'
event for the Standalone Credit Profiles of the affected local and
regional governments.
The enactment of Complementary Law 194/2022 effectively transferred
such debt obligations to the federal government, which was further
ratified by several state-specific Supreme Court Decisions.
KEY RATING DRIVERS
Risk Profile: 'Weaker'
The assessment reflects Fitch's view that there is a high risk of
the issuer's ability to cover debt with operating balance weakening
unexpectedly over the scenario horizon (2023-2027) due to lower
revenue, higher expenditure, or an unexpected rise in liabilities
or debt service requirement
Revenue Robustness: 'Weaker'
The Brazilian tax collection framework transfers to states and
municipalities a large share of the responsibility to collect
taxes. Constitutional transfers exist as a mechanism to compensate
poorer entities. For that reason, a high dependency towards
transfers is considered a weak feature for a Brazilian LRGs.
The primary metric for Revenue Robustness is the transfers ratio
(transfers to operating revenues). LRGs that report a transfer
ratio above or equal to 40% are classified as weaker, while others
with a ratio below 40% are classified as Midrange. The State of
Maranhao reports a relatively low fiscal autonomy, what drives this
factor to Weaker. As of 2022, transfers represented 43.5% of
operating revenues, aligned with the 44.7% average for 2018-2023
period.
Revenue Adjustability: 'Weaker'
Fitch believes Brazilian states and municipalities have a low
capacity level for revenue increase in response to a downturn.
There is low affordability of additional taxation given that tax
tariffs are close to the constitutional national ceiling, and a
small number of taxpayers represent a large share of tax
collection, driving this factor to weaker.
Maranhao's most significant tax, the ICMS, has a concentrated
taxpayer base, similarly to other Brazilian states. This creates a
challenging environment for LRGs to expand own revenues collection
during a downturn, leading this factor to 'Weaker'. The National
Congress recently set a limit for ICMS tax tariffs for electricity,
telecommunications and fuels. Such goods should be treated as
essential goods, and tariffs are limited to the tariff applied to
essential goods, creating further challenges for revenue
adjustability. Maranhao has pushed for changes in state legislation
to increase the basic tariff of the ICMS and to create additional
fees to rail transportation, which could help the state recover
part of lost revenues. Fitch will monitor he effects of these
measures.
Maranhao's per capita GDP was the equivalent of 0.42x of the
national per capita GDP in 2020. The state reported the highest
poverty rate among Brazilian LRGs, with 52.2% of the population
living below the poverty line in 2020 (USD5.5 PPP 2011) and 20.4%
living under the extreme poverty line (USD1.9 PPP 2011), according
to the Brazilian Institute of Geography and Statistics (IBGE). In
terms of socioeconomic profile, the state is among the most fragile
of the Brazilian LRGs.
Expenditure Sustainability: 'Midrange'
Responsibilities for states are moderately countercyclical since
they are engaged in healthcare, education and law enforcement.
Expenditure tends to grow with revenues as a result of earmarked
revenues. States and municipalities are required to allocate a
share of revenues in health and education. This results in a
procyclical behavior in good times, as periods of high revenue
growth result in a similar behavior for expenditures. However, due
to the big weight of personal expenditures and salary rigidity,
downturns that result in lower revenues are not followed by similar
drops in expenditures.
Maranhao presents moderate control over expenditure growth, with
sound margins. Operating margins averaged 12.6% during 2018-2022.
The state is current on its payroll bill and has no significant
delays for the payment of suppliers. Operating expenditure
increased 9.9% annually on average between 2018 and 2022, below
operating revenues growth of 11%.
Expenditure Adjustability: 'Weaker'
Fitch assesses the state's ability to reduce spending in response
of shrinking revenue as weak. As per the Brazilian Constitution,
there is low affordability of expenditure reduction especially in
salaries. As a result, whenever there is an unpredictable reduction
in revenues, operating expenditure does not follow automatically.
In addition, there is high share of inflexible costs since there is
close to 90% share of mandatory and committed expenditures.
Consequently, capex represented, on average, 8 % of state's total
expenditures for the 2018-2022 period, which also supports the
assessment of 'Weaker'.
Liabilities & Liquidity Robustness: 'Weaker'
Access to new loans is restricted as Brazilian LRGs are not allowed
to access the market through bond issuances. Lenders consist mainly
of public commercial and development banks and multilateral
organizations. Often loans are guaranteed by the federal
government, especially for foreign currency loans. For that reason,
the federal government has strict control over new lending to LRGs
There is a moderate national framework for debt and liquidity
management since there are prudential borrowing limits and
restrictions on loan types. Under the Fiscal Responsibility Law
(LRF) of 2000, Brazilian LRGs have to comply with indebtedness
limits. Consolidated net debt for states cannot exceed 2x (200%) of
net current revenue. The State of Maranhao reported a debt ratio of
41.16% as of December 2022. The LRF also sets limits for guarantees
(22% of net current revenues). Maranhao reported no guarantees to
state-owned entities as of December 2022.
As of December 2022, external debt totaled BRL1 billion,
corresponding to 19% of direct debt. The state has a debt contract
with the Bank of America, which will be fully amortized in 2023.
There is still one last amortization for July 2023. The last two
amortizations due to BofA were serviced through federal guarantees
as compensation for the tax loss associated to the ICMS tax tariff
ceiling on fuels and electricity. Foreign debt is also owed to
multilateral organizations like the Interamerican Development Bank,
characterized by long amortization profiles and guaranteed by the
federal government. Debt directly owed to the Federal Government
represented 15.6% of direct debt in December 2022.
Intergovernmental debt has more flexible terms, such as debt
service relief during periods of economic distress. This was the
case during 2020 and early 2021.
There is moderate off-balance sheet risk stemming from the pension
system, which is a burden for most Brazilian LRGs, especially for
states given their mandate over education and public security.
Another relevant contingent liability refers to the payment of
judicial claims, the so-called "precatorios". The national congress
has determined that subnational governments must fully amortize
such liabilities until 2029.
Liabilities & Liquidity Flexibility: 'Weaker'
A framework exists for providing emergency liquidity support from
the federal government via the granting of extended maturity over
the prevalent federal debt portion. Fitch assesses the entity's
available liquidity to differentiate between 'Weaker' and
'Midrange' for Liabilities and Liquidity Flexibility.
One of the metrics analyzed by the Brazilian National Treasury to
LRGs borrows with Federal Government with guarantees (Capacidade de
Pagamento or CAPAG) is the liquidity rate, measured by the LRGs'
short-term financial obligation to net cash.
The threshold for the Federal Government to rate this ratio as 'A'
is 100%. Fitch has set a threshold of 100% for the average of the
last three years (2020-2022 year-end) and for the last year-end
results available (December 2022) below 100%, which would result in
a 'Midrange' assessment for this factor.
The State of Maranhao reported a three-year average liquidity ratio
of 269.7% and 303.8% in December 2022 (source: Relatorio de Gestão
Fiscal - RGF). This supports the 'Weaker' assessment.
Debt Sustainability: 'aa category'
Debt Sustainability is assessed at 'aa' and considers an override
to the primary metric given the two-level difference between the
primary and secondary metrics. The forward-looking scenario in
Fitch's rating case indicates that the payback ratio (net direct
risk to operating balance), which is the primary metric of the debt
sustainability assessment, will reach an average of 3.8x for
2025-2027. This aligns with a 'aaa' assessment. The actual debt
service coverage ratio, which is the secondary metric, is projected
at 1.5x for the average of 2024-2026. This aligns with an 'a'
assessment. Fiscal debt burden is projected at 15.3% for the same
period.
For its rating case, Fitch takes into consideration the state's
historical performance and projections for main macro variables,
such as nominal GDP growth and inflation. The rating case is an
inherently stressed scenario. Operating revenues are expected to
grow 4.5% on average between 2023 and 2027. Operating expenditure
is projected to grow 6.7% over the same period. Fitch expects new
loan disbursements to follow the schedule set by the government.
Debt amortization and interest payment salso reflect government
projections. Maranhao still has one last amortization payment due
to Bank of America in July 2023.
DERIVATION SUMMARY
Maranhao's SCP is assessed at 'bb-', reflecting a combination of a
'Weaker' risk profile and debt sustainability metrics in the 'aa'
category under Fitch's rating case scenario. The SCP also reflects
the mix of key risk factors as well as its primary and secondary
metrics compared to peers. The state's IDRs are not affected by any
other rating factors.
KEY ASSUMPTIONS
Risk Profile: 'Weaker'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Debt sustainability: 'aa'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Cap (LT IDR): 'N/A'
Sovereign Cap (LT LC IDR) 'N/A'
Sovereign Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2027 projected
ratios. The key assumptions for the scenario include:
- Yoy 4.5% increase in operating revenue on average in 2023-2027;
- Yoy 5.1% increase in tax revenue on average in 2023-2027;
- Yoy 6.7% increase in operating spending on average in 2023-2027;
- Net capital balance of BRL -1,265 million on average in
2023-2027;
- Cost of debt: 6.3% on average in 2023-2027.
Quantitative assumptions - Sovereign Related
The numbers are per Fitch's sovereign actual for 2022 and forecast
for 2023, respectively (no weights and changes since the last
review are included as none of these assumptions was material to
the rating action).
Liquidity and Debt Structure
As of December 2022, direct debt totaled BRL5.8 billion (2021: BRL
6.7 billion), of which roughly 19% is in foreign currency and 15.6%
corresponds to intergovernmental debt related to the debt
restructuring program of the 90s. The state has a debt contract
with the Bank of America, which will be fully amortized in 2023.
There is still one last amortization for July 2023. The last two
amortizations due to BofA were serviced through federal guarantees
as compensation for the tax loss associated to the ICMS tax tariff
ceiling on fuels and electricity.
Foreign debt is also owed to multilateral organizations like the
Interamerican Development Bank, characterized by long amortization
profiles and guaranteed by the federal government. Net adjusted
debt includes BRL674.7 million of unrestricted cash.
Issuer Profile
Fitch classifies the state of Maranhao as a Type B LRG, which is
required to cover debt service from cash flow on an annual basis.
Maranhao is home to roughly 7 million people, corresponding to
around 3% of the Brazilian population. Its revenue sources are
strongly influenced by transfers from the national government. The
main spending responsibilities cover education, healthcare and law
enforcement. According to budgetary regulations, Maranhao has the
right to borrow on the domestic market and externally, subject to
Federal Government approval. Maranhao per capita GDP is equivalent
to 42% of national per capita GDP.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Brazil's IDRs (BB-/Negative) would negatively
affect Maranhao's IDRs;
- Maranhao's Long-Term IDRs could be downgraded if its SCP
deteriorates on a sustained basis in Fitch's rating case scenario.
This could happen if the state´s operating balance deteriorated or
its debt increases to the point that the payback ratio increases to
above 5x, and ADSCR is projected below 1.5x.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Positive rating action on Maranhao's IDR could result from an
improvement of its SCP in conjunction with a Sovereign action of
upgrade, since the state is aligned with the sovereign;
- Maranhao's SCP could improve if it's ADSCR improves to above 2x
and its payback ratio remains below 5x.
ESG Considerations
Maranhao, State of has an ESG Relevance Score of '4' for Population
Demographics due to the negative weight the state's poverty rate
has on its revenue raising ability and the pressing demand for
expenditures in health, education and other social services, which
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Maranhao, State of has an ESG Relevance Score of '4' for Human
Development, Health and Education due to its Human Development
Index (calculated as a geometric average of health, education and
income) close to the bottom of the ranking among Brazilian states,
which 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
----------- ------ -----
Maranhao,
State of LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA-(bra) Affirmed AA-(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: 20%++ Up in Minimum Wage for Tourism Sector
---------------------------------------------------------------
Dominican Today reports that through the Ministry of Labor, the
Dominican Government announced that a historic agreement was
reached in the National Wages Committee to increase the minimum
wage of workers in hotels, restaurants, and other gastronomic
establishments by 20% to 49%.
According to the announcement, workers in large companies will have
a 15% increase as of June 1, from the current 14,000 thousand pesos
to 16,100 pesos, and a 5% increase in February 2024 to 16,800
pesos, the report notes.
Medium-sized companies will have a minimum wage increase of 28.5%
in June 2023, from the current 10,650 pesos to 13,685 pesos, and
4.47% in February 2024, 14,161 pesos, according to Dominican Today
.
Meanwhile, small companies will have a historical salary increase
of 44.05 % in June 2023 from 9,500 pesos to 13,685 pesos; and 5.01
% in February 2024, which will bring it to 14,161 pesos, the report
relays.
The Minister of Labor, Luis Miguel De Camps, expressed that with
the increase, progress is being made towards the simplification of
the structure and governance of the minimum wages as proposed by
President Abinader in his proposal for a wage pact in his speech
last May 1, the report notes.
"With this, there are already 22 minimum salaries increased in this
administration above the accumulated inflation," he said, the
report says.
For his part, the president of the National Association of Hotels
and Tourism (Asonahores), David Llibre, said that the salary
increase is a significant amount since the business people of the
sector are not oblivious to the issue of inflation, which, despite
the growth of tourism, has also affected the employees and this
substantially improves their situation, the report notes.
He added that "this agreement for the sector's salary increase
demonstrates all that we can achieve through consensus and dialogue
between the parties," according to a press release.
On his side, Manolo Ramírez, president of the Federation of Hotel
and Restaurant Workers Federation (Fenatrahorest), emphasized that
a tourist worker with a salary improvement can smile and provide
better service to the guests, the report relays.
He added that more than 40 percent had been approved to the
sector's salaries from the substantial increase in less than two
years, the report discloses.
"We thank the businessmen, the National Wages Committee and the
Minister of Labor for their efforts so that this improvement has
been achieved for workers in the sector," he added.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCRLA reported in April 2019 that the Dominican To related that
Juan Del Rosario of the UASD Economic Faculty cited a current
economic slowdown for the Dominican Republic and cautioned that if
the trend continues, growth would reach only 4% by 2023. Mr. Del
Rosario said that if that happens, "we'll face difficulties in
meeting international commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Fitch Ratings, in December 2021, revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'.The
revision of the Outlook to Stable reflects the narrowing of
Dominican Republic's government deficit and financing needs since
Fitch's last review resulting in the stabilization of the
government debt/GDP ratio, as well as the investment-driven
economic momentum, reflected in the faster-than-expected economic
recovery in 2021 that Fitch expects to carry into above-potential
GDP growth during 2022 and 2023.
Standard & Poor's, also in December 2021, revised its outlook on
the Dominican Republic to stable from negative.S&P also
affirmed its 'BB-' long-term foreign and local currency sovereign
credit ratings and its 'B' short-term sovereign credit ratings. The
stable outlook reflects S&P's expectation of continued favorable
GDP growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack of
progress with broader tax reforms, S&P said.A rapid economic
recovery from the downturn because of the pandemic should mitigate
external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
=============
E C U A D O R
=============
ECUADOR: Moody's Considers Debt Buyback a Distressed Exchange
-------------------------------------------------------------
Moody's Investors Service considers the debt buyback operation that
settled on May 9, 2023 a distressed exchange and hence a default
under Moody's definition. The operation was executed by Credit
Suisse (A3 review for upgrade) for the ultimate benefit of
Government of Ecuador (Caa3 stable) with the purpose of providing
debt relief to be channeled into conservation, in which the bank
bought back a portion of three of the sovereign's bonds maturing in
2030, 2035 and 2040 for $656 million with a face value of $1.6
billion.
The operation retired 10.5% of the total $15.6 billion value of the
three bonds but did so by repurchasing them at deeply distressed
prices, constituting a loss to investors compared to the original
promise of the bond contracts and generating a substantial
reduction on principal for the sovereign.
The buyback is part of a debt-for-nature swap - the largest by any
issuer to date - also involving a separate bond issuance to which
Moody's assigned a provisional (P)Aa2 rating. As part of the
arrangement, the government is required to direct some of the
savings from the operation (approximately $18 million annually for
18 years) toward conservation efforts in the Galapagos islands.
===========
M E X I C O
===========
BANCO AZTECA: Fitch Assigns 'BB/B' IDRs, Outlook Stable
-------------------------------------------------------
Fitch Ratings has assigned Banco Azteca S.A., Institucion de Banca
Multiple (Banco Azteca) 'BB' Long-Term Foreign and Local Currency
Issuer Default Ratings (IDRs), 'B' Short-Term Foreign and Local
Currency IDRs and a 'bb' Viability Rating (VR). In addition, Fitch
has assigned Banco Azteca a 'bb-' Government Support Rating (GSR).
The Rating Outlook for the Long-Term IDRs is Stable.
KEY RATING DRIVERS
Consistent Financial Profile: Banco Azteca's IDRs are driven by its
'bb' Viability Rating (VR), which is in line with the implied VR.
The VR is underpinned by the bank's strong market position in
unsecured consumer lending accompanied by reasonable profitability
and capitalization metrics over the economic cycle. The ratings
reflect the bank's good funding profile supported by its good
market position in core, diversified and stable customer deposits.
The ratings also reflect the bank's adequate asset quality, which
is sensitive to the operating environment (OE) and high credit
concentration.
Strong Consumer Lending Position: Banco Azteca has a strong market
position in both consumer loans and deposits. Competitive
advantages over its peers include a longer track record of
operations, ample knowledge and larger scale in lending to low
income individuals, and high liquidity and low funding costs. Banco
Azteca ranks fifth for consumer loans in Mexico, with a market
share of 8.6% as of March 2023 (1Q23). For deposits, it ranks
eighth with a 3.1% share. The bank's business model is more
sensitive to OE challenges than its peers due to its focus on
middle- to low-income customers.
High Related-Party Loan Operations: Fitch's 'bb+' assessment of
Banco Azteca's business profile is one notch below the 'bbb'
implied score category. This is due to the high levels of
operations with related parties, which represented 33.7% of the
bank's CET1 as of YE22. While complying with legal limit, this
compares unfavorably to the bank's largest peers and best global
practices. Fitch's perception of the bank's controlling group's
weaker corporate governance practices is considered in the
assessment and could be a risk to Banco Azteca.
Asset Quality Sensitive to OE: Banco Azteca's asset quality
deterioration remains controlled despite high inflation. At 1Q23
and YE22, its Stage 3 loans represented 4.9% and 4.0% of total
loans, respectively (December 2021: 4.7%), and adjusted impaired
loans (impaired loan portfolio plus write-offs in the last 12
months) were 10.2% at YE22 (2021: 10.2%). Loan loss allowances
(LLA) covered 2.5x the Stage 3 loan portfolio at YE22, which Fitch
views as commensurate with the bank's riskier business model.
However, asset quality remains sensitive due to credit segment and
high borrower concentrations. Unsecured consumer lending
represented close to 65% of total consumer loans while the top 20
borrowers were close to 1.5x the bank's CET1 (28.4% of the total
loan portfolio).
Profitability Consistent but Lags Peers: Banco Azteca's
profitability ratios continue to recover after the net losses
reported in 2020. The operating profit to risk-weighted assets
(RWA) ratio was 1.7% at YE22 up from 1.3% as of YE21. This was
mainly driven by higher net interest income (+20.2% with respect to
2021), increased gains on trading and controlled operating expenses
that offset increased the loan impairment charges (+27.5%). At
1Q23, Fitch's core metric was 2.7%. Fitch expects the bank's
earnings generation to continue to stabilize at levels close to 2%,
although there is still room for improvement when compared to banks
rated at similar levels.
Reasonable Capital Metrics: Although the bank's core capitalization
metric has declined in recent years and is relatively tight for its
business model, Fitch believes Banco Azteca supports its loss
absorption capacity due to its equity size that is comparable or
larger than its rating peers, in addition to good levels of LLA
coverage of Stage 3 loans. At YE22, the bank's CET1 ratio was
13.7%. Fitch also incorporates into the rating the additional loss
absorption capacity provided by reserves that meet as supplemental
capital resulting in a regulatory capitalization ratio at 14.3%.
These metrics were 14.2% and 14.8%, respectively, at 1Q23.
Good Funding Profile: Banco Azteca is predominantly funded by core
customer accounts (92.6% of total non-equity funding at YE22),
which are typically granular, low-cost, and have proven stable
throughout the economic cycle. The bank's stable customer funding
is also supported by its good position in the local deposit market.
Despite the loans to deposits ratio increasing to 74.5% and 75% at
1Q23 and in 2022 from 67.1% in 2021, it remains one of the best in
the Mexican banking system. Fitch also considers in its assessment
the bank's liquid balance sheet due to the relatively high
revolving loan portfolio and the high levels of liquidity assets.
Banco Azteca's liquidity coverage ratio more than complies with the
minimum requirements.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Banco Azteca's IDRs and VR could be downgraded if its financial
profile weakens due to asset quality deterioration resulting in an
operating profit to RWA metrics consistently below 1.5%, or if its
loss-absorption capacity decrease. Specifically, a downgrade could
occur if the bank's CET1 remains below 14% and loan loss reserves
are below 200% of impaired loans;
- Weak corporate governance practices of Banco Azteca's controlling
group or the bank itself that generate reputational risks and
affect its financial or business profile.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Banco Azteca's IDRs and VR could be upgraded if the bank improves
its risk profile and asset quality, in addition to consistently
deliver operating income to RWA ratios above 3.5% and the CET1
capital ratio above 17%.
Government Support Rating (GSR): Banco Azteca 'bb-' GSR reflects
Fitch's expectation that although the bank is not a domestic
systemically important bank (D-SIB), there is moderate probability
of sovereign support in case of need, given the bank's ample base
of retail depositors and moderate market share of customer
deposits. At 1Q23 and YE22, Banco Azteca's deposits were about 3.1%
of the Mexican banking system and around 85% were retail deposits.
The GSR could be downgraded if Fitch believes that the government's
propensity to support the bank has declined due to reasons such as
a material loss in the market share of retail customer deposits. In
turn, upside potential for Banco Azteca's GSR is limited and can
only occur over time with a material gain in the bank's systemic
importance.
VR ADJUSTMENTS
Fitch has assigned a Business Profile score of 'bb+', which is
below the 'bbb' category implied score, due to the following
adjustment reason(s): Management and Governance (negative).
Fitch has assigned an Asset Quality score of 'b+', which is below
the 'bb' category implied score, due to the following adjustment
reason(s): Concentrations (negative).
Fitch has assigned a Funding & Liquidity of 'bbb-', which is above
the 'bb' category implied score due to the following adjustment
reason(s): Deposit Structure (positive).
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch classified pre-paid expenses and other deferred assets as
intangibles and deducted from total equity due to its low
absorption capacity under stress.
Financial figures are in accordance with the local banking
regulator's (Comision Nacional Bancaria de Valores) criteria. 2022
and 1Q23 figures include recent accounting changes in the process
to converge to International Financial Reporting Standards (IFRS).
Prior years did not include this change, and Fitch believes they
are not directly comparable.
ESG CONSIDERATIONS
Banco Azteca, S.A., Institucion de Banca Multiple has an ESG
Relevance Score of '4' for Governance Structure due to the relevant
related parties' transactions and the weaker corporate governance
practices of the Banco Azteca's controlling group that could be a
risk to the bank as they benefit shareholders but affect creditor's
interests. 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
----------- ------
Banco Azteca, S.A. LT IDR BB New Rating
ST IDR B New Rating
LC LT IDR BB New Rating
LC ST IDR B New Rating
Viability bb New Rating
Government Support bb- New Rating
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Labor Force Fall is Cause for Concern
--------------------------------------------------------
Trinidad and Tobago Guardian reports that labor force participation
in T&T is relatively low and has been declining for some time.
However, there is scope for increasing participation, particularly
among women and youths, according to Trinidad and Tobago Guardian.
These were among the findings and recommendations in a March 2023
Central Bank working paper titled, "Exploring the nexus between
labour force participation and potential output: Evidence from
Trinidad and Tobago." The paper was authored by Karen Roopnarine,
Timothy Woolford and Lauren Sonnylal, the report notes.
On a larger scale, the paper advised that increases in labour force
participation could contribute to increasing this country's
potential gross domestic product (GDP), noting that labour market
conditions are a critical metric in gauging the pulse of the
economic environment, the report relays.
The paper noted that the most labour-intensive industry in T&T is
the construction (including electricity and water) sector, which
has provided, on average, 14.8 per cent of all jobs, the report
discloses.
Other major labour-intensive industries include manufacturing
(including other mining and quarrying) (9.4 per cent); transport,
storage and communication (7.1 per cent); and agriculture (6.9 per
cent), the report says.
According to the paper, over the recent decade (2010 to 2019), T&T
experienced the twin occurrence of slowing economic output and
reduced labor force participation, the report notes.
It said that in 2010, the domestic economy grew by 3.3 per cent and
recorded a slight expansion of 0.1 per cent in 2019, the report
notes.
"Complementing this outturn was the simultaneous decline in the
labour force participation rate (LFPR) of approximately 4.8 per
cent, from 62.1 per cent in 2010 to 57.4 per cent in 2019," the
paper said, the report discloses.
Meanwhile, according to the Central Bank's paper, within one year
of the coronavirus pandemic, which emerged in late-2019, this
country's macroeconomic variables were severely weakened, the
report relays.
The paper noted that economic activity registered a record-high
contraction of 7.7 per cent in 2020, the largest decline since
1983, while the LFPR displayed one of its lowest recordable rates
of 55.9 per cent, the lowest rate since the 1980s, ther eprot
notes.
Furthermore, it said this trend showed a more pronounced link when
female and youth participation rates are disaggregated, the report
says.
"T&T's tumbling LFPR is a cause for concern, especially considering
that 70 per cent of the population is in the working-age group of
15 to 64 years," the paper added.
It therefore advised that to improve the demand for labour, the
Government can act as a facilitator to allow the private sector to
engage in new types of businesses, particularly in the
export-oriented, non-energy sector, the report notes.
This, it said, will call for greater competitiveness among the
various non-energy sector entities, the report discloses.
According to the paper a commitment to such policies can encourage
the establishment of new high-end businesses that will transform
knowledge into commercial value in the form of increased
productivity and new products, processes, services, and systems,
the report relays.
Further, it also advised that Government should also focus on
facilitating new areas of growth, such as those in the blue and
green economy, the digital and sharing economy, and even the orange
(or creative) economy, the report says.
It further explained that as an extension, the added economic
prosperity from new arras of growth can reduce reliance on the
State and facilitate a reduction in transfers and subsidies, the
report notes.
Also, the paper said monetary policy action should be executed with
fiscal policy in facilitating macroeconomic stability, as this can
foster greater labour force participation, the report discloses.
Youth Participation
In examining the youth and labour force participation, the paper
said that those between 15 and 24 years, before the COVID-19
pandemic in 2019, accounted for around 10 per cent of the labor
force with a participation rate of around 40.0 per cent, the report
notes.
It also noted that the youth LFPR hovered around 52.0 per cent in
the 1980s and 1990s but has consistently declined since 2008, the
report recalls.
However, it said this could indicate that a relatively low youth
labour market participation is not necessarily adverse for the
macroeconomy as it may indicate youths' decision to further their
training and education, the report notes.
To ensure greater youth participation, the paper suggested that
greater access to opportunities must be explicitly generated among
the youth and female populations, as increased opportunities will
facilitate higher participation in the labor market, the report
relays.
"This is imperative given the lack of evidence to support increased
male participation's notable effect on potential output.
Improvements in youth labour force participation appeared
particularly impactful in stimulating potential output," the paper
added.
Also, it said emphasis can be placed on the development of
programmes that generate employment (and hence greater labour
market participation) in the realms of entrepreneurship, creative
industries, vocational training programmes, in addition to the more
prominent ‘science, technology, engineering and mathematics'
(STEM) education, the report relays.
However, while creating opportunities is essential, it is also
imperative that these avenues are reachable and accessible to
different strata of the population, the report notes.
In this regard, the paper said there is an opportunity for public
private partnerships in education and training in particular, the
report says.
"Private sector firms can invest directly in the development of
human capital through funding of niche or specialized programs that
specifically relate to the work undertaken at these firms, which
can act as a training ground for youth employment back into these
same firms," the paper recommended, as it also identified the need
for buy-in, particularly in the profit-driven private sector, the
report notes.
Additionally, it said early entry of youths into the labor force
can also be facilitated by adopting a merit-based approach to
subsidizing tertiary education, the report relays.
This, it added, will allow those not academically inclined to enter
the labour force earlier, the report says.
Females at Work
Regarding female participation, the impact on potential output
strengthens over the long run and policy action should therefore,
support this, the report relays.
To support this the paper said Government can consider providing
childcare subsidies to low-income households for young children
within a stated age bracket, the report notes.
Further, it said consideration can be given to increasing the
length of paternity leave to equalise the economic costs of hiring
women (for paid maternity leave), the report discloses.
"Implementing more flexible working arrangements with initiatives
such as work from home policy may also help attract greater
participation from women who have to weigh the opportunity cost of
being a homemaker versus entering into more traditional types of
labour," the paper explained, the report notes.
Furthermore, it advised the Government could consider amending the
Equal Opportunity Act (2000) to include that men and women should
receive equal remuneration for work of equal value as it noted that
data on the average monthly wages by gender in Trinidad and Tobago
from 2011 to 2016 has confirmed that the gap widened over time, the
report says.
In this vein, amendments to the Act may aid in closing the gender
wage gap and incentivise greater female labour force participation,
the paper added.
TRINIDAD & TOBAGO: Should Focus on Initiatives to Generate Income
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Trinidad and Tobago Newsday reports that the American Chamber of
Commerce (Amcham) says government expenditure should be focused on
activities and initiatives that will generate more income.
Amcham said in a release that this advice comes as it foresees a
further reduction in actual income in the next six months after
seeing a reduction in the in the actual versus budgeted income,
according to Trinidad and Tobago Newsday.
That budgeted income was expected to be $1 billion in the first six
months and Amcham said the reason for the low income is because of
reduced petroleum and petrochemical prices, the report notes.
The release said, "The decision to accelerate VAT (Value Added Tax)
refunds and announcement of an intent to clear outstanding
receivables is welcomed and we hope the latter, in particular,
comes to fruition," the report relays.
It said it will continue to advocate for improvements in terms of
the ease of doing business and crime reduction strategies since
there were no major announcements of new initiatives or projects,
the report notes.
Amcham said, "As always, we remain eager, willing, and ready to
work with the Government to achieve positive outcomes," the report
says.
Finance Minister Colm Imbert presented the mid-year review in
Parliament, the report says. He said the Standing Finance
Committee has approved for $3.8 billion in additional funding for
22 ministries to carry out its duties till September, the end of
the fiscal year, the report adds.
*********
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