/raid1/www/Hosts/bankrupt/TCRLA_Public/231110.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, November 10, 2023, Vol. 24, No. 226
Headlines
A R G E N T I N A
ARGENTINA: Lula & Spain's Sanchez Plead for Finalising EU Deal
ARGENTINA: Massa Planning IMF Talks on US$12BB due Next Year
PROVINCE OF CHUBUT: Fitch Affirms 'CC' LongTerm IDRs
PROVINCE OF NEUGUEN: Fitch Affirms 'CC' LongTerm IDRs
VICENTIN SAIC: At Risk if US$1.3-Billion Rescue Deal Rejected
B A R B A D O S
SAGICOR FINANCIAL: Fitch Affirms 'BB+' Rating on Unsecured Debt
C O L O M B I A
COLOMBIA: IDB OKs $500MM to Support Women & Diverse Populations
C O S T A R I C A
BANCO NACIONAL DE COSTA RICA: Moody's Ups LT Deposit Rating to B1
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Poultry Farmers Export Grown Eggs to Cuba
DOMINICAN REPUBLIC: Received $10BB Remittances in 2022
M E X I C O
MEXICO: Growth Expected to be 3.2% in 2023, IMF Says
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A R G E N T I N A
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ARGENTINA: Lula & Spain's Sanchez Plead for Finalising EU Deal
--------------------------------------------------------------
Buenos Aires Times reports that resident of Brazil Luiz Inacio Lula
da Silva and Spanish Prime Minister Pedro Sanchez called in a
telephone conversation for finalizing the trade agreement between
Mercosur and the European Union as soon as possible.
The culmination of the free-trade agreement reached in 2019 meets
resistance on the South American end, after Europeans presented new
environmental demands for the agricultural sector earlier this
year, according to Buenos Aires Times.
The call between Lula and Sánchez, before a new round of trade
negotiations between both blocs scheduled took place at a time when
Brazil presides over Mercosur (Argentina, Brasil, Paraguay,
Uruguay), and Spain the EU Council, the report notes.
"We're talking about the agreement between Mercosur and the
European Union and about making an effort to conclude negotiations
by the end of the Brazilian and Spanish terms of office in each
bloc", at the end of the year, Lula posted on X, the report
relays.
In the same platform, Sanchez confirmed speaking with his Brazilian
counterpart and said that "one of Spain's priorities is to reach
the EU-MERCOSUR agreement as soon as possible," the report
discloses.
According to a note from the Brazilian president's office, Lula
repeated his criticism of the EU's environmental demands and
reaffirmed its stance of restricting access to governmental
purchases in the agreement, the report says.
In the call, the head of state also invited his "friend" Sanchez to
visit Brazil, 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
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: Massa Planning IMF Talks on US$12BB due Next Year
------------------------------------------------------------
Buenos Aires Times reports that Argentina's Economy Minister Sergio
Massa plans to open talks with the International Monetary Fund
(IMF) over US$12 billion in maturities due in the next six months
if he is elected as the country's next president in the November 19
run-off.
Despite paying the Fund US$2.6 billion in maturities, Argentina
owes US$12 billion in due payments between the last two months of
the year and April 2024, according to Buenos Aires Times.
With Central Bank reserves at a historic low, that is a severe
obstacle for the leader of the next government, the report notes.
With foreign currency income only trickling in until the
agricultural harvest, Massa believes Argentina will need to relieve
some of the obligations that lie ahead in the next few months to
avoid further foreign exchange tensions, the report relays.
Argentina paid a series of maturities to the IMF on October 31
totalling US$2.59 billion, cancelling all pending obligations with
the body until October, the report discloses. In addition, the
government must face an additional payment of US$830 million by way
of interest, the report says.
As a result, the Central Bank's gross reserves now stands at just
US$21.861 billion, the lowest level in nearly 18 years, the report
relays. Experts believe the net level is much lower, perhaps even
in negative, the report discloses.
Broker Portfolio Personal Inversiones (PPI) said in a report this
week that, given that Argentina's stock of IMF Special Drawing
Rights (SDRs) was only US$1.847 billion, the government likely used
US$743 million worth of yuan from the second extension of its
currency swap with China to complete the payment, the report
notes.
In the final two months of the year, Argentina faces commitments in
foreign currency totaling US$2.46 billion, including principal and
interest, out of which US$1.6 billion are owed to the IMF, while
the remaining US$860 million is owed to other bodies, the report
relays.
Those operations could be canceled with the remaining yuan from the
second section of the swap, so that the Central Bank does not have
to use its scant reserves at least until the end of the year, the
report discloses.
IMF Talks
In parallel, Massa's deputy, Economic Policy Secretary Gabriel
Rubinsteinm and his chief advisor Leonardo Madcur have already
began talks with IMF technical staff on the seventh review of
Argentina's US£44.5-billion debt program, the report relays.
The country should receive a disbursement of US$3.25 billion by the
end of the year, depending on the outcome of this review, the
report discloses. The outlook is not very encouraging - Argentina
missed targets on the fiscal deficit, accumulation of reserves and
money-printing in the last review and there are serious
complications in meeting the December targets, the report says.
Massa will hope a win in the run-off against La Libertad Avanza
candidate Javier Milei will consolidate and strengthen his position
in talks with the multilateral lender, the report notes.
In order to obtain a previous disbursement of US$7.5 billion in
August, the economy minister had to devalue the currency by more
than 18 percent after the PASO primaries, the report says. This
prompted inflation to soar into two digits and it is now at its
highest level in three decades, the report relays.
According to the calculations from the research centre of the
Equilibra consultancy firm, the remaining US$3.5 billion Argentina
can access in yuan from its currency swap with China will not be
enough to face January foreign currency commitments, which amount
to US$5.562 billion, the report discloses. However, the IMF
maturities could be cancelled or delayed, the report says.
Argentina owes the IMF US$1.945 billion, and the private
bondholders (Bonares and Globales) should be paid a further
US$1.579 billion in the first month of 2024, the report relays. In
February, obligations amount to US$851 million, in March US$791
million and US$2.257 billion in April, the report notes. That's
US$9.461 billion in just the first four months of 2024, the report
discloses.
"A potential Massa government would have some oxygen with the
activation of the second section of the swap (we do not believe it
will be activated/used if Milei wins), but he should close a new
deal with the IMF in summer to avoid any delays," Equilibra wrote
in its report, Buenos Aires Times relays.
If Massa wins in November, the expectation is he will seek to
bridge the foreign exchange gap, the report discloses. Within the
Economy Ministry, sources say they want to seek a new IMF
disbursement as soon as the electoral race is over, the report
notes.
For 2024, the Union por la Patria presidential candidate aspires to
an energy surplus, greater foreign currency income from the
agricultural sector, fewer fuel imports and wants to condition
further IMF repayments to the level of exports, the report relays.
For the time being, the international credit body has not
contemplated such a scheme within Argentina's multi-billion-dollar
program, 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
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.
PROVINCE OF CHUBUT: Fitch Affirms 'CC' LongTerm IDRs
----------------------------------------------------
Fitch Ratings has affirmed the Province of Chubut's (Chubut or the
province) Long-Term Foreign- and Local-Currency Issuer Default
Ratings (IDRs) at 'CC'. Chubut's standalone credit profile (SCP) is
assessed at 'cc'. Chubut's senior secured step-up notes of USD650
million due in 2030 (Bocade) has also been affirmed at 'CC'.
Chubut's SCP of 'cc' reflects Fitch's expectations that actual debt
service coverage ratio (ADSCR) will remain below 1x in the next 12
months-24 months in Fitch's scenario horizon. The province will
face capital payments of USD100 million of its Bocade bonds in
2024, with the first quarterly installment of USD25 million in
January 2024. The bonds count with pledged royalties' revenues as
collateral. Chubut´s rating considers the current context of
macroeconomic vulnerability, history of high volatility in
operating margins, and a high share of dollar denominated debt.
Fitch relied on its rating definitions to position the province's
SCP and ratings.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
The assessment reflects Fitch's view that there is a very high risk
of the issuer's ability to cover debt service with the operating
balance weakening unexpectedly over the 2023-2025 scenario horizon
due to lower revenue, higher expenditures or an unexpected rise in
liabilities or debt-service requirements.
Revenue Robustness: 'Weaker'
Chubut's revenue structure highlights a moderate fiscal autonomy
and reliance on cyclical oil and gas royalties and transfers from a
'CC' sovereign. The more balanced revenue composition relative to
Argentine peers is undermined by the dependency toward commodity
sales, which is highly cyclical.
The assessment reflects the evolving nature of the national fiscal
framework, dependence on a 'CC' sovereign counterparty risk for
43.4% (three year-average) of its total revenue, amid an adverse
macroeconomic environment riddled with higher inflation. To date,
as per law, federal co-participation transfers have never been
interrupted to provinces. However, the government can make
modifications (exemptions) that affect the co-participating
resources. Recent changes (increase in the non-taxable minimum of
income tax and exemption from VAT on the basic food basket) could
lead to a strong slowdown in co-participation in the last quarter
of 2023.
Chubut is heavily dependent on the oil sector, with royalties
representing 25.3% of operating revenues on average in 2020-2022.
The price per barrel is set by the central government with no clear
pricing setting mechanism and might deviate from market prices.
Royalties are linked to the official exchange rate. Own tax
collection averaged at 23% of operating revenues in 2020-2022.
Revenue Adjustability: 'Weaker'
Chubut's ability to generate additional revenue in response to
possible economic downturns is limited, like all Fitch-rated
Argentine local and regional governments (LRGs). Fitch considers
that local revenue adjustability is low and is challenged by the
country's large and distortive tax burden. The negative
macroeconomic environment further limits the province's ability to
increase tax rates and expand tax bases to boost its local
operating revenues. Structurally high inflation also constantly
erodes real-term revenue growth and affects affordability. On its
rating case, Fitch expects operating revenues to increase below the
average inflation rate for 2023-2025.
Expenditure Sustainability: 'Weaker'
Argentine provinces have high expenditure responsibilities,
including healthcare, education, security, social security,
inter-urban transportation and other services. The country's fiscal
regime is structurally imbalanced due to revenue-expenditure
decentralization. This is further exacerbated by the nation's
macroeconomic commitments with the IMF.
Chubut's operating balance has been quite volatile across the
years, reflecting its dependency on oil royalties. On the
expenditure front, high inflation has forced an adjustment to the
payroll bill and goods and services. Fitch estimates that Chubut
accumulated a real drop of 8.8% in Opex in 2022 when compared to
2017. The containment of expenditures resulted in an improvement to
the operating balance in 2021-2022. However, pressure to adjust
payroll to past inflation remains and is likely to result in higher
Opex growh going forward. Fitch expects a re-composition of
expenditure above inflation levels for 2023, with an average
operating margin of 4% for 2023-2025.
The province reports no significant delays towards suppliers and
the payroll bill and pensions are being paid on a timely basis.
Expenditure Adjustability: 'Weaker'
For Argentine subnationals, infrastructure needs and expenditure
responsibilities are deemed as high, with leeway or flexibility to
cut expenses viewed as low. National capital expenditure (capex) is
low and insufficient, translating capex burdens to LRGs.
Province of Chubut capex to total expenditure ratio averaged at
11.1% for 2018-2022. Staff cost in 2022 corresponded to 61.4% of
total expenditures, translating into a high expenditure rigidity
for the Province of Chubut. This further limits the ability of the
province to perform expenditure cuts. Chubut reports one of the
highest ratios of personal expenditures to total expenditures among
Argentine provinces.
Liabilities & Liquidity Robustness: 'Weaker'
There is a weak national framework for debt and liquidity
management and an underdeveloped local financial market, which led
Argentine LRGs to issue debt in foreign currency, causing a
structural reliance on external markets for financing. Chubut
currently does not comply with the national fiscal framework (Ley
de Responsabilidad Fiscal) and, therefore, cannot take new loans
for infrastructure financing. Only refinancing transactions are
allowed.
The Province of Chubut's direct debt totaled ARS163 billion at YE
2022. Approximately 68% of debt is denominated in foreign currency.
Exposure to foreign exchange (FX) risk and capital controls are a
significant fragility of Argentine LRGs.
There is significant maturity concentration in 2023-2028. The DDE
of Chubut's senior secured bonds created some fiscal space for
2021-2022, but starting in 2023, capital repayments become more
sizable. These bonds count with pledged royalty revenues as
collateral.
The province has performed capital payments of USD84.4 million in
2023, including extraordinary amortizations of USD6.5 million,
which were triggered by high coverage ratios as per the bond
agreement. For 2024, Chubut should perform capital payments in the
amount of USD100 million following Bocades' restructured debt
amortization schedule.
Liabilities & Liquidity Flexibility: 'Weaker'
This KRF assessment considers that in Fitch's view, the Argentine
national framework in place regarding liquidity support and funding
available to subnationals is 'Weaker', as there are no formal
emergency liquidity support mechanisms established. The current
context of national capital controls is another risk captured in
the liquidity flexibility assessment, as the imposition of exchange
regulations could ultimately affect LRGs' ability to fulfil their
financial obligations, especially considering the distressed
sovereign counterpart of 'CC' and scarce foreign reserves.
Debt Sustainability: 'bb category'
The Province of Chubut's debt sustainability score deteriorated to
'bb' from 'a' in the previous annual review on the back of a
significant depreciation of the real exchange rate and
deteriorating operating margins. The primary metric of the debt
sustainability assessment, the payback ratio, is projected at 14.3x
for 2025 under Fitch's rating case, aligned with the 'bbb'
category. The secondary metric, the ADSCR, is projected at 0.2x in
2025, aligned with the 'b' category. Fitch applies an override to
the overall debt sustainability assessment given the significantly
weaker coverage ratio. Fiscal debt burden is projected at 33.4% in
2025.
DERIVATION SUMMARY
The Province of Chubut's 'cc' SCP reflects rating definitions that
consider the province's very high level of credit risk, given its
pressured DSCR over the next 12 months-24 months. Chubut's risk
profile is assessed as 'Vulnerable', while its debt sustainability
is assessed at 'bb'. The rating is based on Fitch's rating
definitions. Fitch classifies Chubut as a Type B LRG, as it covers
debt service from cash flow on an annual basis.
The SCP also factors in national and international peer comparison,
in particular Province of Neuquen (CC), Province of La Rioja (CC),
and Kaduna State (B-/Stable). Fitch does not apply any asymmetric
risk or ad-hoc support from the central government and assesses
intergovernmental financing as neutral to the province's ratings.
Debt Ratings
Province of Chubut's USD650 million step-up senior secured notes
due in 2030 (Bocade notes) are rated 'CC'. The bonds are rated at
the same level as the province's IDRs.
These bonds count with pledged royalty revenues as collateral.
Bocade's 2021-2023 coverage has been above the transaction's 1.35x
requirement.
KEY ASSUMPTIONS
Risk Profile: 'Vulnerable'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Weaker'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Debt sustainability: 'bb'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Rating Cap (LT IDR): 'N/A'
Rating Cap (LT LC IDR) 'N/A'
Rating Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2025 projected
ratios. The key assumptions for the scenario include:
Average operating revenue growth of 130.5% for 2023-2025, assuming
growth below average inflation towards the medium-term to stress
operating margins;
Opex average growth of 140.2% for 2023-2025, assuming growth above
inflation towards the medium-term due to real term expenditure
re-composition;
Average net capital balance of approximately negative ARS84.3
billion during 2023-2025, below the historical average in real
terms, reflecting lower operating balances;
Cost of debt considers noncash debt movements due to currency
depreciation with an average exchange rate of ARS343.56 per U.S.
dollar for 2023, ARS898.88 per U.S. dollar for 2024 and ARS1963.82
per U.S. dollar for 2025.
Consumer price inflation (annual average percent change) of 125.3%
for 2023, 157.5% for 2024 and 122% for 2025.
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for [2022] and forecast for
[2025], respectively (no weights and changes since the last review
are included as none of these assumptions was material to the
rating action):
Issuer Profile
The Province of Chubut is located in the Patagonian region of
Argentina, where socioeconomic indicators tend to be better than
the national average. The province is in a strategic geographic
position and is the country's largest oil-producing province.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Signs of deeper liquidity stress that could compromise debt
repayment capacity in the short to medium term, including evidence
of increased refinancing risk in its local and foreign currency
debt; as well as any regulatory restrictions to access FX by LRG.
The Foreign Currency IDR would be downgraded if there are any
indications of any credit event that reflects a near default
situation.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Improved operating balances that strengthens the actual DSCR above
1.0x on a sustained basis under Fitch rating case projection
horizon.
ESG CONSIDERATIONS
Chubut, Province of has an ESG Relevance Score of '4' for Rule of
Law, Institutional & Regulatory Quality, Control of Corruption due
to the negative impact the weak regulatory framework and national
policies of the sovereign have over the province which has a
negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
Chubut, Province of has an ESG Relevance Score of '4' for
Biodiversity and Natural Resource Management due to the province's
significant economic and financial exposure to the hydrocarbon
sector, which has a negative impact on the credit profile, and is
relevant to the rating[s] in conjunction with other factors.
Chubut, Province of has an ESG Relevance Score of '4' for Creditor
Rights. Chubut concluded its DDE in December 2020 and has complied
to negotiated terms throughout 2021-2023. The DDE continues to
weigh on its credit profile, and is relevant to the rating[s] 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.
DISCUSSION NOTE
There was an appropriate quorum at the committee and the members
confirmed that they were free from recusal. It was agreed that the
data was sufficiently robust relative to its materiality. During
the committee no material issues were raised that were not in the
original committee package. The main rating factors under the
relevant criteria were discussed by the committee members. The
rating decision as discussed in this rating action commentary
reflects the committee discussion.
Entity/Debt Rating Prior
----------- ------ -----
Chubut, Province of LT IDR CC Affirmed CC
LC LT IDR CC Affirmed CC
senior secured LT CC Affirmed CC
PROVINCE OF NEUGUEN: Fitch Affirms 'CC' LongTerm IDRs
-----------------------------------------------------
Fitch Ratings has affirmed the Province of Neuquen's (PN) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CC'.
Additionally, Fitch has assessed Neuquen's Standalone Credit
Profile (SCP) at 'cc'. Fitch relied on its rating definitions to
position the province's ratings and SCP.
In addition, Fitch also affirmed the province's issue ratings,
which include TICADE senior secured step-up notes for an original
USD348.69 million due May 12, 2030 and an outstanding of USD272.54
million as of June 30, 2023, and TIDENEU senior unsecured step-up
notes for an original USD366 million and a current outstanding of
USD377.16 million due April 27, 2030 at 'CC'. The bonds are rated
at the same level as the province's IDRs.
Fitch relied on its rating definitions to position the province's
SCP and ratings. The rating affirmation considers Argentina's
macroeconomic vulnerabilities and a deteriorating operating
environment that result in debt refinancing risks remaining high,
which reflects in an actual debt service coverage ratio (ADSCR)
expected to remain below 1x in the next 12 months and in Fitch'
rating case 2023-2025 horizon.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
The 'Vulnerable' assessment, for all Argentine local and regional
governments (LRGs) reflects Fitch's view that there is a very high
risk of the issuer's ability to cover debt service with the
operating balance weakening unexpectedly over the scenario horizon
due to lower revenue, higher expenditure, or an unexpected rise in
liabilities or debt-service requirements. LRGs in Argentina operate
in a context of a weak institutional revenue framework, high
expenditure structures, tight liquidity and FX risks.
Revenue Robustness: 'Weaker'
The 'Weaker' assessment of this Key Risk Factor (KRF) considers the
province's local revenue dependency on the hydrocarbon sector
(highly cyclical economic activity) and the country's complex and
imbalanced fiscal framework for LRGs.
Neuquen has a lower reliance on federal transfers from the
co-participation regime, with current transfers at around 24.6% of
total revenues in YE 2022 from a 'CC' sovereign counterparty. After
a real-term decrease of federal co-participation in 2020 of around
3.6%, in 2021 transfers recovered 7.2% due to Argentina's economic
rebound of 10.4% and in 2022 economic real term growth of 5.24%
coupled with inflation dynamics translated into a real term growth
of around 5.7%, however, during 2023 economic downturn of around
3.4% is resulting in co-participation dynamic closer to inflation
at around 0.32% in real terms during January-October.
Revenue Adjustability: 'Weaker'
For Argentine LRGs, local revenue adjustability is perceived as
low, and challenged by the country's large and distortive tax
burden and high inflation that impacts affordability. The negative
macroeconomic environment further limits the subnational's ability
to increase tax rates and expand tax bases to boost local operating
revenues.
Hydrocarbon royalties represented 34.8% of Neuquen's YE 2022
operating revenues. Commodity-based revenues add cyclicality and
volatility to the finances of Neuquen, as local taxes are also
highly concentrated in the sector. These revenues have influence of
exogenous determinants, like local and external market conditions
and national regulation. During 2022, production and productivity
increases led to a real term increase of around 24.9% (2021: 38.2%)
in hydrocarbon royalty revenues; however, the national context and
regulation results in royalties being linked to prices below global
market benchmarks.
Expenditure Sustainability: 'Weaker'
Argentine LRGs have high expenditure responsibilities, in a context
of structurally high inflation. The country's fiscal regime is
structurally imbalanced regarding revenue-expenditure
decentralization, leading to Fitch's 'Weaker' assessment of its
expenditure sustainability. Spending during the last five years has
been influenced by high inflation and high spending
responsibilities.
Neuquen's budgetary performance is volatile due to its
commodity-based economy, and a track record of opex growing close
to-and above average inflation in most years. In 2021, due to the
economic rebound of the hydrocarbon sector, its operating balance
recovered towards 15.6% of operating revenues (2020: 4.0%), and
during 2022 higher real term growth of opex (14.9%) than operating
revenues (9.8%) resulted in a lower operating margin of 11.6%.
Neuquen is among the provinces that did not transfer their pension
scheme to the nation, thus when considering the weight of this
additional burden the operating balance stands at 7.1%.
In a context of inflation accelerating at historically high levels
and a deteriorating operating environment at the national level,
Fitch estimates that for 2023-2025 the province's operating balance
will average around 2.0%. Budgetary risks remain from the pension
deficit weight and salary pressures due to high inflation,
weakening expenditure predictability.
Expenditure Adjustability: 'Weaker'
For Argentine sub-nationals, infrastructure needs and expenditure
responsibilities are deemed as high, with leeway or flexibility to
cut expenses viewed as low. National capex is low and insufficient
in translating capex burdens to LRGs. Fitch views the flexibility
to cut expenses for the province as weak relative to international
peers.
Neuquen's ratio of staff expenses in its opex structure is high at
66.4% in 2022; with opex totaling around 86.4% of total
expenditure. On average, in 2018-2022, only a low 10.1% of total
expenditure corresponds to capex. Due to high infrastructure needs,
there is not much leeway to adjust capex as infrastructure works
are relevant for hydrocarbon sector development.
Liabilities and Liquidity Robustness: 'Weaker'
Unhedged foreign currency debt exposure is an important weakness
considered, along with the weak national framework for debt and
liquidity and underdeveloped local market. The assessment also
considers a 'CC' sovereign that restructured its debt during 2020,
thus curtailing external market access to LRGs.
In YE 2022, direct debt totaled ARS209.8 billion, mostly
denominated in foreign currency, and total debt grew 58.8% relative
to 2021 mainly due to currency depreciation. In June 2023, debt
totaled ARS305.1 billion of which 87.65% was denominated in foreign
currency.
The debt relief from Neuquen's 2020 distressed debt exchanges
(DDEs) resulted in an improved ADSCR at YE 2021 and YE2022 above
1x; however, in the short to medium term, liquidity and refinancing
risks remain due to higher debt amortizations and interest step-ups
in 2023 and steeping in 2024-on, which will pressure debt coverage
levels. Due to expected lower operating balances and FX pressures,
ADSCR is projected to hover around 0.17x in average in 2023-2025,
signaling refinancing risks and driving the qualitative positioning
of Neuquen's current rating.
Neuquen's Títulos de Cancelación de Deuda Publica (TICADE) notes
are secured with hydrocarbon royalties, which are linked to the
U.S. dollar and payable monthly in Argentine pesos. TICADE's
2022-2023 coverage levels have been above the transaction's 1.35x
required level.
Liabilities and Liquidity Flexibility: 'Weaker'
Fitch perceives the Argentine national framework in place for
liquidity support and funding available to subnationals as
'Weaker', as there are no formal emergency liquidity support or
bail-out mechanisms established. The current context of national
capital controls is another risk captured in the liquidity
flexibility assessment, as the imposition of exchange regulations
could ultimately affect LRGs' ability to fulfil their financial
obligations.
For liquidity, Argentine provinces rely mainly on their own
unrestricted cash. For cash imbalances, Neuquen has issued Treasury
bills that in June 2023 had a total of ARS3.3 billion outstanding
corresponding to the non-financial public sector and ARS47.6
billion corresponding to medium term treasury bills. At YE 2022,
Neuquen's cash totaled ARS20 billion with a 1.6x liquidity coverage
ratio, lower than in YE 2021: 2.3x, reflecting higher expenditure
pressures during the year. The context of economic downturn in
2023-2024 coupled with expenditure pressures would converge
liquidity to structurally tight and weak levels towards the medium
term. In 2021, according to law No. 3269 that became effective Jan.
1, 2022, the province created a stabilization and development fund
that includes an anticyclical sub-fund. In August 2023, the fund
ascended to ARS2.1 billion.
Debt sustainability: 'b' category
Debt sustainability is 'b', resulting from a 'b' payback ratio and
a 'b' coverage ratio assessment. In Fitch's rating case
(2023-2025), the primary metric of payback will be between 11.2x
and 28.1x with a score of 'b', reflecting the province's weak and
volatile operating balances and growing expenditure pressures in a
context of high inflation pressures. ADSCR is expected below 1.0x;
a 'b' score, resulting in a final 'b' assessment.
DERIVATION SUMMARY
Neuquen's 'cc' SCP is derived from a 'Vulnerable' Risk Profile and
a 'b' debt sustainability score, but also reflects its very high
level of credit risk, including the risk that a default of some
kind is probable. The SCP considers comparison with peers,
including the Provinces of Chubut and La Rioja. Fitch does not
apply any asymmetric risk or extraordinary support from upper-tier
government. The rating is based on Fitch's rating definitions.
Fitch classifies Province of Neuquen as a type B LRG, as it covers
debt service from cash flow on an annual basis.
KEY ASSUMPTIONS
Qualitative Assumptions
Risk Profile: Vulnerable
Revenue Robustness: Weaker
Revenue Adjustability: Weaker
Expenditure Sustainability: Weaker
Expenditure Adjustability: Weaker
Liabilities and Liquidity Robustness: Weaker
Liabilities and Liquidity Flexibility: Weaker
Debt Sustainability: 'b' category
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Floor: 'N/A'
Quantitative Assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2025 projected
ratios. The key assumptions for the scenario include the
following:
- Operating revenue average growth of 130% for 2023-2025; assuming
growth below average inflation towards the medium term to stress
operating margins;
- Operating expenditure average growth of 139% for 2023-2025;
assuming growth above average inflation towards the medium term to
assume real term expenditure re-composition;
- Average capex/total expenditure levels of around 5% for
2023-2025; below the 2018-2022 historical average of 10% reflecting
lower operating balances and liquidity availability;
- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS343.6 per U.S.
dollar for 2023, ARS898.8 for 2024 and ARS1,963.8 for 2025;
- Consumer price inflation (annual average % change) of 125% for
2023, 157% for 2024, 122% for 2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An improved operating balance that strengthens the actual debt
service coverage ratio above 1.0x on a sustained basis, fueled by a
containment in the operating expenditure front.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Signs of deeper liquidity stress that could compromise debt
repayment capacity in the short to medium term, including evidence
of increased refinancing risk in its local and foreign currency
debt; as well as any regulatory restrictions to access FX by LRGs.
The FC IDR would be downgraded if there are indications of any
credit event that reflects a near default situation.
ISSUER PROFILE
Neuquen is located in the southwestern region of Argentina. The
province's economy is highly concentrated in the hydrocarbon
sector, as of June 2023, Neuquen remains the main crude oil and gas
producer with 51% and 64%, respectively, of the national total.
ESG CONSIDERATIONS
Neuquen, Province of has an ESG Relevance Score of '4' for Rule of
Law, Institutional & Regulatory Quality, Control of Corruption
reflecting the negative impact of a weak regulatory framework and
national policies on the province's governance, which negatively
affects the credit profile and is relevant to the rating in
conjunction with other factors.
Neuquen, Province of has an ESG Relevance Score of '4' for
Biodiversity and Natural Resource Management due to the province's
significant economic and financial concentration in the volatile
hydrocarbon sector, which negatively influences the credit profile
and is relevant to the rating in conjunction with other factors.
Neuquen, Province of has an ESG Relevance Score of '4' for Creditor
Rights as despite the entity´s improved willingness to service and
repay its debt obligations, the 2020 DDE continues to weigh on its
credit profile and debt coverage is expected to remain pressured,
therefore, the issue of Creditor Rights remains relevant to the
rating 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
----------- ------ -----
Neuquen, Province of LT IDR CC Affirmed CC
LC LT IDR CC Affirmed CC
senior unsecured LT CC Affirmed CC
senior secured LT CC Affirmed CC
VICENTIN SAIC: At Risk if US$1.3-Billion Rescue Deal Rejected
-------------------------------------------------------------
Jonathan Gilbert & Isis Almeida at Bloomberg News reports that the
firm that was once the crown jewel of Argentine soy processing
risks going out of business altogether if a US$1.3-billion rescue
deal is rejected.
Vicentin SAIC, which has been battling an Argentine court to get
the plan approved, would struggle to survive if it's forced into a
process allowing other parties to put forward proposals to secure
its future, said Estanislao Bougain, a board member, according to
Bloomberg News.
Approving the restructuring plan led by crop traders Bunge Global
SA and Glencore-backed Viterra Inc is key to avoiding the so-called
cramdown, he said, the report notes.
"Vicentin doesn't have have the funding to survive a cramdown
because it's a long process," Bougain said in an interview at
Bloomberg's Buenos Aires office, the report relays.
The company, once the largest soybean processor in Argentina,
plunged into bankruptcy almost four years ago after failing to meet
a US$350-million payment owed to suppliers, the report discloses.
Since then, it has faced threats of nationalization and accusations
of fraud by international lenders, the report says.
To make matters worse, Vicentin is now fighting a lengthy court
battle to get its restructuring plan approved. An appeals court in
Santa Fe Province - where Vicentin is based - is currently
considering whether to overturn a ruling to reject the plan, the
report discloses.
Should it uphold the judge's decision, the case would move to
cramdown, which would strip Vicentin off crucial agreements that
have kept some money flowing in by allowing Bunge, Viterra and a
local cooperative to use its processing plants, the report says.
The company is already suffering after a brutal drought left
soybean processors in Argentina short of crops.
It's unclear whether Bunge, Viterra and the cooperative, ACA, would
continue to support a rescue deal in a cramdown, Bougain said, the
report notes.
In the few days that the cramdown was technically open - between
the first judge's ruling and the intervention by the appeals court
- no entities expressed an official interest in taking part, he
said, the report relays.
Vicentin expects the appeals court to rule on whether to approve
the Bunge-Viterra-led rescue, or proceed to cramdown at some point
after Argentina's presidential election on Nov. 19, the report
adds.
===============
B A R B A D O S
===============
SAGICOR FINANCIAL: Fitch Affirms 'BB+' Rating on Unsecured Debt
---------------------------------------------------------------
Fitch Ratings has affirmed Sagicor Financial Company Ltd.'s (SFC)
Foreign Currency Long Term Issuer Default Rating (IDR) at 'BBB-'
and senior unsecured debt at 'BB+'. Also, Fitch has affirmed the
Long Term Insurer Financial Strength (IFS) rating of ivari at 'A-'.
The Rating Outlook is Stable.
Fitch recently upgraded SFC's ratings following the company's
acquisition of ivari from Wilton Re Ltd. This rating action was
driven by an improvement in the company's Industry Profile and
Operating Environment (IPOE) and company profile, supported by
stronger competitive positioning, operating scale, and business
mix. Additionally, SFC's investment and asset risk improved due to
an increased proportion of investment-grade assets. However, the
risky assets ratio will remain elevated relative to the industry
due to SFC's below-investment-grade sovereign bond exposure in
certain Caribbean jurisdictions to comply with local regulations.
The rating continues to reflect SFC's strong capitalization levels
and solid operating performance.
KEY RATING DRIVERS
Improved IPOE and Company Profile: The acquisition of ivari
strengthens SFC's IPOE and company profile, as it resides in a
stronger operating environment and is rated higher than most of
SFC's operating subsidiaries. The stronger IPOE of the U.S. and
Canada expands SFC'S bespoke IPOE range to 'a' to 'bb+' from 'bb+'
to 'b-'. However, the IPOE continues to be impacted by exposure to
operating environments in some Caribbean countries, with weaker
regulatory frameworks, technical sophistication, and sovereign risk
exposure.
SFC's overall company profile is now scored as "favorable" within
the new bespoke IPO range. The company profile reflects the
company's dominant market position and most favorable operational
scale in the Caribbean as one of the largest players in all life
products; balanced with ivari's moderate competitive position in
Canada, as the second largest player in the universal life segment;
and more limited operating scale and market position in the U.S.
Strong Capitalization Levels Persist: SFC's capitalization levels
remain strong and have a high influence on the rating. SFC's strong
capitalization is supported by a consolidated Minimum Continuing
Capital Surplus Requirements (MCCSR) of 286% as of June 30, 2023,
increasing from 276% as Dec. 31, 2022. The ivari transaction is
expected to increase the consolidated MCCSR ratio by 10 percentage
points. Operating leverage was 10.9x as of June 30, 2023 and is
expected to increase modestly to 11.0x, which is very strong
relative to life insurance peers. 2023 financial statements
consider IFRS 17 standards and reflect the establishment of the
contractual service margin (CSM), which is considered by Fitch as
high-quality loss absorbing capital.
Financing Strategy in Line with Expectations: SFC's financing plan
considers new debt used for the ivari acquisition. The new debt is
expected to be offset by capital accretion and CSM addition. Fitch
expects the company's financial leverage as of Dec. 31,2023 will be
approximately 30.6%, down from 34.2% as June 30, 2023. Going
forward, Fitch expects financial leverage to be below 30% and
interest coverage to exceed 3.0x. Additionally, the holding company
targets to maintain cash and liquid assets at approximately 1.5x
financing costs.
Investment Risk Improves but Remains High: SFC's investment and
asset risk improves with the purchase of ivari. However, the
company's overall exposure to risky assets and
below-investment-grade assets to shareholders' equity exceeds
industry peers, driven by investments in below-investment-grade
sovereigns required to meet local regulatory requirements. Total
invested assets will increase from USD9.7 billion as of June 30,
2023 to USD16.2 billion on pro forma basis including ivari.
Moreover, the company's consolidated exposure to
below-investment-grade assets as a percentage of shareholders'
equity is expected to be below 90% in 2024 (190% as of June 30,
2023) and the risky assets ratio is expected to be below 210%.
Robust and Stable Operating Performance: As June 30, 2023, SFC
continued to register a strong net income under IFRS 17 standards.
Consolidated net income was USD60 million compared with a loss of
USD68 million at the same period of the previous year. This result
was driven primarily by favorable net investment income from higher
interest rates and positive mark to market movements on financial
assets.
SFC's net income will benefit from ivari's net operating income in
2023. The group is expected to double the amount of dividends to
SFC. The expected increase in dividends considers a higher dividend
payment ratio by ivari.
ivari's Rated Higher than Parent: ivari is a mid-size Canadian life
insurer with a leading position in universal life (UL) insurance,
with an emphasis on the middle-income market, which Fitch expects
to persist under SFC's ownership. ivari will largely operate as a
standalone entity, with minimal integration with SFC. ivari is
rated higher than SFC based on Fitch's view that it is sufficiently
insulated from any potential weakness.
ivari's Balance Sheet Strength: LICAT ratio was 123% as of 1H23.
Fitch views ivari's balance sheet as conservative and risk as
generally low, with equity risk primarily borne by UL
policyholders. Profitability has been modest and volatile over
recent years, in part due to the mark-to-market accounting regime
and assumption updates, and is expected to exhibit more stability
under IFRS 17, though return metrics will trail larger and
higher-rated Canadian peers.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade of SFC's Ratings:
- Significant improvement in SFCL's consolidated industry profile,
operating environment and company profile;
- Risky asset ratio below 150% and, along with an improvement in
the sovereign credit rating and minimal exposure to sovereigns to
capital specially Barbados, Jamaica and Trinidad;
- Stability in financial performance resulting in a ROAE
continuously above 7%;
- No material deterioration in economic and operating environments
and sovereigns of Jamaica, Trinidad, and Barbados.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade of SFC's Ratings:
- A decline in ivari's IFS rating on a standalone basis to below
'A-', and/or available cash flows available to the holding company
would appear to be lower than expected;
- Financial leverage exceeding 35% and interest coverage ratio
bellow 3.0x;
- Deterioration in key financial metrics, including consolidated
MCCSR falling below 180%;
- Risky asset ratio above 270% and, along with ani increase in the
exposure to sovereigns to capital specially Barbados, Jamaica and
Trinidad;
- Significant deterioration in the economic and operating
environments and sovereigns of Jamaica, Trinidad and Barbados,
which would lead to a material decline in operating performance
and/or credit profile of SFC's investment portfolio.
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade of ivari's Ratings:
- An upgrade is unlikely absent an upgrade in SFC's ratings coupled
with improvement in ivari's standalone credit quality, which could
be driven by an improved business profile along with a LICAT ratio
in excess of 120% and a return on capital exceeding 9%.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade of ivari's Ratings:
- A decline in SFC's ratings could lead to a downgrade in ivari's
ratings;
- Deterioration in capital as evidenced by a LICAT ratio below
110%;
- Deterioration in Fitch's assessment of business profile driven by
a change in strategy or increased risk in the product profile;
- Decline in profitability with a return on capital sustained below
5%.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Sagicor has acquired ivari and both ratings are materially linked.
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
----------- ------ -----
Sagicor Financial
Company Ltd. LT IDR BBB- Affirmed BBB-
senior
unsecured LT BB+ Affirmed BB+
ivari LT IFS A- Affirmed A-
===============
C O L O M B I A
===============
COLOMBIA: IDB OKs $500MM to Support Women & Diverse Populations
---------------------------------------------------------------
The Inter-American Development Bank (IDB) approved a $500 million
loan to strengthen equality and equity policies aimed at women and
diverse populations in Colombia. This is the first IDB loan to
Colombia that includes policies aimed at equality for women and the
LGBTIQ+ population and that contributes to closing gaps for
indigenous peoples, Afro-descendants, and migrants.
The program has been designed in coordination between the IDB and
the KfW Development Bank to articulate additional support for the
policy objectives of the initiative. This is the first of two
operations financed under the Programmatic Policy-based Loan (PBP)
modality.
In Colombia in 2021, every 50 minutes, a woman was a victim of
domestic violence, and every 28 minutes, a woman suffered sexual
violence. This loan supports the consolidation and implementation
of the National System for Registration, Attention, Follow-up, and
Monitoring of Gender-Based Violence to integrate the lines of
attention and reach the territories with the greatest social and
economic gaps. In addition, it will improve the quality of care and
reduce barriers to access to health and justice services, among
others.
The operation, which was approved by the IDB's Board of Executive
Directors, will also support policy measures to mainstream gender
and sexual diversity approaches for equity for women and the
LGBTIQ+ population. Among others, it seeks to support an
inter-institutional coordination mechanism between 25 entities for
the prevention and comprehensive care of violence and acts of
discrimination against the LGBTIQ+ population in coordination with
the National System for Monitoring Gender-Based Violence. In
addition, it will include policy measures that support
implementation to prevent, address, and monitor cases associated
with human trafficking and migrant smuggling in Colombia.
The unequal distribution of unpaid care work is another source of
inequality. Women assume the greatest responsibility for care, so
the lack of services is a barrier to their economic autonomy. This
project aims to support the National Care System, which will
benefit 4.7 million children and 625,000 older adults and people
with disabilities who require care support, and the 3.6 million
people, most women, who dedicate more than seven hours a day of
unpaid care activities. It will also benefit approximately 2.1
million paid care workers.
The IDB loan of $500 million has a disbursement period of one year,
a grace period of 6 years, a repayment period of 19 years, and an
interest rate based on SOFR.
===================
C O S T A R I C A
===================
BANCO NACIONAL DE COSTA RICA: Moody's Ups LT Deposit Rating to B1
-----------------------------------------------------------------
Moody's Investors Service upgraded government-owned banks Banco
Nacional de Costa Rica's (BNCR) and Banco de Costa Rica's (BCR)
long-term deposit ratings to B1 from B2, and the long-term
counterparty risk ratings were also upgraded to Ba3 from B1. The
outlook for both banks' long-term deposit ratings was changed to
positive from stable. Moody's also upgraded BNCR's and BCR's
baseline credit assessment (BCA) and adjusted BCAs to b1 from b2,
as well as the long-term Counterparty Risk Assessment (CRA) to
Ba3(cr) from B1(cr). The short-term deposit ratings and
counterparty risk ratings were affirmed at Not Prime, and the
short-term CRA was also affirmed at NP(cr).
The action follows Moody's upgrade of the Government of Costa
Rica's sovereign bond rating to B1 from B2 and the outlook revision
to positive from stable.
The sovereign action reflects the expectation that Costa Rica's
fiscal profile will continue to strengthen over the near to medium
term, benefiting from the substantial progress achieved on
structural fiscal consolidation and measures taken by the
authorities to increase fiscal liquidity, improve debt
affordability, and ensure a sustained decline in public debt. The
sovereign rating action also acknowledges improvements in the
economic strength and institutions and governance strength
components of the banking system macro profile, which now stands at
"Moderate-"from "Weak+".
A List of Affected Credit Ratings is available at
https://urlcurt.com/u?l=OZZKHM
RATINGS RATIONALE
The upgrade of BNCR and BCR's BCAs to b1 from b2, acknowledges
these banks' well-established banking franchises that provide them
large and stable core-funding structure backed by superior access
to retail and public-sector deposits, a condition linked to their
government ownership. BNCR and BCR have ample liquidity buffers, at
35% and 37% of total banking assets, respectively, in June 2023,
largely held in sovereign securities.
The b1 BCA also reflects these banks' solid asset quality metrics,
attributable to their limited exposure to riskier consumer loans,
and by Costa Rica's strong economic performance and controlled
inflation that have helped borrowers to preserve repayment
capacity. Currency mismatches continue to pose a significant risk
for both banks. However, foreign-exchange risks have been mitigated
by the Costa Rican currency's resilience since the end of 2022, and
the relatively small share of USD- denominated loans, only 20% of
total loans in June 2023, compared to that of privately-owned banks
(64%). As of June 2023, BNCR reported problem loans of 2.2%, and
BCR of 2.8%, and in both cases, loan loss reserve coverage ratio
remained adequate at 122% and 136% of problem loans, respectively.
However, in both cases, the negative rating driver is BNCR's and
BCR's modest profitability levels compared to other banks in Costa
Rica, due to their focus on lower-yielding asset classes and high
mandatory transfers to government entities, a limitation to
internal capital generation. This results in lower capital metrics,
considering Moody's preferred capital measure of tangible common
equity to risk weighted assets (TCE ratio). As of June 2023, BNCR
had a TCE ratio of 11.3% and BCR 8.4%, in both cases, the ratio
remained below the median for b1 BCA banks.
BNCR and BCR's deposit ratings are aligned with Costa Rica's
government bond rating at B1 and consider these banks as
government-related entities, given their full ownership by the
Government of Costa Rica that also provides a guarantee to both
their obligations (according to Article 4 of the Banking Law). This
alignment also takes into account these banks' public policy
mandate, and the importance of their deposit and loan franchises
within the Costa Rican financial system.
MACRO PROFILE OF COSTA RICA CHANGED TO MODERATE-
The improvement in Costa Rica's Macro Profile to Moderate- from
Weak+, reflects the country's improved economic conditions, with
real GDP expansion reached 4.3% in 2022 and expectation that the
economy's long-term growth potential will moderate, but still
remain high at around 3.5% in 2023 and 2024, benefiting from
nearshoring trends, which will support a favorable operating
environment for banks. It also incorporates the country's strong
governance effectiveness, rule of law and control of corruption
with respect to peer countries, favorable factors supporting a
robust legal and regulatory framework for financial institutions in
the country.
The level of credit intermediation in Costa Rica stood at 53% of
GDP with moderate credit growth at around 3% in 2022. Asset risks
stem from a high level of loan dollarization, however,
loan-to-deposit stood at 79% in foreign-currency in September 2023,
declining consistently since 2018. At this level below 100%, risks
of contingent claims on reserves in case of sizable withdrawals of
dollar deposits are diminished. Overall funding is largely stable
and primarily structured on core deposits. The banking systems is
highly concentrated with two state-owned banks accounting for 42%
of market share in terms of loans, thanks to an explicit sovereign
guarantee on their liabilities that provides significant advantage
relative to their private sector competitors in terms of attracting
retail deposits and generating new business.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Both banks' ratings would be upgraded if Costa Rica's sovereign
bond rating was to be upgraded considering Moody's assessment of
full public support for BNCR and BCR.
Conversely, the banks' standalone BCAs could face downward pressure
if their asset quality, profitability, or capital deteriorate
materially. However, if the banks' BCA were downgraded without a
preceding downgrade of the sovereign rating, their deposit ratings
could be maintained due to Moody's assessment of full support to
the government-owned banks.
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Poultry Farmers Export Grown Eggs to Cuba
-------------------------------------------------------------
Dominican Today reports that in response to the trade halt with
Haiti since mid-September, poultry farmers have ramped up efforts
to find new markets for their products, particularly eggs.
Within three weeks, they have successfully shipped 1,036,800 units
to destinations like Aruba, Guyana, Martinique, Saint Martin, and
Cuba, according to Dominican Today. However, this action hasn't
fully met the surplus of Haitian demand, the report notes.
International traders have taken notice of the surplus and
approached local producers with business proposals, including an
informal call from Spain, as reported by the President of the
Dominican Poultry Association (ADA), José Luis Polanco, the report
relays.
Polanco announced that the ADA will soon receive a commission from
Cuba to formalize and expand exports to that destination, the
report discloses. This effort to diversify markets had already
started about three months ago, but the closure of the
Dominican-Haitian border in mid-September accelerated the process,
attracting interest from around six countries in Creole egg
production, the report says.
Despite these efforts, Polanco acknowledged that these new
destinations won't match the commercial volume maintained with
Haitian merchants, who are the primary buyers of Dominican poultry
exports, the report relays.
The Dominican poultry industry had underestimated the Haitian
market's size, realizing they consume over 45 million eggs monthly,
which equates to one and a half million eggs daily, the report
discloses. This trend has led to growth in border provinces with
producing farms, the report notes.
The sector has seen significant growth, with 700 national egg
producers, and 60% of production coming from advanced technology
farms, the report relates. Quality standards have also improved,
with around 126,000 breeders in the country, the report says.
Dominican producers currently supply 280 million eggs monthly to
meet demand in both the Dominican Republic and Haiti, the report
notes. The poultry industry in Haiti has faced challenges, and
they rely heavily on Dominican egg supplies, the report says.
Additionally, the Dominican Republic exports chicken to Haiti,
although to a lesser extent, as the Haitian population primarily
relies on chicken imports from Brazil, the report discloses.
The closure of the border for nearly a month and a half initially
posed challenges, but the Dominican authorities have relaxed trade
limitations, providing some relief to poultry farmers, the report
relays. Despite the economic losses, the crisis has prompted the
industry to explore other markets, which Polanco sees as a positive
outcome, the report notes.
Regarding losses, Polanco estimated them at around 600 million
pesos per month if calculated at two pesos per egg, the report
discloses. However, there is no exact figure to compensate for the
damage caused by the border closure, the report says.
The government has provided a subsidy of 200 million pesos to the
poultry sector due to the border closure, with a focus on
supporting small and medium-sized producers, the report notes. The
National Price Stabilization Institute (Inespre) has received 25
million units of eggs to sell to the public at affordable prices,
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.
DOMINICAN REPUBLIC: Received $10BB Remittances in 2022
------------------------------------------------------
Dominican Today reports that in 2022, the Dominican Republic
received a significant $10.3 billion in remittances, ranking third
among the primary recipients of these remittance flows in Latin
America and the Caribbean. This ranking placed the Dominican
Republic behind Guatemala, which received $18.1 billion (12.4% of
the total), and Mexico, leading the region with $61.1 billion
(41.9%), and second globally only to India, according to Dominican
Today.
The growth of remittances in the Latin American and Caribbean
region has been substantial, with the region receiving a total of
$146 billion in remittances in 2022, the report recalls. This
increase has been attributed to the recovery of foreign employment
in the United States, starting in January 2020, among other
factors, the report notes.
Remarkably, Latin America and the Caribbean have become one of the
major destinations for remittances globally, trailing only South
Asia among emerging markets, the report relays. Over the past
decade, the region has experienced the fastest growth in remittance
flows, making them a crucial financial resource for many of its
countries, the report says.
In the case of the Dominican Republic, these remittances amounted
to $10.3 billion in 2022, representing 7% of the region's total and
contributing 9% to the country's Gross Domestic Product (GDP), the
report discloses.
However, the World Bank expresses concerns about the high
percentage of GDP that remittances represent in recipient
countries, particularly in Central America, where the median is
19.1%, and the Caribbean, with a median of 6.4%, the report relays.
This concern stems from the volatility of these flows and their
impact on both receiving and sending countries, as seen during the
COVID-19 pandemic, the report notes.
In the Dominican Republic, remittances play a significant role,
representing 40% of income in impoverished households and
contributing 9% to national income as of September 2022, according
to World Bank data, the report discloses.
While remittances have been a lifeline for many households in the
region, their high share of GDP raises questions about the
competitiveness of other sectors, the report notes. In Mexico, the
largest recipient of remittances, these transfers account for 4.3%
of national income, the report relays.
Despite the importance of remittances, the region has undergone
macroeconomic reforms in recent decades to enhance resilience in
the face of crises, such as inflationary pressures, geopolitical
uncertainties, low commodity prices, and increased debt, the report
notes. Poverty and employment have generally returned to
pre-crisis levels, and inflation, except for Argentina and
Venezuela, has dropped to a regional average of 4.4%, lower than
OECD countries, as reported in early October by the World Bank, 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.
===========
M E X I C O
===========
MEXICO: Growth Expected to be 3.2% in 2023, IMF Says
----------------------------------------------------
The Executive Board of the International Monetary Fund (IMF)
concluded the Article IV consultation [1] with Mexico on October
30, 2023.
The Mexican economy is in the midst of a broad-based expansion.
Growth is expected to be 3.2 percent in 2023, led by robust private
consumption and investment, with notable strength in services and
construction sector, and in auto production. The unemployment rate
has fallen to 2.7 percent. Proactive monetary policy and a decline
in global commodity prices are facilitating disinflation. Economic
activity is projected to slow to 2.1 percent in 2024. Although
fiscal policy is expected to loosen next year, its impact on growth
will be blunted by binding capacity constraints, a continuation of
tight monetary policy, and slowing growth in the U.S.
The authorities are projected to meet their 2023 fiscal targets.
More restrained capital spending is expected to more than offset
the lower tax revenue, especially on the VAT, yielding an overall
deficit of 3.9 percent of GDP. This should result in a decline of
gross public sector debt (by staff's definition) to 52.7 percent of
GDP in 2023. Banxico has held its policy rate at 11.25 percent
since March 2023 and stated it will keep rate on hold for an
extended period. With inflation and long-run inflation expectations
in check, the real rate is now firmly in contractionary territory.
The banking sector has strong capital positions and, as of May
2023, nonperforming loans are close to record lows at 2.2 percent
of total loans. Higher freight costs, strong domestic demand, and
adverse price developments increased the current account deficit
slightly in 2022 to 1.2 percent of GDP. Higher demand-driven
imports are expected to widen the deficit further in 2023 to 1.5
percent of GDP. International reserves remain at comfortable
levels.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal.
They noted that the authorities' very strong policies and policy
frameworks were instrumental in restraining public debt and
containing inflation, while achieving a broad-based economic
expansion supported by robust private consumption and investment.
Recognizing the opportunities for Mexico over the medium term,
Directors noted that securing sustainable and inclusive growth will
require continuing with a sound macroeconomic policy mix,
accompanied by a broad set of structural reforms to address the
existing bottlenecks and make the economy more climate resilient.
Directors generally cautioned against an overly procyclical
near-term fiscal stance and underscored that decisive measures will
be needed in 2025 and beyond to preserve fiscal sustainability over
the medium term, while highlighting Mexico's strong track record of
meeting fiscal targets. Going forward, Directors emphasized the
need to boost non-oil revenues, which remain below Latin American
and OECD peers, noting that higher fiscal space will create room
for targeted social and infrastructure spending. They also saw
scope to reform the medium-term fiscal framework to increase its
flexibility and credibility. Directors agreed that greater
transparency in fiscal reporting will improve accountability and
welcomed the transparent recording of support to Pemex in 2024
budget, while emphasizing the importance of ensuring the company's
commercial viability.
Directors agreed that the proactive approach of Banco de México to
monetary policy has been instrumental in containing inflationary
pressures and ensuring that inflation expectations remain
well-anchored. In the face of upside risks to inflation, they
recommended caution in reducing the policy rate before inflation is
on a clearer downward path toward the target. Directors also
underscored the importance of continuing to enhance communication
practices. They agreed that the flexible exchange rate should
continue to be the key tool to facilitate adjustment to external
and domestic shocks.
Directors agreed that the financial system remains resilient, with
high capital and liquidity buffers. They looked forward to
continued implementation of key policy recommendations of the 2022
Financial Sector Assessment Program. Directors emphasized the need
to address outstanding gaps in the AML/CFT framework and enhance
collaboration between various AML/CFT agencies and anti-corruption
bodies. They also welcomed Mexico volunteering for an assessment of
the transnational aspects of corruption.
Directors underscored the importance of supply side reforms to
improve potential growth and raise living standards, including by
taking advantage of the diversification of global supply chains.
Given the significant gender gaps, they emphasized that these
reforms should comprise policies to further boost female labor
force participation and remove legal impediments to female economic
empowerment. Better tackling corruption and crime, expanding
financial inclusion, as well as improving infrastructure and
streamlining regulations will also be key.
Directors agreed that a comprehensive and well-sequenced climate
change strategy can provide more durable sources of energy. Given
the long-term risk of a reduction in global demand for
hydrocarbons, they encouraged switching to low carbon and renewable
sources of generation, including by considering increasing the
price of carbon.
It is expected that the next Article IV Consultation with Mexico
will be held on the standard 12-month cycle.
*********
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.
This material is copyrighted and any commercial use, resale or
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