/raid1/www/Hosts/bankrupt/TCRLA_Public/231003.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, October 3, 2023, Vol. 24, No. 198
Headlines
A R G E N T I N A
ARGENTINA: Economy Grew in July Despite Recession on Horizon
ARGENTINA: More than 40% of Locals in Poverty, Official Data Shows
LA RIOJA: S&P Affirms 'CCC-' LT ICRs, Outlook Negative
B R A Z I L
ACHE LABORATORIOS: S&P Withdraws 'BB+' LT Issuer Credit Rating
E L S A L V A D O R
BANCO DAVIVIENDA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
G U A T E M A L A
GUATEMALA: S&P Assigns 'BB' Rating on US$565MM Notes Due 2032
H O N D U R A S
HONDURAS: IDB OKs $150 Million Loan to Improve Health System
HONDURAS: S&P Affirms 'BB-/B' SCRs & Alters Outlook to Stable
J A M A I C A
JAMAICA: BOJ to Announce Policy Interest Decision
JAMAICA: Trade Deficit Down Marginally for January to May
M E X I C O
CREDIVALORES-CREDISERVICIOS: S&P Withdraws 'CCC-/C' ICRs
P A N A M A
NG PACKAGING: Fitch Affirms BB+ IDR & Alters Outlook to Stable
P U E R T O R I C O
GRUPO HIMA: Seeks to Hire Hilco Real Estate as Real Estate Broker
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A R G E N T I N A
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ARGENTINA: Economy Grew in July Despite Recession on Horizon
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Manuela Tobias & Scott Squires at Bloomberg News report that
Argentina's economic activity snapped a four-month decline to
expand in July, representing a brief respite as South America's
second-largest economy slides into recession.
The economy grew 2.4 percent in July from a month earlier, compared
with the 0.9 percent median estimate of economists surveyed by
Bloomberg, according to government data published. From a year
earlier, the economy shrank 1.3 percent, less than the 3.8 percent
median estimate of analysts, according to Bloomberg News.
Argentina's gross domestic product slumped 2.8 percent in the
second quarter, the deepest decline since the peak of the pandemic
in early 2020, the report notes. A record drought that wiped out
US$20 billion of agriculture exports and accelerated food inflation
took a heavy toll on the economy while imports rose between April
and June, also weighing on growth, the report relays.
Inflation running at 124 percent and a wide open October
presidential election is clouding the economic policy outlook, the
report says. Libertarian candidate Javier Milei garnered the most
votes in a near three-way way tie in an August primary vote and the
government devalued the official exchange rate by 18 percent the
next day, fueling inflation levels in August not seen in 30 years,
the report discloses.
Economists surveyed by the Central Bank see GDP declining three
percent this year, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from 'C'
and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'. Fitch
typically does not assign Outlooks to sovereigns with a rating of
'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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: More than 40% of Locals in Poverty, Official Data Shows
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Buenos Aires Times reports that Argentina's poverty rate rose to
40.1 percent in the first half of 2023, with an estimated 18.6
million people in total now considered poor.
Of those, 9.3 percent of the economically active population was
considered to be living in extreme poverty by the end of June, with
destitution increasing across all regions nationwide, according to
Buenos Aires Times.
The stark figures, which were published by the INDEC national
statistics bureau, were accompanied by a warning from specialists
that poverty has likely worsened even further in the last month as
a result of the August 14 devaluation of the peso against the
dollar in the wake of tumultuous PASO primaries, the report notes.
Publication of the new rate comes just a few days before the first
presidential debate of the election campaign and less than a month
before voters go to the polls, the report relays. Economy Minister
Sergio Massa is running as the candidate for the ruling coalition
and is sure to face criticism from his main rivals, opposition
leader Patricia Bullrich and libertarian frontrunner Javier Milei,
over the number of Argentines who have slipped below the poverty
line, the report says.
According to INDEC's biannual Permanent Household Survey (EPH),
which is based on 31 major urban conglomerates, 40.1 percent of the
population was considered to be living in poverty in the first half
of the year - a total of 11.8 million citizens, the report
discloses. In addition, 9.3 percent were considered to be living
in extreme poverty – a total of 2.7 million, the report says.
Projected out to the whole population, that equates to 18.6 million
people being considered as poor, with 4.3 million considered
destitute, the report notes.
Drilling down into the report, INDEC warns that 56.2 percent of
people aged 0 to 14 are now considered poor, the report relays.
The highest numbers of poverty-stricken are found in the northeast
of the country (42 percent) and Greater Buenos Aires (41.4
percent), the report discloses.
The percentage of households falling below the poverty line was
29.6 percent, while 6.8 percent fell below the extreme poverty
line, the report notes.
The poverty rate stood at 39.2 percent of the economically active
population in the second half of last year, 0.9 points difference
with the latest figure and up from 37.3 percent in the first half
of 2022, the report relays. Extreme poverty affected 8.1 percent
at the same time and has risen 1.2 points in the latest INDEC
report, Buenos Aires Times discloses.
The new figure is the highest recorded by INDEC since the peak of
42 percent registered in 2020 during the peak of the coronavirus
pandemic, the report notes.
Reacting to the news, Agustín Salvia, the director of the
influential Observatorio de la Deuda Social of the UCA Catholic
University, described the figures as "outdated” and warned that
the true rate is closer to 43 percent, the report relays.
Former head of state "Mauricio Macri left a poverty rate of 38
percent and [President] Alberto Fernandez will probably leave a
rate of 45 percent and with more than 50 percent of the population
benefiting from some system of economic assistance that seeks to
alleviate the problem,” Salvia said in an interview with Radio
Perfil, the report relays.
"The figure given, which is already outdated because we would be
reaching 44 percent, hides two realities, the report relays. On
the one hand, 30 percent of Argentina is structurally and
chronically poor, and even if inflation falls, it will not be easy
to reduce this poverty,” he concluded, the report notes.
"The lack of health, education and security means that having a
decent life in Argentina is very difficult, and it is necessary to
have a lot of economic resources to access goods and services that
imply progress for society," Salvia emphasized, the report relays.
Estimates on Track
Most private estimates had forecast a rate of more than 40 percent,
driven in large part but runaway inflation that hit record levels
in August and falling purchasing power, the report notes.
Inflation, currently running at 124 percent per annum, totaled 50.7
percent in the first half of 2023 and has continued to rise, the
report discloses. In the first eight months of the year, consumer
prices have increased 80.2 percent, the report relays. In August,
INDEC reported a rise of 12.4 percent - the highest monthly figure
in 32 years, the report notes.
According to a recent report by the UCA university, the poverty
rate reached 38.9 percent of the population in September, a rate
similar to that observed in 2006, that is, 17 years ago; and this
would rise to 50 per cent without the Universal Child Allowance
(AUH) and other social plans, the study indicated, the report
relays.
Children and adolescents are the most affected by this situation:
in this case, the rate reaches 61.6 percent up to the age of 17,
according to the UCA unit, the report says.
"Prices rise and families' incomes cannot recover; over time they
are always lower and with very significant losses from one month to
the next," said Eduardo Donza, a researcher at the UCA Observatory,
the report notes.
Donza said that, in addition to inflation, the employment status of
many Argentines is "precariousness," forcing many to look for
additional sources of income to make it to the end of the month,
the report discloses.
"There is a situation of loss of purchasing power for all groups of
the population," agreed Leopoldo Tornarolli, a researcher at the
Centre for Distributive, Labour and Social Studies at the National
University of La Plata, the report relays.
According to the expert, the loss is trending upwards and poverty
by the end of the year could exceed the 42 percent recorded at "the
worst moment of the pandemic" at the end of 2020, the report
notes.
"There are households with lower real incomes across all
[socio-economic] strata and that means that some who were middle
class become vulnerable and some who were vulnerable become poor,"
he explained, the report relays.
When President Alberto Fernandez assumed office in December 2019,
poverty stood at 34.7 percent, the report notes. The number of
those considered poor, however, soared during the Covid-19 pandemic
and the accompanying collapse in economic activity, 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.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from 'C'
and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'. Fitch
typically does not assign Outlooks to sovereigns with a rating of
'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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.
LA RIOJA: S&P Affirms 'CCC-' LT ICRs, Outlook Negative
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S&P Global Ratings, on Sept. 28, 2023, affirmed its 'CCC-'
long-term foreign and local currency issuer credit ratings on the
province of La Rioja. The outlook remains negative.
Outlook
The negative outlook reflects potential further deterioration of
overall credit conditions, given Argentina's challenging economic
dynamics, including its worsened external liquidity, which has
pressured the foreign exchange market. La Rioja depends on the
availability of foreign currency to service its debt.
Downside scenario
S&P said, "We could lower the long-term ratings on La Rioja if the
central government further tightens access to foreign exchange ,
which could impair the province's ability to service foreign
currency debt in the next six to 12 months. We would also likely
consider a debt exchange or restructuring as distressed and
tantamount to a default at such low rating levels."
Upside scenario
S&P could raise the rating in the next 12 months if it sees
improvement in conditions for non-sovereigns' access to foreign
currency to service debt. A record of the sovereign successfully
executing the IMF's Extended Fund Facility, along with clarity on
how policy will ease financing challenges and address Argentina's
major structural macroeconomic imbalances, would be positive for La
Rioja.
Rationale
La Rioja has a stand-alone credit profile (SACP) of 'ccc+',
reflecting heavier debt service in 2024, which narrows its fiscal
space and liquidity. In addition, the province faces budgetary
pressures amid large infrastructure needs and a lower socioeconomic
profile than peers. Conversely, debt stock is expected to reduce
following restricted debt markets access.
S&P said, "Nonetheless, Argentina's volatile and underfunded
institutional framework, T&C assessment of 'CCC-', and 'CCC-'
sovereign ratings cap our ratings on the province at 'CCC-'. Our
T&C assessment reflects persistent pressures on the foreign
currency markets, evidenced by the low levels of international
reserves and persistent restrictions of non-sovereigns to access
them."
La Rioja will face challenges to cover increased amortizations
under budget rigidities and uncertain foreign exchange access.
The amortizations of restructured green bond start in 2024,
weighing on La Rioja's debt service profile. The bond is around 86%
of La Rioja's debt stock, with payments of US$77 million in 2024
(4.9% of operating revenues) and US$97 million (5.3%) in 2025,
compared with US$35 million average debt service in 2021-2023. The
proceeds of the bond were invested in constructing renewable energy
parks, and financial management expects future cash flow generation
from the parks to be an additional fiscal source for debt
repayments. Currently there are three operational parks out of five
planned, with estimated revenues of US$35 million in 2024 and US$58
million in 2025.
S&P said, "After years of high inflation, we expect Argentine
provinces to face pressures over the coming years to compensate for
real losses on salaries and service contracts. As a result, we
expect operating surpluses to ease to 9.3% on average over
2023-2025, from relatively strong levels of 11.3% in 2022.
"The province plans to continue to expand renewable energy plants
and social housing projects, which will likely result in capital
expenditures levels of around 18% of total expenditure. As a
result, we expect deficit after capital expenditures to average
0.5% of total revenues over 2023-2025.
"The province depends heavily on the central government, with
around 85% of operating revenues being transfers. About 20% of
those are discretionary. We believe that weaker-than-peers economic
indicators limit the province's potential capacity to raise
additional tax revenues to reduce its dependence on the central
government."
With limited sources of financing, we expect fiscal deficits over
2023-2025 to lead to deteriorating liquidity. Free-cash debt
service coverage ratios are likely to deteriorate as debt service
continues to increase over the next couple of years.
The province issued in pesos two dollar-linked bonds equivalent to
US$60 million to finance the expansion of its energy parks. The
majority of the bonds were bought by ANSES (the national pension
institution). Even with the recent issuance, S&P expects that debt
will decline from a combination of growing amortizations and an
official exchange rate that continues to depreciate below inflation
dynamics.
S&P projects that La Rioja's debt will be around 21% of operating
revenues in 2025. Interest has remained low as a result of the
restructuring and is expected to average 3% of operating revenues.
However, with around 95% of its debt denominated in foreign
currency, the province's debt structure is vulnerable to exchange
rate swings.
Ratings are constrained by a very unstable macroeconomy that limits
the province's short-term planning.
With half of national GDP per capita, La Rioja has weaker
socioeconomic indicators than the national average but follows a
similar economic growth trend. S&P's estimates of GDP per capita
indicate that the province is at $5,029 for 2023, while the
national level is $12,750. Moreover, the economic outlook for the
province is weak, in line with that for the sovereign.
S&P forecasts a contraction of 3.5% in Argentina in 2023, with GDP
growing an average of 0.5% in the next few years. Private
investments in the province will remain low, amid rampant inflation
and limited prospects of economic growth, while the relatively low
social-economic profile of the province limits local businesses'
capacity to scale.
The governor was reelected and continuity in management is
expected. However, with high inflation and macroeconomic
volatility, Argentine provinces have been unable to implement
credible medium-term financial planning. Under increasingly
strained financial conditions in 2020, including very limited
access to financing, the province's administration decided to
prioritize operating and capital spending over timely debt payment
obligations. The stage of the national political cycle, along with
the current large macroeconomic imbalances, makes local debt
management more vulnerable.
The very volatile and underfunded institutional framework for
Argentina's local and regional governments (LRGs) is a key rating
constraint. It reflects our perception of very weak institutional
predictability and a volatile intergovernmental system subject to
various fiscal regulation changes and a lack of consistency over
the years. This has jeopardized LRGs' financial planning and
consequently their credit quality.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
LA RIOJA (PROVINCE OF)
Issuer Credit Rating CCC-/Negative/--
LA RIOJA (PROVINCE OF)
Senior Unsecured CCC-
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B R A Z I L
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ACHE LABORATORIOS: S&P Withdraws 'BB+' LT Issuer Credit Rating
--------------------------------------------------------------
S&P Global Ratings withdrew its 'BB+' long-term issuer credit
rating and 'brAAA' national scale rating on Ache Laboratorios
Farmaceuticos S.A., a Brazilian pharmaceutical company, at the
company's request. The outlook of the long-term issuer credit
rating was positive, and stable for the national scale rating at
the time of the withdrawal.
S&P's ratings on Ache reflected its expectation that the company's
cash flows will continue to increase because of its sizable
pipeline of new drugs. The company also maintains its debt to
EBITDA ratio at about 0.5x, despite higher debt to finance the
construction of the new plant.
=====================
E L S A L V A D O R
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BANCO DAVIVIENDA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Banco Davivienda Salvadoreno, S.A.'s
(Davivienda Sal) Long-Term Issuer Default Rating (IDR) at 'B'. The
Rating Outlook is Stable. In addition, Fitch has affirmed
Davivienda Sal's Short-Term IDR at 'B', Viability Rating (VR) at
'ccc+' and Shareholder Support Rating (SSR) at 'b'.
Fitch has also affirmed Davivienda Sal's and its holding company,
Inversiones Financieras Davivienda, S.A.'s (IF Davivienda) Long-
and Short-Term National Ratings at 'EAAA(slv)'/Stable Outlook and
'F1+(slv)', respectively. In addition, Fitch has affirmed
Davivienda Sal's long- and short-term senior secured and unsecured
debt ratings at 'AAA(slv)' and 'N-1(slv)', respectively.
KEY RATING DRIVERS
Support-Driven Ratings: Davivienda Sal's IDRs and National Ratings
are based on its SSR, which reflects its parent's -- Banco
Davivienda S.A. (Davivienda; BB+/Stable) -- ability and propensity
to provide timely support to its subsidiary if required. The
National Ratings also reflect Davivienda's relative
creditworthiness with respect to other rated entities in El
Salvador. The Stable Outlook on the bank's long-term ratings
mirrors that of its shareholder.
Country Risks Strongly Influence Support: Fitch's evaluation of the
parent's support ability is greatly impacted by El Salvador's
country risk constraints, reflected in its 'B' Country Ceiling.
This contemplates transfer and convertibility risks, and limits
Davivienda Sal's Long-Term IDR, which results in a four-notch
stepdown from the parent IDR. This could also represent
restrictions on the subsidiary's ability to use owner support. The
bank's Long-Term IDR is two notches above the sovereign's Long-Term
IDR given Fitch's opinion about the shareholder's commitment to
provide support to its subsidiary.
Significant Reputational Risk: The agency also highly weighs the
huge reputational risk that Davivienda Sal's default would
constitute for Davivienda and its subsidiaries, which could affect
its franchise in the region.
OE with High Influence on the VR: Fitch believes the Salvadoran
banking system's operating environment (OE) is greatly influenced
by the country's risks; therefore, El Salvador's sovereign rating
(CCC+) represents a limitation. This results in Davivienda Sal's
'ccc+' VR being below its implied score of 'b-'. The sovereign's
still tight liquidity position, constrained market access and great
reliance on short-term debt, could pressure the banking system's
liquidity in adverse conditions and increase funding costs.
However, the Salvadoran banks' financial performance has shown
resilience in navigating the prevailing OE. Fitch also believes
that the announcement of the reprofiling of sovereign debt terms
held by banks will have a limited impact on the VR as Fitch already
considered these instruments to be illiquid due to their constant
roll-over.
Strong Local Position: Davivienda Sal's intrinsic profile,
reflected in its VR, denotes its solid business profile and
well-developed business model operating in a high-risk country such
as El Salvador. This has resulted in a four-year average total
operating income of USD150 million, similar to its closest peers.
As of June 2023, the bank occupied the fourth position by loans and
deposits in the banking system, with market shares of 14.9% and
13.1%, respectively.
Consistent Asset Quality: As of June 2023, the non-performing loans
(NPL) to gross loans ratio was 2.0%, similar to the last four-years
average and the banking system (1.9%), while the reserve coverage
for NPL reached 129.2%. Fitch expects loan quality to persist
steadily in the foreseeable future, indicating the bank's constant
and moderate risk appetite. The bank's high exposure to government
debt of 0.9x its Fitch Core Capital (FCC) is negatively
incorporated in this factor, as Fitch believes this makes the
credit profile more sensitive to sovereign risks.
Steady Profitability: Fitch estimates that profitability will
remain stable at the end of 2023 due to the entity's strategy and
the loan quality expectations. As of June 2023, the operating
income to risk-weighted assets (RWA) metric was 1.1%, similar to
that of 2022 (1.2%), derived from higher interest income,
consistent net interest margin (NIM), as well as controlled
operating and loan impairment expenses.
Reasonable Capitalization: Fitch believes the bank's capital levels
have potential to absorb unexpected losses in case of adverse
conditions, although it believes the metrics could be lower if El
Salvador's sovereign debt instruments were valued at market price.
As of 2Q23, the FCC to RWA ratio was 13.6%, slightly lower than
2022 (14.0%), derived from a higher RWA expansion compared to the
capital increase, as well as the dividend payment. Fitch expects
this to remain similar over the rating horizon, as a result of
moderate loan growth and relatively steady internal capital
generation.
Solid Funding Profile: The entity's robust financing structure is
backed by its strong deposit franchise, good access to different
funding options, along with the ordinary support and synergies with
its shareholder, which Fitch estimates will continue in the
foreseeable future. At June 2023, the loans-to-deposits metric was
106.3%, above the system and its peers.
Holding Entity: IF Davivienda's National Ratings incorporate
Fitch's assessment of the support it would receive from its owner,
Davivienda, evidencing the relative credit strength of its
shareholder respect to other rated issuers in El Salvador. This
leads to IF Davivienda's ratings reaching the highest point on
Fitch's national rating scale. As of June 2023, Davivienda Sal
accounted for 89% of IF Davivienda's assets (before eliminations);
therefore, the holding consolidated financial profile reflects that
of the bank.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Negative changes in the bank's Long-Term IDR and SSR would mirror
negative movements in El Salvador's Country Ceiling;
- Any perception by Fitch of a relevant reduction of the strategic
importance of Davivienda Sal for its parent could trigger a
downgrade of its SSR, IDRs and National Ratings. This perception
would also apply to IF Davivienda's National Ratings;
- Davivienda Sal's Long-Term IDR, SSR and National Ratings, as well
as IF Davivienda's National Ratings, could be downgraded following
a multi-notch downgrade of Davivienda's IDRs;
- The bank's Short-Term IDR would only be downgraded if its
Long-Term IDR were downgraded to 'CCC+' or below, which is unlikely
given the Stable Outlook on the bank's Long-Term IDR;
- A downgrade of El Salvador's sovereign rating could lead to a
downward revision of Fitch's assessment of the OE score for
Salvadoran banks, which would pressure Davivienda Sal's VR;
- Davivienda Sal's VR could also be downgraded due to lower
earnings, specifically if it affects the operating profit to RWA
ratio, resulting in consistent operating losses. A FCC-to-RWA ratio
consistently below 10% would also pressure the VR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Davivienda Sal's VR, Long-Term IDR and SSR could be upgraded
following an upgrade of El Salvador's sovereign rating and its
Country Ceiling as the bank's VR is capped by the sovereign's
Long-Term IDR and its IDR is capped by the Salvadoran Country
Ceiling. Fitch would also maintain the two-notch uplift from the
sovereign for the SSR;
- The upside potential for Davivienda Sal's VR is limited due to
Fitch's OE assessment. Davivienda Sal's VR could only be upgraded
over the medium term given an improvement of the OE, while
maintaining its good business and financial profiles;
- Davivienda Sal's and IF Davivienda's national ratings are at the
highest level of the national rating scale and therefore have no
upside potential.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Debt: Davivienda Sal has senior unsecured and secured debt in the
local market, which is rated at the same level as its national
ratings, since in the agency's view the probability of default of
these issuances is equal to the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Davivienda Sal's senior secured and unsecured debt National
Ratings would be downgraded in the event of any negative rating
action on the bank's national ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Davivienda Sal's senior debt ratings are at the highest level of
the National Rating scale and therefore have no upside potential.
VR ADJUSTMENTS
The Viability Rating of 'ccc+' has been assigned below the 'b-'
implied VR, due to the following adjustment reason: Operating
Environment/Sovereign Rating Constraint (negative).
The Operating Environment score of 'ccc+' has been assigned below
the implied score of 'b', due to the following adjustment reason:
Sovereign Rating (negative).
SUMMARY OF FINANCIAL ADJUSTMENTS
Davivienda Sal: Fitch reclassified prepaid expenses as intangibles
and deducted them from the total equity to reflect their low
absorption capacity.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Davivienda Sal's and IF Davivienda's ratings are based on the
potential support they would receive from their parent, Banco
Davivienda, S.A., if needed.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco
Davivienda
Salvadoreno,
S.A. LT IDR B Affirmed B
ST IDR B Affirmed B
Natl LT EAAA(slv)Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
Viability ccc+ Affirmed ccc+
Shareholder Support b Affirmed b
senior
unsecured Natl LT AAA(slv) Affirmed AAA(slv)
senior
secured Natl LT AAA(slv) Affirmed AAA(slv)
senior
unsecured Natl ST N-1(slv) Affirmed N-1(slv)
senior
secured Natl ST N-1(slv) Affirmed N-1(slv)
Inversiones
Financieras
Davivienda,
S.A. Natl LT EAAA(slv)Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
=================
G U A T E M A L A
=================
GUATEMALA: S&P Assigns 'BB' Rating on US$565MM Notes Due 2032
-------------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue rating to Guatemala's
US$565 million notes due in October 2032 at a 7.05% interest rate.
The rating on the notes is the same as the long-term foreign
currency sovereign credit rating on Guatemala (BB/Stable/B). The
sovereign will use the issuance proceeds for general budgetary
purposes.
S&P's 'BB' long-term ratings on Guatemala incorporate its resilient
economy and long-standing macroeconomic stability. The ratings also
reflect its view of its still-developing public institutions and a
challenging political environment that constrains policymaking
effectiveness.
Further steps to promote long-term growth and address high social
needs would be key to substantially reduce the country's high
poverty level. On the other hand, Guatemala's solid external
position, moderate general government debt to GDP, and sound
monetary policy constitute relative credit strengths to manage the
volatile external economic conditions.
S&P said, "The stable outlook indicates our expectation that over
the next six to 18 months cautious macroeconomic management will
prevail--notwithstanding recent presidential and congressional
elections and unfavorable global conditions. The stable outlook
also balances the country's long-standing economic and political
challenges with our expectation of economic policies that should
help the outgoing administration to maintain a low fiscal deficit
and stable debt dynamics."
===============
H O N D U R A S
===============
HONDURAS: IDB OKs $150 Million Loan to Improve Health System
------------------------------------------------------------
The Inter-American Development Bank (IDB) approved a $150 million
loan to strengthen and expand the Hospital Network in Honduras. The
program seeks to improve the effectiveness and access to
specialized maternal and child hospital services, care for
externally caused injuries and non-communicable diseases.
The health system in Honduras faces important challenges in access
to health services, which especially affect the most vulnerable
people. The lack of quality hospital infrastructure is one of the
main determinants that limit this access. On the other hand,
injuries from external causes are the first cause of emergency care
in hospitals, causing oversaturation. This loan, approved by the
IDB Board of Executive Directors, will finance the construction and
equipment of a general hospital in the municipality of Roatán and
two trauma hospitals, one in Tegucigalpa and the other in San Pedro
Sula. These last two will have cofinancing from the Japanese
International Cooperation Agency (JICA).
The operation includes training clinical skills and competencies of
hospital staff for the start-up of these hospitals, including
nursing staff, general practitioners, and specialists. Likewise,
the initiative will finance information systems development to
strengthen hospital management and staff training in clinical and
management topics, necessary to guarantee personnel coverage,
quality of care, and the operation of the beneficiary hospitals.
Evidence shows that integrated health service delivery networks
(IHRS) are an effective solution to meet the population's needs and
address the access, efficiency, quality, and equity challenges that
health systems face. This operation will strengthen the first level
of care and the management of the networks to which the hospitals
belong, as well as pre-hospital emergency care.
The initiative will also finance equipment for the patient transfer
system (including ambulances) and pre-hospital communication and
telemedicine services between the intervened hospitals and their
primary network, among others.
The IDB loan of $150 million has a disbursement period of 6 years
and an interest rate of 0.25%.
HONDURAS: S&P Affirms 'BB-/B' SCRs & Alters Outlook to Stable
-------------------------------------------------------------
S&P Global Ratings, on Sept. 29, 2023, revised the outlook on the
long-term ratings on Honduras to stable from negative. S&P also
affirmed its 'BB-/B' long- and short-term sovereign credit ratings.
S&P's transfer and convertibility (T&C) assessment remains 'BB'.
Outlook
S&P said, "The stable outlook incorporates our expectation of
moderate GDP growth, continued good access to official funding, and
a fiscal policy that contributes to a stable net general government
debt burden over the next two years. Despite political polarization
and a divided Congress, we expect the government to continue making
gradual progress toward strengthening public finances."
Downside scenario
S&P could lower the ratings in the next six to 18 months if adverse
developments elevate fiscal and external imbalances beyond our
expectations. In addition, negative political developments in the
country could potentially depress GDP growth and investor
confidence, leading to a downgrade.
Upside scenario
S&P could raise the ratings in the next six to 18 months if it sees
economic and fiscal results that exceed its expectations.
Successful implementation of reforms that result in stronger public
finances and higher long-term GDP growth, while addressing
weaknesses in the energy sector, could lead to an upgrade.
Rationale
The ratings on Honduras reflect the country's low per capita GDP,
shortcomings in governance and public institutions (including in
public enterprises), and very limited exchange-rate flexibility
that constrains monetary policy effectiveness. The ratings also
incorporate moderate external vulnerabilities. In addition, the
country's good access to official funding sources should sustain
external liquidity and financial market stability.
Flexibility and performance profile: S&P expects contained fiscal
deficits even as spending begins to normalize
-- S&P estimates a general government fiscal deficit of about 2.4%
of GDP in 2023 and stable debt levels in the next two years.
-- The loss-making energy sector continues to pose fiscal
challenges for the government.
-- S&P expects Honduras' external indicators to remain solid.
Honduras' public finances are likely to remain largely stable in
the coming two years despite political polarization and a divided
Congress. The general government fiscal deficit declined to near
balance in 2022, in contrast with our earlier expectations of a
large deficit. The fiscal outcome was mainly driven by
lower-than-expected spending, partly due to the elimination of
trust funds and the restructuring of ministries that constrained
the government's ability to spend.
S&P said, "We expect that the fiscal deficit will expand but remain
moderate at about 2.4% of GDP this year, as spending normalizes.
The 2023 deficit will also likely remain significantly below the
4.4% deficit in the approved budget.
"We project that net general government debt will stabilize around
46.8% of GDP during 2023-2026, below our previous average estimate
of nearly 50% of GDP (we deduct intergovernmental debt holdings
from our calculation of general government debt, and we further
deduct liquid government assets to calculate net general government
debt). We expect the government to maintain good relationships with
multilateral institutions and keep access to credit lines."
Honduras has entered into a 36-month program under the Extended
Fund Facility (EFF) and the Extended Credit Facility (ECF) with the
IMF, committing to reducing the nonfinancial public-sector deficit
to 1% of GDP over the next several years, as set in the country's
Fiscal Responsibility Law (FRL). In addition, S&P expect the
government will resume debt issuance in the local capital markets.
As of June 2023, about 70% of Honduras' external debt is owed to
multilateral institutions and 63% of its total debt is in foreign
currency. Moreover, we project interest payments on the debt will
hover at about 10% of general government revenues in 2023-2026.
Honduras' shortfalls in basic services and infrastructure, which
will require long-term expenditures, constrain its fiscal
flexibility. S&P said, "We estimate that contingent liabilities
from the financial sector and the nonfinancial public sector are
limited. Credit growth has been robust during the recovery from the
pandemic, and the banking sector remains stable, with nonperforming
loans near 2%. We classify the country's banking sector in group
'8' according to our Banking Industry Country Risk Assessment
(BICRA), with '1' being the lowest risk category and '10' the
highest."
Honduras' current account deficit widened in 2022, due to less
supportive external conditions, reaching 6.6% of GDP (4.3% of GDP
in 2021). S&P said, "We expect the current account deficit to
narrow in 2023-2026, to 4.1% of GDP by 2025, helped by moderate
remittances growth. Although we expect a sluggish recovery in
foreign direct investment inflows, they will likely continue to
cover over half of the current account deficit. We expect such
inflows to continue to average about 2.5% of GDP in the next three
years."
Accordingly, S&P forecasts Honduras' narrow net external debt to
increase to 10.7% of current account receipts this year and average
24% during 2024-2026. The country's gross external financing needs
will likely average 90.5% of current account receipts and usable
reserves over the same period.
Honduras has a small domestic capital market, which limits the
effectiveness of monetary policy. It has a heavily managed exchange
rate and is not likely to move toward an inflation targeting regime
in the near term. In April 2023, the government reintroduced rules
for surrendering foreign currency earnings to the central bank and
reduced the role of the interbank market.
Inflation has been returning toward the central bank's target of
4.0% (+/- 1 percentage point) and has eased to 5.2% in July 2023.
Inflation spiked to almost 11% in July 2022 and 9.8% at the end of
last year due to global supply chain disruption stemming from the
Russia-Ukraine conflict. The monetary policy rate has remained at
3% since November 2020. In response to inflation the central bank
tightened its policy stance by increasing open market operations to
absorb liquidity, prompting the interbank rate to rise from about
1.0% in March 2022 to 3.5% in October 2022.
S&P projects average annual inflation of 5.5% in 2023 and expect
inflation will move within the central bank's target range in 2024.
Dollar-denominated assets and liabilities in the banking system
account for about one-third of commercial bank claims and deposit
liabilities, creating a vulnerability to sharp movements in the
exchange rate.
Institutional and economic profile: Institutional challenges limit
the sovereign's ability to accelerate economic growth
-- S&P expects GDP growth to slow to about 3.0% in 2023 and 3.6%
after that.
-- Bolstering GDP growth prospects remains key to achieving the
administration's development objectives.
-- Despite still evolving public institutions, the Honduran
government has committed to tackling corruption and improving
fiscal transparency.
President Xiomara Castro of the Partido Libertad y Refundacion
(Libre) party took office for a four-year term on Jan. 27, 2022.
Since the beginning of President Castro's administration, Libre has
not held a majority in Congress. After the collapse of its
legislative alliance with its coalition partner, Partido Salvador
de Honduras (PSH) in October 2022, which has 10 seats, President
Castro can only rely on 50 votes in the 128-seat Congress.
S&P said, "We expect political polarization to rise, making it
difficult to pass reforms. For example, the authorization of a tax
reform to reduce tax exemptions ("Ley de Justicia Tributaria")
still requires continued work to build broad support in Congress.
However, we expect the law to be approved by December 2023."
President Castro's anticorruption agenda has been moving forward.
The government has strengthened its anti-money laundering framework
and in 2022, approved decrees to eliminate trust funds, which
created corruption risks and opacity in spending. In addition, the
government has strengthened the treasury single account to improve
liquidity and debt management.
While progress in establishing the International Commission against
Corruption and Impunity in Honduras (CICIH), backed by the United
Nations, has been slow, support for an independent CICIH remains
strong. In our view, a continued commitment to fighting corruption
is key to strengthening the Honduran justice system and improving
investor confidence. High poverty levels, a large informal sector,
corruption, and violence remain major challenges.
The government-owned electricity company Empresa Nacional de
Energía Eléctrica (ENEE; not rated) continues to pose fiscal
risks to the government, typically running losses of about 1% of
GDP annually (0.7% of GDP in 2022). Poor provision of electricity
hinders economic growth. We expect the government will continue to
transfer money to ENEE, in line with historical trends, to
compensate for these losses.
In May 2022, Congress approved the Special Energy Law, which will
review and renegotiate contracts with energy generators and push
back unbundling the ENEE in subsidiaries (for generation,
transmission, and distribution), which should reduce financing
costs and electricity losses. In addition, ENEE has issued bonds to
repay arrears to private generators. The first issuance of 0.8% of
GDP of government-guaranteed ENEE bonds took place in December
2022, reducing the arrears stock to 1.2% of GDP. An effective
energy reform could lower production costs and create a more
efficient electricity system, improving the economy's overall
competitiveness.
S&P expects GDP growth to slow to 3% in 2023 and 3.6% afterward.
Growth prospects depend in part on GDP growth in the U.S., the
destination of 40% of Honduran exports and the main origin of
remittances, which accounted for 27.5% of GDP last year. In 2022
and 2021, Honduras had a solid recovery with GDP growth of 4.0% and
12.5%, respectively, surpassing pre-pandemic GDP levels, backed by
strong remittances and external demand.
Honduras is highly exposed and vulnerable to extreme weather
events. As a result, the government has expressed interest in IMF
financing under the Resilience and Sustainability Facility (RSF),
which could be considered in subsequent IMF program reviews.
Honduras is a small open economy with a large informal sector of an
estimated 70% of the working-age population. In the next three to
five years, limited, albeit expanding, physical infrastructure and
vulnerability to external shocks will keep constraining the
country's economic growth. Honduras' per capita income growth has
suffered from many years of low investment and weak
competitiveness. S&P thinks raising growth potential will require
steps to foster competition and investment.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
HONDURAS
Transfer & Convertibility Assessment
Local Currency BB
HONDURAS
Senior Unsecured BB-
RATINGS AFFIRMED; CREDITWATCH/OUTLOOK ACTION
TO FROM
HONDURAS
Sovereign Credit Rating BB-/Stable/B BB-/Negative/B
=============
J A M A I C A
=============
JAMAICA: BOJ to Announce Policy Interest Decision
-------------------------------------------------
RJR News reports that the Bank of Jamaica's Monetary Policy
Committee is to announce its latest policy interest decision.
At the last decision in August, the committee kept the rate offered
to deposit-taking institutions on overnight placements with the
Bank of Jamaica at 7 per cent, according to RJR News.
The last adjustment was made at the November 2022 decision, the
report notes.
The committee decided to hold the rate as inflation hovers just
above the 4 to 6 per cent target range, and some economic data
reflect positive signs, the report relays.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy. This is the best credit
rating that Jamaica has received from S&P since it started rating
the country's sovereign debt in 1999, according to The Gleaner.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
Moody's credit rating for Jamaica was last set at B2 with stable
outlook (December 2019).
JAMAICA: Trade Deficit Down Marginally for January to May
---------------------------------------------------------
Javaughn Keyes at RJR News reports that Jamaica's trade deficit
stood at US$2.25 billion for the first five months of the year.
The Statistical Institute of Jamaica (STATIN) says the difference
between what was spent on imports and the sum earned from exports
as at May this year, was marginally lower than 2022, according to
RJR News.
Last year as of May, Jamaica's trade deficit was US$2.37 billion,
the report notes.
Total spending on imports for January to May this year was valued
at US$3.13 billion, the report relays.
This represents a 3.8 per cent increase in the cost for goods
coming into the country when compared with the US$3.01 billion
spent for the similar period in 2022, the report says.
STATIN says the increase was due to higher costs for the import of
"Raw Materials/Intermediate Goods", "Consumer Goods", "Transport
Equipment" and "Capital Goods (excluding Motor Cars)," the report
notes.
Meanwhile, Jamaica earned US$879.5 million from exports for January
to May, the report discloses.
This was a 36.6 per cent improvement above the US$644 million
earned for the corresponding five month period in 2022, the report
says.
STATIN says the increase in export earnings was due to more money
earned from "Mineral Fuels" and "Crude Materials (excluding
Fuels)," the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy. This is the best credit
rating that Jamaica has received from S&P since it started rating
the country's sovereign debt in 1999, according to The Gleaner.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
Moody's credit rating for Jamaica was last set at B2 with stable
outlook (December 2019).
===========
M E X I C O
===========
CREDIVALORES-CREDISERVICIOS: S&P Withdraws 'CCC-/C' ICRs
--------------------------------------------------------
S&P Global Ratings withdrew its 'CCC-/C' issuer credit and issue
ratings on Credivalores - Crediservicios SAS at the issuer's
request. The issuer credit rating was on CreditWatch with negative
implications at the time of withdrawal.
===========
P A N A M A
===========
NG PACKAGING: Fitch Affirms BB+ IDR & Alters Outlook to Stable
--------------------------------------------------------------
Fitch Ratings has affirmed NG Packaging & Recycling Corporation
Holdings S.A.'s Long-Term Issuer Default Rating (IDR) at 'BB+'.
Fitch has also affirmed the unsecured notes co-issued by NG PET R&P
Latin America S.A. and San Miguel Industrias PET S.A at 'BB+'. The
notes are guaranteed by all material subsidiaries from NG Packaging
& Recycling Corporation Holdings S.A. (SMI) and NG Packaging &
Recycling Corporation Holdings II S.A.(Sinea), which manufactures
closures. The company reports combined accounts for NG Packaging &
Recycling Corporation Holdings S.A. and NG Packaging & Recycling
Corporation Holdings II S.A.
The Rating Outlook has been revised to Stable from Positive.
The revised Outlook reflects the SMI group's (SMI and Sinea)
resilient business model as a one-stop-shop for rigid plastic
packaging, and Fitch's expectation the company will maintain net
leverage at about 3x-3.5x in 2023.
KEY RATING DRIVERS
Steady Leverage: Fitch projects SMI group's net leverage to remain
stable at about 3.0x-3.5x in 2023 (3.1x including factoring in
2022) due to steady EBITDA and negative FCF. Fitch projects EBITDA
(before IFRS16) to remain at about USD163 million in 2023 based on
lower profitability due to shift in the product mix, with an
increase in non-containers units that operate a lower margin,
smaller formats and costs related to the new recycling operation.
Total volume is forecast to grow toward 36 billion-37 billion units
(containers, closures and thermoforming) in 2023 from 32 billion
units in 2022 driven by organic expansion mainly within contracted
customer base, SMB (small medium businesses) market and the ramp-up
of contracts in end-markets such as soft drinks, edible oil, dairy
and home care.
Fully Integrated: Incorporating Sinea's closures business assets
under the new perimeter of the bond transaction, the SMI group is a
one-stop-shop regional supplier, with packaging solution for
containers, closures, thermoforming and recycled resin that creates
barriers to entry for competitors. Fitch expects the containers
segment to represent about 77% of group EBITDA, while the closure
business should account for about 23% of total group EBITDA in
2023.
Negative FCF: FCF (after capex and interests) is forecast to be
negative due to high capex and negative working capital requirement
related to the cost of resin and increased volumes. Fitch projects
capex of about USD68 million as the company is investing in
equipment to sustain its growth and expanding its recycling
capabilities in Peru and Colombia. Maintenance capex is estimated
to be around USD16 million...
Geographic and Product Diversification: Fitch estimates that about
63% of the group's EBITDA was generated outside of Peru at YE 2022,
specifically in Central America, Colombia, Ecuador, Mexico and
others countries. Peru represented 34% of volumes in 1Q23. The
geographic and product diversification also allows the company to
bid for international contracts and provides more flexibility in
negotiations with international suppliers.
Contracted Sales: SMI group's long-term contracts for its
containers and closures divisions are positive for the rating, as
they provide predictability in cash flow generation and reduce
business risk. The company's weighted average life of contracts is
above six years with more than 85% are contracted. Containers
(preforms and bottles) and closures accounted for 43% and 53% of
group volumes respectively in YE 2022. The SMI group has a
pass-through model that provides margin protection against price
volatility in resin and natural hedges against currency fluctuation
as equipment and client contracts are in U.S. dollars.
DERIVATION SUMMARY
The ratings reflect SMI group's geographic and product
diversification, its highly contracted revenues and its
pass-through model that provides protection against price
volatility. The company has grown rapidly over the last nine years,
but remains smaller than international peers such as Amcor plc. SMI
group's client concentration remains high following the regional
industry concentration, with the top eight clients representing a
large portion of total revenues. This concentration is mitigated by
greater scale achieved over the years.
KEY ASSUMPTIONS
- EBITDA before IFRS close USD163 million in 2023;
- Capex of about USD68 million in 2023;
- Net debt/EBITDA of about 3.0x-3.5x 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Net leverage below 2.5x on a sustained basis;
- Strong FCF after dividend payment;
- Good liquidity.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Net leverage above 3.5x on a sustained basis;
- Negative FCF before dividends on a sustained basis;
- Weak liquidity.
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: SMI group had cash and cash equivalents of
about USD35million and USD74 million short-term debt as of 1Q23.
Short-term debt has been refinanced in 2023 post 1Q23. Main debt
related to the USD380 million senior notes, which mature in 2028.
SMI group is a private company that is majority-owned by Nexus
Group, the leading private equity fund in Peru, and is associated
to Intercorp, one of Peru's largest conglomerates.
ISSUER PROFILE
SMI Group is a leading rigid plastic packaging solutions company in
Latin America, serving the main multinational CPGs in the beverage,
food, personal and home care industries. The company benefits from
a highly visible and diversified revenue stream with blue chip
customers with resin pass-through provisions.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
NG Packaging &
Recycling
Corporation
Holdings S.A. LT IDR BB+ Affirmed BB+
San Miguel
Industrias
PET S.A.
senior
unsecured LT BB+ Affirmed BB+
NG PET R&P Latin
America, S.A.
senior
unsecured LT BB+ Affirmed BB+
=====================
P U E R T O R I C O
=====================
GRUPO HIMA: Seeks to Hire Hilco Real Estate as Real Estate Broker
-----------------------------------------------------------------
Grupo Hima San Pablo, Inc. and its affiliates seek approval from
the U.S. Bankruptcy Court for the District of Puerto Rico to employ
Hilco Real Estate, LLC as their real estate broker.
Hilco will render these services:
a. meet with Debtors to ascertain Debtors goals, objectives and
financial parameters;
b. assemble relevant demographic and market information relating
to the property;
c. inspect the properties and determine an initial range of
property values to be discussed with the Debtors, and delivered
in a report form that is mutually agreeable to Hilco and the
Debtors;
d. make periodic conference calls and other correspondence to
discuss specific information regarding the Properties and any
other issue reasonably requested by the Debtors.
e. mutually agree with the Debtors with respect to a strategic
plan for the sale of the properties, which will include
managing the bid sales process on a date to be determined and
mutually agreed by the parties;
f. negotiate the terms of purchase and sale agreements for the
Properties, in accordance with the Strategy, on the Debtors'
behalf;
g. provide written status reports periodically to the Debtors
regarding the status of such negotiations; and
h. assist the Debtors in closing the pertinent Property
purchase and sale agreements.
Hilco received a retainer in the amount of $50,000.
Hilco shall earn a fee equal to 5 percent of the gross sale
proceeds.
As disclosed in the court filings, Hilco and its members and
employees are disinterested persons as defined in 11 U.S.C. Sec.
101(14).
The firm can be reached through:
Sarah K. Baker
Hilco Real Estate, LLC
5 Revere Dr., Suite 206
Northbrook, IL 60062
Email: sbaker@hilcoglobal.com
About Grupo Hima San Pablo, Inc.
Grupo HIMA San Pablo, Inc. serves as a diversified healthcare
services holding Debtors pursuant to a corporate reorganization of
several businesses related by common ownership. Through its
subsidiaries and affiliates, the Debtors primarily owns and
operates hospital facilities and other healthcare related
businesses. As of August 2023, the HIMA GROUP operates four
hospitals, with over 1,200 licensed beds, including an Oncological
Hospital, a multi-specialty physician practice management Debtors,
Home Care Service (including infusion therapies and wound care), a
free-standing Ambulatory Center and a 16-Ambulance Service
Debtors.
The Debtor sought protection under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. D. P.R. Case No. 23-02510-EAG11) on August
15, 2023. In the petition signed by Armando J. Rodriguez-Benitez,
chief executive officer, the Debtor disclosed up to $1 billion in
assets and up to $500,000 in liabilities.
Judge Enrique S. Lamoutte Inclan oversees the case.
Wigberto Lugo Mender, Esq., at Lugo Mender Group, LLC, represents
the Debtor as legal counsel. Pietrantoni Mendez & Alvarez LLC as
special counsel.
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