/raid1/www/Hosts/bankrupt/TCRLA_Public/231027.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
Friday, October 27, 2023, Vol. 24, No. 216
Headlines
A R G E N T I N A
ARGENTINA: Depletes Room to Intervene in Currency Futures
ARGENTINA: Peronist Massa Gets Majority Votes in Oct. 22 Polls
ARGENTINA: Veteran Greylock Says Argentina in Safe Hands With Massa
B R A Z I L
AUREN ENERGIA: Fitch Assigns BB+ Foreign Curr. IDR, Outlook Stable
C A Y M A N I S L A N D S
BPGIC HOLDINGS: Taps Alexander Lawson as Liquidator
C O L O M B I A
CANACOL ENERGY: Fitch Lowers LongTerm IDRs to 'BB-', Outlook Neg.
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Chancellor Warns US Probe on Agriculture Sector
H A I T I
HAITI: Keeps Border Crossing Closed to Prevent Exchange in Dajabon
M E X I C O
BANCO DEL BAJIO: Fitch Affirms 'BB+/B' LongTerm IDRs
GRUPO AXO: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
P A N A M A
CREDICORP BANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Depletes Room to Intervene in Currency Futures
---------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that Argentina's
Central Bank is almost out of room to intervene in currency
futures, the main avenue it's been using to prop up the plunging
peso ahead of a pivotal presidential vote.
The country's monetary authority has sharply increased its sales of
peso futures contracts on Rofex, the biggest derivatives market, to
supply investors seeking to hedge against a post-election
devaluation, people with direct knowledge of the matter said,
according to Bloomberg News. The central bank, which is almost the
only seller in Rofex, saw its "sold" position exceed US$4 billion,
according to the people, who asked not to be named discussing
private information, Bloomberg News relays.
The limit for the position, which is established by Rofex, is US$5
billion, Bloomberg News notes. As it nears that cap, the bank is
being forced to "move" to the secondary futures market, Mercado
Abierto Electronico (MAE), which is owned by the country's main
private banks, Bloomberg News says. The Central Bank increased its
sales of peso futures there by 50 percent to US$1.3 billion, one of
the people said Bloomberg News discloses. That leaves the monetary
authority with about US$2.7 billion to intervene in the
MAE,Bloomberg News relays.
A Central Bank spokesman declined to comment.
Angst is spreading among investors ahead of the presidential
election, with nearly every scenario pointing to further losses,
Bloomberg News discloses. Confidence in the government and banking
system are in the tank, Bloomberg News notes. The peso has lost
more than 92 percent of its value since 2019, after years of budget
deficits funded by printing money, Bloomberg News relays.
Futures show an exchange rate of 372.50 pesos per US dollar by the
end of the month, close to the current official rate of 350, and
422.50 for the end of November, Bloomberg News discloses. October
and November are the positions where the Central Bank shows the
greatest intervention, the people said, Bloomberg News notes. The
market shows an abrupt fall at the end of December, to 825 pesos,
once the new government has taken office, which would mean a
devaluation of 58 percent for the peso, Bloomberg News relays.
Argentina devalued the currency by 18 percent the day after a
primary vote - seen as a barometer for the election - in August,
Bloomberg News discloses. While the government has said it will
keep the currency stable until November 15, there's widespread
public speculation of an imminent devaluation as the peso continues
to sell off in the parallel market, recently topping 1,000 per
dollar, Bloomberg News 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
0its 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: Peronist Massa Gets Majority Votes in Oct. 22 Polls
--------------------------------------------------------------
Nicolas Misculin, Candelaria Grimberg and Anna-Catherine Brigida of
Reuters report that Argentina's ruling Peronist coalition smashed
expectations to lead the country's general election last Sunday,
October 22, setting the stage for a polarized run-off vote next
month between Economy Minister Sergio Massa and far-right
libertarian radical Javier Milei.
Reuters relays that Massa had 36.6% of the vote, ahead of Milei on
just over 30%, while conservative Patricia Bullrich was behind on
23.8% with a near 98% of the vote counted. Reuters points out that
this is a result that defied pre-election polls that had predicted
a libertarian win.
According to Reuters, many blamed the Peronists for Argentina's
economic woes and people have shown rising anger with the
traditional elite -- but Massa, a moderate, had shot back that the
government's social safety nets and subsidies were key for many
hard-up Argentines, including a recent stunt showing how train and
bus fares could rise sharply if he lost. This message seems to
have reached the masses, the report cites.
Milei, for his part, is proposing radical moves like dollarizing
the economy and has criticized major trade partners China and
Brazil. He also is in favor of slashing the size of the government
and is anti-abortion, Reuters relays.
To win outright last Sunday, a candidate would have needed over 45%
of the vote or 40% and a 10-point lead, Reuters says.
The Oct. 22 result sets up an intriguing second round on Nov. 19
between two polar opposite economic models for Argentina.
Election authorities said turnout was around 74%, up from the
August primaries, but considerably lower than the 81% participation
at the last election and the lowest general election turnout since
the 1983 return to democracy, according to the report.
Reuters cites that whoever emerges victorious will have to deal
with an economy on life support: central bank reserves are empty,
recession is expected after a major drought, and a $44 billion
program with the International Monetary Fund (IMF) is wobbling.
The candidate with the most votes on Nov. 19 will take over the
presidency from mid-December, replacing outgoing center-left
Peronist President Alberto Fernandez.
Candidates, Winners, Losers
Reuters' Maximilian Heath relates that Milei is a 53-year-old
economist running for the libertarian La Libertad Avanza bloc, who
often wears leather jackets and has drawn comparisons with former
U.S. President Donald Trump and Brazilian former leader Jair
Bolsonaro for his abrasive style.
Massa, the government's wheeler-dealer 51-year-old economy chief,
represents the ruling Union por la Patria (UP) coalition, according
to Reuters. He is seen as a pragmatist within the Peronist
movement, which has helped him win over more moderate votes.
Patricia Bullrich, the main conservative bloc's candidate, and the
Together for Change coalition had once been the favorite to win the
presidency, but saw its vote diluted by the abrupt rise of Milei,
Reuters adds.
The ruling Peronist government is the big winner of the Oct. 22
polls, managing to pull off an escape act given it has overseen
inflation near 140%, net foreign currency reserves dropping below
zero and two fifths of Argentines in poverty, Reuters explains.
Milei supporters will feel deflated after he did less well than
expected, but he still is in the race for the second round.
Bullrich was the big loser of the election, the report concurs.
Nov. 19 Round
Massa goes into second round with the momentum, but Milei could
pick up more of conversative Bullrich's 6.3 million votes, Reuters
points out.
Reuters adds that there is likely to be a heated campaign over the
next month as the two remaining candidates pitch opposing plans for
Argentina's economy, Reuters says. Massa pledges to protect the
country's social safety net while Milei wants to "chainsaw" through
a system that has left the country in its worst economic crisis in
decades, the report cites.
There are also talks that the polls cannot be trusted. Almost all
pre-election polls had shown Milei in first place ahead of Massa,
though pollsters did get right the under-performance of Bullrich.
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
0its 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: Veteran Greylock Says Argentina in Safe Hands With Massa
-------------------------------------------------------------------
Scott Squires at Bloomberg News reports that the veteran Argentina
investor who has long backed Economy Minister Sergio Massa's
presidential bid is telling nervous traders the candidate isn't as
bad as they think.
The nation's bonds, which mostly trade below 30 cents on the
dollar, slumped after Massa came in ahead in a first-round vote,
forcing a run-off with outsider Javier Milei on November 19,
according to Bloomberg News. Traders called the result the worst
possible scenario for markets, Bloomberg News notes.
But to Hans Humes, the chief executive and founding partner of
Greylock Capital Management, the exact opposite is true. Massa, he
says, is better equipped to steer the nation through much needed
fiscal changes, Bloomberg News relays. It's unclear whether or not
the country will veer in that direction, but Humes - who has stayed
bullish on the debt even as bonds slumped time and time again - is
sticking to the investment now too, Bloomberg News discloses.
"It's kind of an ideal scenario," Humes said. "You're way better
off with a centrist Peronist embarking on the reforms that need to
be done than a polarising figure," he added.
Humes is well-versed in taking a positive approach to the
serial-defaulting country, the report notes. He's made a living
restructuring distressed debt from troubled nations including
Greece, Ukraine, Venezuela and, of course, Argentina, Bloomberg
News relays.
He said the nation's US$65 billion in bonds offer investors an
entry point to bet on a potential economic rebound if the incoming
government slashes the fiscal deficit, lifts capital controls and
realizes its potential as a global grains powerhouse, Bloomberg
News says.
Massa's track record as economy minister doesn't discourage Humes,
who says he is better equipped to build consensus than Milei, the
libertarian outsider whose signature plan to shutter the Central
Bank and ditch the peso for the US dollar, Bloomberg News
discloses.
"There should be much more market confidence around Massa," Humes
said. "I think people will see that this guy is competent - and a
safe pair of hands. I think people will get to see what he can
actually do," he added.
Argentina's bonds edged higher, following a steep selloff after
Massa pulled off a surprising comeback in the first round of
voting. Since placing third in an August primary, the economy
minister has revved up spending, granting welfare cheques to
workers, bonuses for retirees and tax cuts for 99 percent of the
population, Bloomberg News notes. It's a strategy investors fear
will only worsen an economy on the verge of its sixth recession in
a decade and grappling with 138 percent inflation, Bloomberg News
relays.
Many expect Massa and Milei to moderate their messages ahead of
next month's run-off to bring in voters who loathe the fiscal
largesse of Argentina's left-leaning incumbent party, but are
terrified of Milei's right-wing radicalism, Bloomberg News
discloses.
"The election is now a race to the centre," Humes said. But in
markets, "given where price levels are and negativity in the
market, there's a very good opportunity for Argentina to
significantly exceed expectations," he added.
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
0its 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.
===========
B R A Z I L
===========
AUREN ENERGIA: Fitch Assigns BB+ Foreign Curr. IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has assigned a 'BBB-' Long-Term Local Currency Issuer
Default Rating (IDR) to Auren Energia S.A. (Auren). In addition,
Fitch has assigned Auren a 'BB+' Foreign Currency IDR and has
affirmed its 'AAA(bra)' National Scale Rating. Fitch has also
affirmed and withdrawn, for commercial reasons, Companhia
Energetica de Sao Paulo's (CESP)'s Local and Foreign Currency IDRs
of 'BBB-' and 'BB+', respectively, and affirmed CESP's Long-Term
National Scale Rating at 'AAA(bra)'. CESP's 12th debentures
issuance was also affirmed at 'AAA(bra)'.The Rating Outlook on both
Auren and CESP's corporate ratings is Stable.
Auren's ratings incorporate its growing and significant asset base
within the power generation segment. The ratings also reflect
Auren's highly predictable revenues and expected strong operational
cash generation. On a consolidated basis, Auren's low leverage and
robust liquidity profile should benefit from expected positive FCF
starting in 2025. Its robust credit profile benefits CESP's
ratings, based on the strong strategic and operational incentives
to support this wholly-owned subsidiary, if needed. Auren's Foreign
Currency IDR is constrained by Brazil's 'BB+' country ceiling,
while Brazil's operating environment and modest EBITDA interest
coverage ratios limit the Local Currency IDR.
Fitch has withdrawn CESP's Local and Foreign Currency IDRs for
commercial reasons.
KEY RATING DRIVERS
Robust Business Profile: Auren's rating benefits from highly
predictable revenues, relevant scale and an increasing asset
diversification in the electric power generation segment in Brazil.
Wind and solar energy should represent 43% of the group's installed
capacity as of 2025, from 32% in 2022, reducing its exposure to
hydrological risk. Fitch's forecasts consider that solar projects
should add 276 MW in 2024 and 272 MW in 2025. Around one third of
Auren's energy to be settled through 2025 was sold in the Regulated
Contracting Environment (ACR), which offers low counterparty risk
and longer terms relative to bilateral contracts. The expected
expansion of the trading business might add some volatility.
Resilience Against Low Prices: Auren is well protected against the
current downward pressure on energy prices driven by oversupply in
Brazil. The company sold 91% of its total resources (assured energy
and purchases) through 2026, including the trading business. These
levels compare favorably with Auren's peers, as well as its
contracted sales prices, which average BRL225/MWh over the same
period, benefiting from higher prices in the ACR market. Fitch
estimates that the company has contracted more than 80% of total
revenues through 2026 and that it will maintain an EBITDA margin in
the 25% to 30% range.
Improving FCFs: Fitch expects Auren to conclude an investment cycle
in 2024, after which cash flows from operations (CFFO) should
exceed investments. FCFs should turn positive as of 2025,
disregarding the execution of additional projects. Fitch estimates
that EBITDA and CFFO will be at BRL1.6 billion and BRL1.0 billion
in 2023. In 2024, EBITDA is expected to slightly decline to BRL1.5
billion, due to lower energy prices, and CFFO should reduce to
around BRL630 million after the settlement of deficits in wind
generation (BRL360 million). Projections include annual payments of
around BRL300 million, mostly related to litigations and pension
contributions. Investments for Sol de Jaiba and Sol do Piaui
projects (548 MW) should amount BRL2.6 billion, more concentrated
in 2023.
Comfortable Leverage: Fitch expects Auren to maintain adjusted net
leverage below 3.0x on a consolidated basis, even considering
potential M&A activity, which might be an important growth avenue
for the group. This ratio is estimated at 1.7x in 2023 and 2.0x in
2024, from 1.5x in 2022, after dividends of BRL3.0 billion in 2023,
and incorporates adjusted EBITDA recurring dividends received from
unconsolidated hydro plants, estimated at around BRL280 million
annually.
Dividend projections as of 2024 consider a 95% pay-out ratio. Gross
leverage is estimated at 3.4x and 3.0x in 2023 and 2024,
respectively. Due to high interest ratios in Brazil, the base case
scenario forecasts EBITDA interest coverage ratios at moderate
levels of 2.8x in 2023 and in the 3.0x-4.0x range in the following
three years.
Credit Linkage With Auren: CESP's ratings reflect Auren's
consolidated credit profile, based on high strategic and
operational incentives for parent support, if necessary. CESP is
Auren's main asset and will likely generate around half of the
group's EBITDA over the next several years. The subsidiary operates
the Porto Primavera hydro plant, which represents 51% of the
Auren's installed capacity of 3.0 GW in operation (proportional to
equity stakes in operating assets) and reduces the group's business
risk. This is due to the complementary seasonality between hydro
and wind generation, besides being a key supplier for Auren's
high-growth trading business.
DERIVATION SUMMARY
Auren's credit profile is similar to Engie Brasil Energia S.A.'s
(Engie BR; Local Currency IDR 'BBB-'), although Engie BR benefits
from greater asset diversification. Auren's scale (3.0 GW in
operation) is lower than that of Engie BR (8.5 GW); however, both
generation companies have 70%-75% of their assured energy allocated
in hydro plants. Engie BR also benefits from relevant cash
generation from energy transmission and gas midstream, which adds
to revenues predictability.
Auren's EBITDA margin is lower than Engie BR's (26% and 55%
projected for 2023, respectively) due to the greater importance of
the trading business in Auren's consolidated results. However,
Fitch forecasts higher net leverage for Engie BR, around 2.5x in
2023-2024, reflecting higher capex intensity.
Auren's Local Currency IDR is the same as AES Andes', the third
largest electricity generation company in Chile, with 5.2 GW of
installed capacity, including its operations in Colombia (1.1 GW)
and Argentina (0.6 GW), and 1.4 GW of coal assets, to be
decommissioned by 2025. AES Andes has larger scale, with EBITDA
nearly twice of Auren's, but is less efficient (EBITDA margin close
to 20%), but carries higher financial leverage, (net debt/ EBITDA
averaging 3.3x over 2023-2025).
KEY ASSUMPTIONS
- Generation scaling factor (GSF) of 0.85 in 2023 and 0.93 as of
2024;
- Wind generation at 10-year P-90 generation;
- Assured energy of 1.6 aGW in 2023 and 1.7 aGW as of 2024;
- Capacity factors of 57%, 47% and 30% for hydro, wind and solar
assets, respectively;
- Contracted annual sales of around 2.7aGW, with average prices of
BRL225/MWh in 2023-2026, including trading;
- Prices for new sales contracts in 2023-2026 (BRL/MWh): 107; 102;
130; 137;
- Average short-term prices in 2023-2026 (BRL/MWh): 69; 92; 64;
66;
- Sol de Jaiba and Sol do Piaui projects to start operation in 3Q23
and 1Q24, respectively;
- Total capex of BRL2.6 billion in 2023-2024, more concentrated in
2023;
- Dividend payout of 95% as of 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An improvement of Brazil's country ceiling could trigger a
positive rating action for Auren's Foreign Currency IDR.
- Positive rating action for Auren's Local Currency IDR is unlikely
in the short term, given Brazil's operating environment;
- An upgrade of Auren or CESP's National Scale Ratings is not
possible as they are at the top of the national scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A deterioration in Auren's financial profile, with debt/EBITDA
and/or net debt/EBITDA ratios consistently above 4.0x or 3.0x,
respectively, could trigger a negative rating action on its Local
Currency IDR;
- A downgrade on Brazil's sovereign rating could result in a
similar rating action on Auren's Foreign Currency IDR.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Auren should maintain comfortable liquidity
levels and ample access to several sources of financing to meet its
financial and investment obligations. The group's consolidated cash
and equivalents were BRL6.3 billion at June 30, 2023, after the
securitization of Tres Irmaos' indemnification (BRL3.6 billion
after tax) and debt issuances of almost BRL730 million from
development banks for Sol de Jaiba and Sol do Piaui projects. The
cash balance covered more than six years of debt amortizations.
Short-term debt was BRL967 million. Consolidated debt of BRL6.7
billion was mainly composed of long-term financing from BNDES
(BRL3.2 billion) and debentures (BRL2.8 billion), in addition to a
BRL500 million loan that was paid in July.
ISSUER PROFILE
Auren is a mid-sized power generation company in Brazil, with 1.6
aGW of assured energy in operation and 167 aMW under construction,
proportional to equity participations in the assets. Porto
Primavera hydro plant, operated by the fully-owned subsidiary CESP,
is the group's main asset.
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.
Climate Vulnerability Commentary
Fitch's Climate Vulnerability in Corporate Ratings Criteria report
describes how Fitch uses Climate Vulnerability Signals (Climate.VS)
as a screening tool to identify sectors and Fitch-rated issuers
that are potentially most exposed to credit-relevant climate
transition risks and, therefore, require additional consideration
of these risks in rating reviews. Click here for the criteria.
The 2022 revenue-weighted Climate Vulnerability Signal (Climate.VS)
for Auren for 2035 is 10 out of 100, suggesting low exposure to
climate-related risks by then, with no rating impact. For further
information on how Fitch perceives climate-related risks in
renewables generation, see Utilities - Long-Term Climate
Vulnerability Signals Update.
Entity/Debt Rating Prior
----------- ------ -----
CESP - Companhia
Energetica de
Sao Paulo LT IDR WD Withdrawn BB+
LT IDR BB+ Affirmed BB+
LC LT IDR WD Withdrawn BBB-
LC LT IDR BBB- Affirmed BBB-
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Auren Energia S.A. LT IDR BB+ New Rating
LC LT IDR BBB- New Rating
Natl LT AAA(bra)Affirmed AAA(bra)
===========================
C A Y M A N I S L A N D S
===========================
BPGIC HOLDINGS: Taps Alexander Lawson as Liquidator
---------------------------------------------------
BPGIC Holdings Limited, which is in liquidation, tapped Alexander
Lawson of Alvarez & Marsak Cayman Islands Limited as joint
liquidator.
The liquidator can be reached at:
Alexander Lawson
Alvarez & Marsak Cayman Islands Limited
Flagship Building, PO Box 2507, 142 Seafares Way
George Town, Grand Cayman KYI - 1104
===============
C O L O M B I A
===============
CANACOL ENERGY: Fitch Lowers LongTerm IDRs to 'BB-', Outlook Neg.
-----------------------------------------------------------------
Fitch Ratings has downgraded Canacol Energy Ltd.'s (CNE) Long-Term
Foreign Currency and Local Currency Issuer Default Ratings (IDRs)
to 'BB-' from 'BB' and assigned a Negative Rating Outlook. Fitch
has also downgraded CNE's USD500 million senior unsecured notes due
in 2028 to 'BB-'.
The downgrade reflects the material change in the company's
business profile as a result of the eventual reduction in its
contracted gas sales, which decreased from 99% (of gas production)
in 2023 to 50% in 2026. This was a result of the cancellation of
the construction of the Jobo-Medellin gas pipeline and the
associated contract with Empresas Publicas de Medellin E.S.P. (EPM,
BB+/Rating Watch Negative). This will lead to a reduction in
contracted EBITDA over the rating horizon, which will result in an
increase in the gross leverage metric, measured as total debt to
contracted EBITDA, above its negative sensitivity of 3.0x.
The Negative Outlook reflects the decline of the company's
contracted volumes over the rating cycle. This exposes CNE to spot
sales, which is not commensurate with the 'BB' rating category for
O&G peers.
KEY RATING DRIVERS
Change in Business Profile: Fitch expects CNE's volumes sold, as
percentage of total gas production, under long-term take-or-pay
contracts to reduce from 99% in 2023 to 50% in 2026. The switch to
higher exposure of interruptible volumes increases CNE's business
risk assessment, as it materially diverts from its previous
expectation that the company would sell approximately 80% of its
production volume under a fixed-price scheme over the rating
horizon. Fitch projects increasing volatility in cash flows and
profitability as contracted EBITDA is expected to decline over the
next three years, which would not be commensurate with a 'BB'
rating for O&G peers.
Higher Leverage: Fitch's base case calculates contracted EBITDA
leverage will be at or below 3.0x in 2023, to then increase to
close to 4.0x by YE2026, reflecting the eventual reduction in
EBITDA from long-term take-or-pay contracts. EBITDA/interest
expense coverage should average of 7.0x over the rating case. CNE's
debt to 1P reserves was USD8.3 per barrel of oil equivalent (boe)
when applying 1P reserves of 60 million boe in 2022.
Slower Production Growth: Fitch projects production will grow at a
CAGR of 13% over 2023-2026, reaching 270 million cubic feet per day
(MMcfd) (approximately 47,000 boed) by YE2026, up from 185 MMcfd in
2022. Fitch previously forecasted production will reach 300 MMcfd
driven by El Tesorito (a 200MW thermo-power plant) and the
Jobo-Medellin pipeline with a total capacity of 100 MMcfd. The
decrease stems from the cancellation of the Jobo-Medellin pipeline
and uncertainty whether exploration and production will be
successful in the Middle Magdalena Basin and Bolivia.
Strategic for Energy Transition: Gas represents 70% of the regional
energy matrix and will play an important role as a back-up power
generation as Colombia moves away from other alternatives with
higher greenhouse gas (GHG) emissions. As the key gas producer and
supplier for the highly dependent Caribbean coast of Colombia, CNE
holds a strong competitive position, given the high start-up costs
and limited conventional gas reserves. Fitch expects that the
company will remain the largest supplier to Colombia's northern
coast region.
DERIVATION SUMMARY
CNE's credit profile compares well with other independent gas
producers in both Latin America and North America, including Hunt
Oil Company of Peru L.L.C., Sucursal del Peru (BBB/Stable), CNX
Resources Corporation (BB+/Stable), Ascent Resources Utica
Holdings, LLC (B/Positive) and Comstock Resources, Inc.
(B+/Stable).
CNE has a strong competitive position due to the sector's high
start-up costs and limited conventional gas reserves, but its
strategic switch towards increasing exposure to the gas spot market
compares negatively to peers. Hunt Oil is the closest peer in the
region. It owns an equity stake in the Camisea blocks 86 and 56 in
Peru, which are strategically important for that country, providing
86% of its natural gas supply. Similarly, CNE is regionally
important to the Caribbean coast of Colombia, which is a large
consumer of gas and is very comparable to Camisea.
CNE's capital structure, cash flow generation and liquidity profile
are comparable to Hunt Oil. Fitch estimates that CNE's 2023 total
debt to contracted EBITDA to be below 3.0x, higher than Hunt's
1.0x, and above average among its U.S. peers (CNX, Ascent and
Comstock) of 1.4x, as CNE deploys its capex plan.
Fitch projects CNE's total debt to 1P to average USD9.40 boe over
the next four years, which is highest among all peers.
KEY ASSUMPTIONS
- Gas production volumes of 184,000 Mcf/d in 2023, 215,000 Mcf/d in
2024, 238,000 Mcf/d in 2025, and 265,000 Mcf/d in 2026;
- Contracted gas sales as percentage of total production of 99% in
2023, 64% in 2024, 58% in 2025 and 50% in 2026;
- Weighted average realized price net of transportation of $5.6 per
USD/Mcf in 2023 and $5.7 per USD/Mcf between 2024 through 2026;
- Opex average of $.0.40 USD/Mcf between 2023 through 2026;
- Royalties average of $0.90 USD/Mcf between 2023 through 2026;
- G&A cost average of $0.40 USD/Mcf between 2023 through 2026;
- Total capex of USD743 million between 2023 through 2026;
- Dividends of USD27 million per year;
- Tax rate of 35% over the rated horizon.
RATING SENSITIVITIES
The Negative Outlook may be revised to Stable if Fitch's view on
the company's cash flow visibility improves in the next 12 months.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade is unlikely but may be considered if CNE reaches 80%
or more of its production sold under long dated contracts in
Colombia with high quality off-takers, while maintaining total debt
to contracted EBITDA of 2.5x or below.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Contracted sales volumes representing less than 60% of total
production in Colombia;
- Sustained contracted EBITDA gross leverage above 3.5x;
- Production size declining below 35,000 boed;
- A 1P reserve size life three years lowers than its weighted
average contractual life;
- Deterioration of the capital structure and liquidity due to a
steeper than anticipated decline in production or a marked increase
in debt;
- Extraordinary capex and/or dividends that weakens liquidity.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As of June 2023, CNE had cash on hand of USD39
million and USD55 million available under an RCF, for a total
liquidity of USD84 million which covers 1.7 years of estimated
interest expense. The company has a manageable debt maturity
profile, with its first major maturity expected to be the USD145
million drawn from the RCF in 2027, followed by the USD500 million
bond maturity in 2028.
ISSUER PROFILE
CNE is a publicly listed exploration and production company focused
on onshore natural gas in Colombia. The company's average
production was 32,905 boe/d in 2022YE, 98% corresponded to natural
gas. As of 2022, CNE had 114 mmboe of 2P natural gas reserves.
ESG CONSIDERATIONS
Canacol Energy Ltd. has an ESG Relevance Score of '4' for Exposure
to Social Impacts due to the potential impact of social pressures
and possible pushback from the communities in the region where it
operates. This has a negative impact on the credit profile, and is
relevant to the ratings in conjunction with other factors.
Fitch revised CNE's ESG Relevance Score for Management Strategy to
'4' from '3' given the change it their contract strategy as it is
no longer consistent with its previous assessment of the company's
business profile as a utility-like company. In Fitch's view, this
change will bring higher volatility to cash flows and
profitability. This has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
Fitch also revised CNE's ESG Relevance Score for Financial
Transparency to '4' from '3' due to untimely disclosure of
unexpected production capacity restrictions the Jobo gas treatment
facility as well as certain of its producing wells that commenced
in August 2023. This has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
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
----------- ------ -----
Canacol Energy Ltd. LT IDR BB- Downgrade BB
LC LT IDR BB- Downgrade BB
senior unsecured LT BB- Downgrade BB
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Chancellor Warns US Probe on Agriculture Sector
-------------------------------------------------------------------
Dominican Today reports that the United States is conducting
multiple investigations into labor issues within the Dominican
agricultural industry. These investigations could potentially have
adverse consequences for exports to the United States, according to
Dominican Today. The investigations have been ongoing for several
years, with at least four lines of inquiry being pursued by the
Department of Labor and the Trade Representative, the report
notes.
One of these investigations has been ongoing since 2011, and others
have recently been initiated in the country, specifically regarding
labor matters, the report relays. The investigations are primarily
focused on labor practices in the Dominican agricultural sector,
the report notes.
These investigations have already resulted in restrictions on
certain exports, the report says. For example, the United States
has imposed restrictions on unrefined sugar and its derived
products produced locally by Central Romana Corporation Limited,
citing concerns about forced labor and other irregularities, the
report notes.
The Foreign Minister of the Dominican Republic, Roberto Alvarez,
expressed concern about the potential impact of these
investigations on exports to the United States, the report
discloses. Despite the challenges posed by these investigations,
he highlighted the continued growth of bilateral trade between the
two countries, the report says.
Álvarez also mentioned the threat to the rice sector due to the
tariff reduction schedule in the Dominican Republic-Central
America-United States Free Trade Agreement (DR-CAFTA), the report
relays. The Dominican authorities are considering measures to
protect the local rice industry, which is regarded as a matter of
national security, the report notes.
In addition to the ongoing investigations, there have been calls
for public hearings related to labor issues under DR-CAFTA,
particularly regarding freedom of association and other labor
rights, the report discloses.
The Dominican government is focused on protecting its exports to
the United States while navigating these labor challenges, the
report says. The relationship between the two countries extends
beyond commerce, with the United States being home to approximately
20% of the Dominican population, making them strategic allies, the
report discloses.
Efforts are being made to strengthen bilateral cooperation, and the
Dominican Republic's entry into the Global Entry program is seen as
a milestone that reflects growing trust and cooperation between the
two nations, the report relays.
The government is also looking to play an important role in the
Americas Partnership for Economic Prosperity (APEP), contributing
to competitiveness, resilience, and shared prosperity in the
region, the report notes.
Overall, while labor investigations pose challenges, the Dominican
Republic aims to continue its close relationship with the United
States and maintain a robust trade partnership, the report adds.
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.
TCR-LA reported in April 2019 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.
On August 14, 2023, the TCR-LA reported that Moody's Investors
Service has changed the outlook on the Government of Dominican
Republic's ratings to positive from stable and affirmed the local
and foreign-currency long-term issuer and senior unsecured ratings
at Ba3. Moody's said the key drivers for the outlook change to
positive are: (i) sustained high growth rates have enhanced the
scale and wealth levels of the economy; and (ii) a material decline
in the government debt burden coupled with improved fiscal policy
effectiveness will support medium-term debt sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
Fitch Ratings, in December 2022, affirmed the Dominican Republic's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Rating Outlook.
=========
H A I T I
=========
HAITI: Keeps Border Crossing Closed to Prevent Exchange in Dajabon
------------------------------------------------------------------
Dominican Today reports that the border gate of Juana Mendez in
Haiti, providing access to the Dominican Republic through the
Dajabon border crossing, remains closed. This border closure has
been in place since October 11, following the Dominican
government's establishment of humanitarian trade corridors,
according to Dominican Today.
Merchants in the binational market of Dajabon believe that the
reluctance of their Haitian counterparts to participate in the fair
is due to the installation of biometric equipment, the report
notes. Some merchants feel that Haitians are not accustomed to
such orderliness and therefore do not want to come to the market,
the report relays.
Porfirio Fernandez, one merchant, commented on this issue,
suggesting that the authorities should eliminate this type of
registration, the report notes. Simon Veras, another merchant,
echoed similar sentiments and suggested that the only way for
Haitian merchants to cross into Dajabon is if the biometric
registration system is annulled, the report relays.
According to reports, some Haitian merchants have opted to traffic
goods through points with fewer military personnel, as they wish to
avoid the registration process. Many merchants find themselves in
dire financial straits, with warehouses full of merchandise and
pressure from financial institutions to make loan payments for
their businesses, Dominican Today discloses.
In terms of government aid, merchants claim that only a minority
have benefited from these assistance programs, the report relays.
They are hoping that the Dominican State will engage in dialogue
with the Haitian government to find a solution to the conflict,
which stems from the construction of a canal aimed at diverting
water from the Massacre River into Haiti, the report adds.
===========
M E X I C O
===========
BANCO DEL BAJIO: Fitch Affirms 'BB+/B' LongTerm IDRs
----------------------------------------------------
Fitch Ratings has affirmed Banco del Bajio S.A. Institucion de
Banca Multiple's (BanBajio) Viability Rating (VR) at 'bb+' and its
Long- and Short-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'BB+' and 'B', respectively. Fitch has downgraded
BanBajio's Government Support Rating (GSR) to 'b+' from 'bb-'.
Fitch has also affirmed BanBajio's and Financiera Bajio, S.A. de
C.V. Sofom E.R.'s (FIBA) Long- and Short-Term National scale
ratings at 'AA(mex)' and 'F1+(mex)', respectively. The Rating
Outlook on the Long-Term ratings is Stable.
KEY RATING DRIVERS
Good Business Profile: BanBajio's IDRs and National Ratings are
driven by its intrinsic good creditworthiness captured in its 'bb+'
VR. BanBajio's business profile score at 'bb+' captures its
well-established commercial financing business with a longstanding
market position in the Bajio Region (42.7% of total loan
portfolio), one of the most economically dynamic regions in Mexico.
The specialization in the agribusiness segment (about 11.5% of loan
portfolio is related to primary sector activities) and SME sector
also are considered. BanBajio total operating income was USD773.4
million for the average of 2022-2019, although lower than the
largest local peers.
Good Asset Quality: At 1H23, BanBajio's stage 3 loans to gross
loans ratio increased slightly to 1.3% (four-year average ratio of
1.1%) but still continues to compare favorably to domestic peers.
The bank's asset quality could deteriorate due to challenges in the
operating environment (OE) and a persistent environment of high
interest rates and inflation. However, Fitch expects that
BanBajio's asset quality metrics will remain resilient due to the
bank's knowledge of its core segments, good underwriting standards,
and adequate coverage reserves that will help to contain
deterioration. The bank still has excess reserves of around
MXN1,702 million, which will provide additional cushion against
asset quality deterioration.
Improved Profitability: Fitch upgraded BanBajio's earnings and
profitability factor score to 'bb+' from 'bb' with a stable trend
due to the bank's increasing revenues, particularly from higher net
interest margins. At 1H23, the operating profit to risk-weighted
assets (RWA) ratio was 7.1%, the highest level in recent history
(average 2019-2022: 3.6%). This metric may moderately decrease in
response to cost of funding repricing and to the extent that the
interest rates normalize. However, Fitch expects this ratio to
remain consistently good at above 4%, underpinned by controlled
credit cost and operating expenses, as well as resume loan growth
dynamic and increasing non-interest income base.
Good Capitalization: BanBajio's capital metrics are stable and
benefit from improved earnings generation despite the dividend
payments, the latest was for MXN4,833 million. As of 1H23, the
bank's CET1to RWA ratio was 15.7%, which is good compared with
Latin American peers but lower than some local peers and the
largest banks in the country. Fitch expects capitalization metrics
and good loss absorption capacity to remain consistent with the
bank's risk profile and its rating level.
Stable Funding and Liquidity Profile: BanBajio's funding structure
continues to benefit from a moderate increase in deposit base, as
of 1H23 the loan-to-deposit ratio improved to 101.5% (2022: 107.6%)
influenced by low loan growth versus the increase of 6.0% in
deposits. Fitch expects costs of customer funding to increase in
the coming quarters as interest rates remain high, but these higher
costs should be manageable due to the bank's strategy to increase
its share of low-cost deposits. The bank's access to wholesale
credit lines from development banks has also underpinned its stable
funding and liquidity profile.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
BanBajio's IDRs, VR and National Ratings could be downgraded due to
a material deterioration of its financial performance that leads to
a sustained decline in a CET1 to RWA ratio below 14% and operating
profit to RWAs ratio below 2%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
BanBajio's IDRs, VR and National Ratings could be upgraded if the
OE and its credit profile both improve. Specifically, the bank
would need to significantly enhance its market position while
continuing to diversify its business model, maintain a healthy
financial profile and improve its CET1 to RWA ratio above 20%.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Government Support Rating (GSR): Fitch downgraded BanBajio's GSR to
'b+' from 'bb-', which is three notches below domestic systemically
important banks' GSRs (bb+). Fitch believes that BanBajio has less
systemic importance than its peers and that a default would not
result in significant contagion risks for the rest of the system.
Therefore, Fitch views the probability of sovereign support in case
of need as moderate. The bank has a mid-size franchise and moderate
market share of core customer deposits. As of August 2023,
BanBajio's deposits were around 3.1% of the Mexican banking system,
and 27% corresponded to individual deposits.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- BanBajio's 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 customer
deposits.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of BanBajio's GSR is limited and could only occur over
time with a material gain in the bank's systemic importance.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Core Subsidiary for BanBajio: FIBA's national ratings of 'AA(mex)'/
Stable and 'F1+(mex)' are at the same level as BanBajio's national
ratings. The assessment is based on Fitch's shareholder support
assessment, considering that the subsidiary is a core entity within
the bank's business strategy. Fitch views FIBA's role as important
since it acts as a source of product diversification to the group
by offering factoring and financial leasing products.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
FIBA's national ratings would mirror any movement on BanBajio's
ratings. A change in the entity's strategic importance to the bank
could negatively affect FIBA's ratings.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch classified pre-paid expenses and other deferred assets as
intangibles and deducted them from total equity due to their low
loss absorption capacity.
Financial figures are in accordance with the Comision Nacional
Bancaria y de Valores' criteria. Figures for 2023 and 2022 include
recent accounting changes in the process to converge to
International Financial Reporting Standards. Reported figures from
prior years did not include these changes, and Fitch believes they
are not directly comparable.
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 del Bajio,
S.A. 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(mex) Affirmed AA(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
Viability bb+ Affirmed bb+
Government Support b+ Downgrade bb-
Financiera Bajio,
S.A. de C.V.,
SOFOM, E.R. Natl LT AA(mex) Affirmed AA(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
GRUPO AXO: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Grupo AXO, S.A.P.I. de C.V.'s (AXO)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB' and National Long-Term Rating at 'A+(mex)'. The Rating
Outlook is Stable. In addition, Fitch has affirmed and withdrawn
AXO's National Short-Term Rating at 'F1(mex)' and the rating at
'F1(mex)' of the short-term portion for up to MXN500 million of a
local bond program.
AXO's ratings reflect its position as one of Mexico's main apparel
retail operators, supported by a diversified portfolio of
well-known brands and store formats focused on different segments
of the population. The ratings also consider the company's
long-term relationships with suppliers and real estate developers,
as well as its operating track record and market understanding. For
the next two to three years, Fitch expects AXO to maintain gross
adjusted leverage at around 4.0x, including pro forma numbers with
potential acquisitions.
The National Short-Term Rating and the rating of the short-term
portion of the local bond program were withdrawn due to commercial
reasons.
KEY RATING DRIVERS
Strong Brand Portfolio: AXO is one of the main apparel retailers,
accessories and personal care products in Mexico, Chile, Peru and
Uruguay, operating around 45 brands. It has the exclusive rights to
commercialize internationally recognized brands products in these
countries. Its ample portfolio of brands has allowed it to achieve
economies of scale in logistics, and has given it a competitive
advantage with shopping malls developers compared to peers. The
company has been diversifying its revenues in terms of brands and
product categories. During the LTM ended June 30, 2023, none of the
brands in its portfolio represented more than 13% of consolidated
revenues.
Balanced Diversification: AXO commercializes different product
categories and operates various store formats to service different
socioeconomic segments, which mitigates risks associated to a
specific brand, product category and store format. The company
divides its brand portfolio into three business segments:
lifestyle, off-price (which includes the digital platform) and
athletics. According to Fitch's estimations, the lifestyle segment
is expected to account nearly half of 2023 consolidated revenues,
off-price close to a third and athletics the remaining portion.
Focused Strategy Supports Operating Trajectory: AXO's initiatives
to support growth have allowed it to present double-digit revenue
growth over the past seven years with the exception of 2020.
EBITDAR margins have recovered and are expected to remain strong at
around 19% over the next two to three years, despite the challenges
of different seasonality among its northern and southern
operations. The company is executing different initiatives to
improve traffic at stores and recover sales at the formats with
weaker performance, which have presented positive results in 2023.
Cash flow from operations (CFFO) is expected to be above MXN700
million by YE 2023, which together with a portion of cash in hand
will cover the capex and dividends for the year. The company's FCF
is expected to be positive in 2024 and 2025.
Leverage Metrics to Strengthen: On a pro forma basis and including
Komax's generated cash flows, AXO's EBITDAR leverage is expected at
4.0x by the end of 2023. Fitch projects AXO's EBITDAR leverage to
trend towards 3.5x in the next two to three years mainly on EBITDAR
strengthening in the absence of major investments or debt funded
acquisitions. Fitch believes additional debt is a possibility if
AXO explores any relevant acquisition. AXO's funding sources also
include internal cash flow generation and potential equity
increases.
Acquisitions Have Been Credit Neutral: AXO's ratings incorporate
its growth strategy through acquisitions funded with a combination
of debt and equity increases. The company's portfolio has evolved
via acquisitions and strategic partnerships, which have
strengthened the business and diversified operating cash flows by
getting access to markets with significant growth potential.
Multibrand acquisition in 2015 increased AXO's market to the
lower-middle segments of the population and added the off-price
channel. The Tennix acquisition in 2018 allowed AXO to increase its
product category offering by adding up the athletic category.
Privalia's acquisition in 2019 strengthened AXO's omnichannel
strategy, provided an innovative sales channel and gave the company
more insight into customer's shopping behavior. In addition, the
Komax acquisition in 2023 allowed AXO to expand operations to South
America with a competitive business position in Chile, Peru and
Uruguay.
DERIVATION SUMMARY
AXO is one of the most important apparel retailers in Mexico with a
diversified portfolio of recognized brands and store formats; AXO
has lower scale and is less geographically diversified than peers,
such as Capri Holdings Ltd. (BBB-/Rating Watch Negative) and Levi
Strauss & Co. (BB+/Stable). However, the company's revenues are
more diversified in terms of brands, product categories and store
formats than peers.
Similar to Capri, AXO has made acquisitions to grow, seeking to
reduce its reliance on a few brands and diversify into additional
product categories and store formats. AXO's EBITDAR leverage is
expected to be close to 4x by 2023-2024, while for Levi Strauss
Fitch expects it to be below 3.5x. Capri is currently on Rating
Watch Negative due to Fitch's expectations of EBITDAR leverage to
be in the low-4x after being acquired by Tapestry Inc.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within The Rating Case for the Issuer:
- Revenue growth of 30% for 2023 and 11% on average per year during
2024 to 2025;
- Komax acquisition in 2023;
- EBITDAR margin around 19% during 2023 to 2025;
- CFFO above MXN0.7 billion per year during 2023 to 2025;
- Capex of MXN1.4 billion per year in average for 2023 to 2025;
- Dividend payments of MXN236 million in 2023 and MXN130 million
per year in average from 2024 to 2025;
- FCF positive starting 2024;
- Due to the company's track record and strategy, a hypothetical
acquisition in 2025.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Consistent positive FCF generation;
- Total adjusted debt/EBITDAR below 3.5x on a sustained basis;
- A strong liquidity profile.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Adjusted leverage consistently higher than 4.5x;
- A significant decline in market share;
- M&A activity funded entirely with debt and not performing as
expected;
- Sustained negative FCF that is not partially or fully compensated
with equity contributions;
- Weakened liquidity and financial flexibility.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity Profile: As of June 30, 2023, the company had
available cash of MXN2.9 billion and short-term debt of MXN0.6
billion. AXO's next significant debt maturities are in 2026, when
USD325 million senior notes and MXN1.6 billion local bonds come
due.
ISSUER PROFILE
Grupo AXO is the largest multi brand fashion retailer and
wholesaler in Mexico, with presence in three business segments:
full price, off price (includes digital), and sneakers and
athletics.
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
----------- ------ -----
Grupo AXO,
S.A.P.I. de C.V. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT A+(mex)Affirmed A+(mex)
Natl ST F1(mex)Affirmed F1(mex)
Natl ST WD(mex)Withdrawn F1(mex)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT A+(mex)Affirmed A+(mex)
senior
unsecured Natl ST F1(mex) Affirmed F1(mex)
senior
unsecured Natl ST WD(mex) Withdrawn F1(mex)
===========
P A N A M A
===========
CREDICORP BANK: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Credicorp Bank, S.A.'s (Credicorp)
Long-Term Issuer Default Rating (IDR) at 'BB+', Short-Term IDR at
'B', Viability Rating (VR) at 'bb+' and the Government Support
Rating (GSR) of 'No Support' ('ns'). Fitch has also affirmed the
Long- and Short-Term National Ratings at 'AA(pan)' and 'F1+(pan)',
respectively. The Rating Outlook for the Long-Term IDR and
Long-Term National Rating has been revised to Stable from
Negative.
The Outlook revision to Negative follows the stronger and quicker
than expected financial performance recovery in the fiscal year
2023, compared to the relatively weak figures reports in 2022.
Fitch's Earnings and Profitability, and Capitalization and Leverage
rating factors were revised to stable from negative after
profitability core metrics rapidly recovered to pre-pandemic
levels. This prompted a four-year average ratio of 1.7%, aligned
with the agency's sensitivity for revising the Outlook to Stable
from Negative. Fitch considers this figure sustainable in the
foreseeable future and commensurate with the current rating level,
which is the main driver of the Outlook revision to Stable from
Negative.
KEY RATING DRIVERS
Intrinsic Performance: Credicorp's international and national
ratings are underpinned by its intrinsic creditworthiness, captured
in its VR. The bank's creditworthiness is defined by a prudent risk
profile that results in good asset quality while considering strong
capitalization. On the other hand, the bank's profitability is
moderate and showing relevant recovery in the last fiscal year. The
business profile is sustained by a consolidated business model,
albeit a modest franchise in the local banking system.
Stable Operating Environment: Fitch maintained the Panamanian
banking system's operating environment (OE) assessment at
'bb+'/stable outlook, which is below its implied 'bbb' score,
capturing the main risks and headwinds to the banks' financial
performance in an environment of rising interest rates and a
moderate recovery in employment. In addition, this reflects Fitch's
view that GDP per capita and the operating risk index (ORI) metrics
evolution, along with the banks' low exposure to sovereign debt and
limited expected impact of the government's fiscal pressures on the
entity's financial performance, are and will be commensurate with
the 'bb+' OE assessment.
Consolidated Business Profile: Fitch considers the bank's business
profile consolidated, as reflected in its financial performance,
offsetting the limitations of a modest franchise and market
position. The business profile is underpinned by a proved business
model focused in the retail segment, which comparatively is better
that the metrics of most of its of medium to small size local peer
banks. In addition, the bank has demonstrated a good capacity to
achieve financial goals and recover from downturn cycles. For the
risk profile, Fitch believes the institution has shown good
capacity to manage reputational risks, which has resulted in
unaffected financial performance.
Good Asset Quality: Reflecting the effective risk profile and
conservative underwriting standards, Credicorp's asset quality is
good compared to most local peers with loans portfolios less
exposed to retail. As of June 2023, the Stage 3 loans represented
2.2% of total gross loans, exhibiting an improving trend in the
past two years. Fitch expects it to remain at similar levels for
the foreseeable future. Coverage is reasonable with a 101.8% ratio
and largest debtor concentrations are low (8.7% of total loans and
0.3x of total capital). The securities portfolio is of good
quality, comprised mostly of investment grade instruments.
Recovery of Profitability: As of June 2023, the operating
profitability to risk-weighted assets (RWA) ratio was 2.3%, showing
fast recovery from YE22 levels of 0.7%. Supporting the recovery,
was the more stable asset quality and correspondent reduction in
credit costs, while revenue from associates were restored to
traditional levels. With lower levels of uncertainty in market
conditions than in 2022, the agency projects profitability levels
will remain at the current level with margin for mild improvement,
which is in line with 'bb' score.
Strong Capital: The bank's capital is its main financial strength,
with a CET1 ratio of 20.9% as of June 2023. This level is
underpinned by the historical good internal capital generation,
giving the bank room to absorb potential losses. Fitch believes the
capital level would remain sound in the foreseeable future
sustained by reasonable credit growth and moderate dividend
pay-out.
Stable Funding Structure: Credicorp has a stable funding structure
based on client's deposits that represent 85.9% of total funding,
complemented by diversified wholesale funding sources. As of June
2023, the loans to deposit ratio was 93.4% in line with the
four-year average ratio of 93.1%. In Fitch's opinion, concentration
from the 20 largest depositors is high.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Ratings could be downgraded due to a deterioration in Fitch's
assessment of the OE;
- A sustained operating profit-to-RWA ratio below 1.5% or a CET1
ratio below 15.0%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upward movements in Credicorp's IDR, National Ratings and VR are
unlikely in the ratings horizon. In the long- term, positive
actions could result from an improvement of the OE. In addition, a
strengthening of the business profile could result in a positive
action, materially improving the bank's franchise and market
position and resulting in material improvement of the generation of
the Total Operating Income, while maintaining consistently strong
financial performance.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Unsecured Debt
Credicorp's senior unsecured debt is rated at the same level as the
bank's Long-Term National Rating, as in Fitch's view, the
likelihood of default on the debt is the same as that for
Credicorp.
GSR
The GSR of 'ns' reflects Fitch's view that, although possible,
external support cannot be relied upon, given the banking system's
large size regarding economy and weak support stance due to
Panama's lack of a lender of last resort.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade
- Credicorp's senior unsecured debt rating would be downgraded in
the event of negative rating action on the bank's Long-Term
National Rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade
- Credicorp's senior unsecured debt rating would be upgraded in the
event of positive rating action on the bank's national rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The GSR is at the lowest possible levels and so cannot be
downgraded.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- As Panama is a dollarized country with no lender of last resort,
an upgrade of the GSR is unlikely.
VR ADJUSTMENTS
The Operating Environment score of 'bb+' has been assigned below
the 'bbb' implied score due to the following adjustment reason:
Reported and Future Metrics (negative).
The Business Profile score of 'bb' has been assigned above the 'b'
implied score due to the following adjustment reasons: Business
Model (positive).
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
----------- ------ -----
Credicorp Bank,
S.A. LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
Natl LT AA(pan) Affirmed AA(pan)
Natl ST F1+(pan)Affirmed F1+(pan)
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
senior
unsecured Natl LT AA(pan) Affirmed AA(pan)
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
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USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2023. All rights reserved. ISSN 1529-2746.
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