/raid1/www/Hosts/bankrupt/TCRLA_Public/240105.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, January 5, 2024, Vol. 25, No. 5
Headlines
A R G E N T I N A
ARGENTINA: First 'Reconstruction' Bond Sale to Importers Flops
ARGENTINA: IMF to Visit to Restart Negotiations
B R A Z I L
BRADSEG PARCITIPACOES: Fitch Alters Outlook on 'BB+' IDR to Neg.
INPASA AGROINDUSTRIAL: Fitch Affirms & Withdraws 'BB-' LongTerm IDR
C O L O M B I A
COLOMBIA: Should Lower 35% Corporate Tax Rate, Petro Says
PA AUTOPISTA RIO: Fitch Puts 'BB+' Loan Rating on Watch Negative
D O M I N I C A N R E P U B L I C
[*] DOMINICAN REPUBLIC: Investment Funds Boost Growth
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Imbert Clarifies Property Tax Misinformation
- - - - -
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A R G E N T I N A
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ARGENTINA: First 'Reconstruction' Bond Sale to Importers Flops
--------------------------------------------------------------
Buenos Aires Times reports that the Argentine Central Bank's first
auction to pay down importers' debts owed to suppliers abroad
flopped as the monetary authority only sold a fraction of the total
it had offered.
The Central Bank reported that it sold just US$68 million after
receiving 34 offers from Argentine importers when it previously
announced a maximum of US$750 million in notes available, according
to Buenos Aires Times. Bloomberg reported the sum earlier, the
report notes. Importers bought the bonds first, but have the right
to resell most of the notes in the secondary market to other
investors, the report relays.
In a statement, Central Bank officials anticipated that "the volume
of participation will go up," as the institution "continues
clarifying the operative processes for subscription and required
documentation," the report notes.
The auction results mark Milei's first setback in markets after a
relatively successful currency devaluation followed by a record
sale of peso debt, build up of foreign reserves and dollar bond
rally, the report relays. Clearing away the US$30 billion
importers owe abroad is a key step before Milei's administration
can remove byzantine financial controls it inherited from the
previous government, the report notes. The bonds serve another
purpose too of mopping up peso liquidity that could stoke inflation
already above 160 percent, the report discloses.
"The instrument is very important for the exchange rate unification
of Argentina, because it helps to normalize the debt stocks of
importers and serves as a mechanism to absorb pesos from the
economy," said Pedro Siaba Serrate, a senior economist with PP
Inversiones in Buenos Aires. "If the government wants to achieve
exchange rate unification, this should work better," the report
relays.
The dollar-denominated securities, called "Bopreal" - which stands
for "bonds for the reconstruction of a free Argentina" - offer a
five percent annual interest rate, and are aimed at "providing
predictability to payments associated with the stock of commercial
debt of importers," according to the Central Bank, the report
notes.
A chronic dollar shortage and strict capital controls during the
previous government of President Alberto Fernandez backlogged
billions in payments, indebting importers and putting a bottleneck
on trade, the report discloses. Before the Central Bank lifts all
of Fernandez's financial controls, importers need to settle their
debts abroad to improve the monetary authority's balance sheet, the
report relays.
The notes "will offer an orderly solution to resolve the crisis
generated by the accumulation of commercial debts of importers at
unmanageable levels in the short term," policymakers said in a
statement, the report notes. The debt can be bought in local
currency, which in turn would help the central bank absorb some
pesos in the economy in a bid to ease soaring inflation, the report
says.
Monetary authorities plan on holding two auctions a week until the
end of January 2024, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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: IMF to Visit to Restart Negotiations
-----------------------------------------------
Bloomberg News reports that International Monetary Fund officials
were expected in Argentina this week to start negotiating with the
new government of President Javier Milei on a $44 billion program
that went off track during the previous administration.
The delegation was to arrive Thursday, Jan. 4 in Buenos Aires,
presidential spokesman Manuel Adorni said during his morning news
conference, without detailing who's coming nor how long they're
expected to stay, according to the report.
Milei's cabinet chief Nicolas Posse and Economy Minister Luis
Caputo will lead talks with IMF staff, according to Adorni, the
report relays. Argentina must pay the Fund nearly $2.6 billion in
debt maturities in January and February, the report notes.
It'll be the first in-person meetings between Milei's
administration and IMF staff since the libertarian president took
office Dec. 10, though Caputo and Posse met with IMF leadership in
Washington during the transition period, the report relays. The
mere presence of an IMF delegation in Argentina signals a change of
tone between Milei and his predecessor, Alberto Fernandez, who
almost entirely held talks outside the country while criticizing
the institution in public, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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
===========
BRADSEG PARCITIPACOES: Fitch Alters Outlook on 'BB+' IDR to Neg.
----------------------------------------------------------------
Fitch Ratings has revised the Rating Outlook on the Local Currency
Long-Term Issuer Default Rating (IDR) of Bradseg Participacoes
S.A.'s (Bradseg) to Negative from Stable and affirmed the rating at
'BB+'. The National Long-Term Rating of 'AAA(bra)' was also
affirmed and the Outlook remains Stable. The rating actions on
Bradseg follow the revision of the Outlook of its parent, Banco
Bradesco, of which it is a core subsidiary.
KEY RATING DRIVERS
Support-Driven Ratings: Bradseg's IDRs are aligned with the ratings
of its parent, Bradesco. The Outlook for Bradseg's IDR mirrors
Bradesco's, which is one notch above Brazil's sovereign ratings
(BB/Stable). Fitch revised the Rating Outlook on Banco Bradesco
S.A.'s (Bradesco) Long-Term Local and Foreign Currency Issuer
Default Ratings (IDRs) to Negative from Stable and affirmed the
IDRs at 'BB+'. The Negative Outlook on Bradesco's IDRs reflects
greater deterioration of its asset quality and profitability than
Fitch previously expected. The bank incurred a significant increase
in payment delays on retail loans, mainly from unsecured loans in
the low-income segment.
In applying Fitch's insurance criteria regarding the impact of
ownership on Bradseg' ratings, Fitch considered how the ratings
would theoretically be affected under Fitch's bank support
criteria. Fitch's insurance criteria are principles-based regarding
ownership, and the referenced bank criteria was used to help inform
Fitch's judgment in applying those principles.
Core Subsidiary: Fitch views Bradseg as a 'core subsidiary' of
Bradesco, and therefore its ratings are equalized with those of its
parent. This is based on the strategic importance of Bradseg's
insurance operations, which complement the main retail banking
activities, common branding and high contribution of Bradseg to
group profits. The insurance holding company has consistently
contributed to the bank's consolidated earnings historically.
Robust Market Position: The rating also reflects the company's
leading position, consistent performance and diversified revenue
base. Bradseg had a leading position and overall market share of
approximately 22.7% as of September 2023. The ratings also consider
the company's strong distribution capacity, underpinned by the wide
branch network of its parent, good performance and comfortable
capitalization ratios.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Bradseg's IDR has limited upside potential, as it is equalized to
that of Banco Bradesco, the ratings of which are constrained by its
operating environment. Over the medium term, the ratings could
benefit from stabilization and eventual improvement of Fitch's
assessment of the operating environment for Brazilian banks;
- For the national scale rating, this sensitivity is not
applicable, given that the National LT rating of Bradseg was
affirmed at 'AAA(bra)'.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Bradseg's ratings are linked to those of Banco Bradesco.
Therefore, any negative change in the bank's ratings would affect
Bradseg's ratings, as would a change in its willingness to provide
support, which Fitch considers highly unlikely;
- Bradseg's National Ratings are sensitive to changes in
creditworthiness relative to other Brazilian issuers.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Bradseg's rating are directly linked to the IDR of Banco Bradesco,
the ultimate parent company.
Entity/Debt Rating Prior
----------- ------ -----
Bradseg Participacoes
S.A. LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
INPASA AGROINDUSTRIAL: Fitch Affirms & Withdraws 'BB-' LongTerm IDR
-------------------------------------------------------------------
Fitch Ratings has affirmed and withdrawn Inpasa Agroindustrial
S.A.'s (Inpasa) Long-Term Foreign Currency and Local Currency
Issuer Default Ratings (IDR) at 'BB-' and its Long-Term National
Scale rating at 'A+(bra)'. The Rating Outlook is Stable.
The ratings reflect Inpasa's large-scale operations and low
production cash cost in the volatile Brazilian ethanol industry.
The high volatility of Brazil's corn and ethanol prices and the
lack of meaningful short-term price correlation between these two
commodities remain as key considerations.
The ratings incorporate the expectation of improved cash flow
generation capacity as the company increases its crushing capacity,
while FCF should remain negative in 2023 and 2024 due to
expansionary investments. Inpasa's adequate liquidity and
concentrated debt amortization profile were also considered in the
analysis.
Fitch has withdrawn Inpasa's ratings due to commercial reasons.
KEY RATING DRIVERS
High Price Volatility: Inpasa is exposed to price volatility from
corn, its main raw material, and ethanol, its main output. Corn
prices adjust rapidly to global supply and demand imbalances and
follow parity with Chicago Board of Trade (CBOT) corn prices over
the long run. Brazilian ethanol prices depend largely on local
gasoline price levels, which move in tandem with international oil
prices and the Brazilian FX rate, and Petrobras' commercial
strategy. Ethanol prices are also indirectly influenced by sugar
prices, as nearly 85% of all Brazilian ethanol produced comes from
sugar cane processors, which typically shift a portion of
production between ethanol and sugar depending on prevailing price
parity with sugar.
Weaker Corn and Ethanol Prices Correlation: Corn prices in Brazil
have declined in 2023 following a reduction in international price
levels and a record high production in the Brazilian corn winter
crop. Fitch projects international corn prices of USD5,55 per
bushel in 2023 and USD5,00 per bushel in 2024, and average Brent
prices of USD80/bbl in 2023 and of USD75/bbl in 2024.
Large Scale Corn-Based Ethanol Producer: Inpasa is Brazil's largest
corn-based ethanol producer, and its business model benefits from
its sizable ethanol production capacity. The company has an
aggressive growth strategy, to increase its crushing capacity to
11.6 million tons and annual ethanol production capacity to 5.3
billion liters by the end of 2026 from 6.3 million tons and 2.8
billion, respectively, at the end of 2023. Investments are
estimated at about BRL6.5 billion from 2023 to 2025 and include two
new plants in the states of Mato Grosso do Sul and Maranhao and the
expansion of the Sinop plant's production capacity.
Competitive Cost Structure: Inpasa is the most efficient corn-based
ethanol producer in the country, and its cash cost structure is in
line with some of the most efficient sugar cane producers. The
company produces and sells animal nutrition product and corn oil,
the prices of which tend to correlate with corn prices, providing a
natural hedge against corn price volatility. Fitch expects 45%
coverage of corn costs provided by animal nutrition products from
2023 to 2025. The industrial plants are located in the states of
Mato Grosso and Mato Grosso do Sul, Brazil's two important corn
producing states, which attenuates corn origination risks.
Strong Operating Cash Flows: Inpasa's cash flow generation should
improve over the rating period, as the company increases its
production capacity. Fitch expects Inpasa to generate EBITDA of
BRL2.5 billion and CFFO of BRL1.8 billion in 2023, compared with
EBITDA of BRL2.6 billion and CFFO of BRL198 million in 2022 as per
Fitch's calculations. In 2024, base case projections incorporate
EBITDA of BRL3.6 billion and CFFO of BRL2.6 billion supported by
higher sales volume and corn cost reduction, despite lower ethanol
prices. EBITDA margin is expected to improve to around 28% in 2024,
from 23% projected for 2023.
Fitch expects negative FCF of BRL700 million in 2023 and negative
BRL 1 billion in 2024 due to Inpasa's expansionary investments. FCF
should be positive in 2025, when new sales volume kicks in. Fitch's
base case projection incorporates investments of BRL2.3 billion in
2023 and BRL3.5 billion in 2024 and dividends of around BRL125
million in 2023 and 2024.
Leverage to Remain Low: Inpasa should preserve net leverage below
2.0x during its investment cycle. Fitch's base case projection
incorporates net debt/EBITDA of around 1.5x in 2023 and 2024,
compared with 1.3x in 2022. Inpasa reported total debt of BRL3.1
billion as of Sept. 30, 2023, of which bank debt and related party
loans amounted to BRL2.8 billion and BRL284 million, respectively.
DERIVATION SUMMARY
Inpasa's IDRs are four notches lower than Raizen S.A. (BBB/Stable).
Inpasa is smaller than Raizen and is more exposed to commodity
price risk than sugar cane processors, which rely on a market
pricing mechanism that links sugar cane costs to commodity prices.
Inpasa also has weaker liquidity than Raizen.
Inpasa's business model is similar to FS Ltda. (FS; BB-/Stable,
National Scale AA-[bra]/Stable). Both companies are low-cost
producers, with capacity to produce ethanol with cash cost
comparable with Jalles Machado S.A. (AA-[bra]/Stable), a cost
benchmark in the industry. Both FS and Inpasa have concluded
investments in their third plants. FS's National Scale rating
benefits from its stronger liquidity and more diversified access to
financing compared to Inpasa, while Inpasa is still challenged to
increase its access to both the banking and capital markets in
Brazil.
Inpasa's National Scale Rating is one notch below that of Jalles
Machado (Jalles; National Scale AA-[bra]/Stable). Both companies
are well positioned in the Brazilian food and renewable energy
market landscape in terms of cash costs. Jalles should consume its
currently high liquidity as it advances with its investments plan,
but its National Scale rating benefits from stronger liquidity and
more diversified access to financing than Inpasa.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Ethanol sales volumes of 2.8 billion liters in 2023 and 3.7
billion liters in 2024 following investments in capacity expansion.
Hydrous ethanol will make up around 60% of total ethanol volumes
going forward.
- Sales of animal nutrition products of 1.4 million tons in 2023
and over 1.9 million tons in 2024.
- Ethanol prices to vary in tandem with a combination of oil prices
and the FX rate. Brent crude prices have been forecast to average
USD80/bbl in 2023 and USD75/bbl in 2024.
- Corn prices around BRL52/bag in 2023 and BRL42/bag in 2024.
- Average FX rate at BRL5.00/USD in fiscal 2023 and at BRL5.10/USD
in 2024.
RATING SENSITIVITIES
Sensitivities do not apply as the ratings have been withdrawn.
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: Inpasa's liquidity is manageable, and the
company would need to improve access to long-term credit facilities
to finance working capital needs and large investments on a
sustainable basis. As of Sept. 30 2023, Inpasa reported cash and
marketable securities of BRL651 million and total debt of BRL3.1
billion, of which BRL748 million is due in the short term and about
BRL2.0 billion from October 2024 to December 2025.
Corn inventories and offtake contracts with large fuel distributors
reduce refinancing risks and improve financial flexibility;
inventories can be easily monetized and accounts receivables can be
used as collateral under new credit facilities, if required.
ISSUER PROFILE
Inpasa produces corn-based hydrous and anhydrous ethanol, dried
distillers' grains with Solubles for animal nutrition, corn oil and
energy from cogeneration. The company runs three plants with total
capacity to crush 6.3 million tons of corn and produce 2.8 billion
liters of ethanol annually.
ESG CONSIDERATIONS
Inpasa has an ESG Relevance Score of '4' for Governance Structure
due to lack of board independence and effectiveness. Inpasa has no
independent members on the board and one-man risk is present, as
decision making is highly concentrated in the hands of the founder
and main shareholder. The ESG Relevance Score of '4' has a negative
impact on the credit profile, and is 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
----------- ------ -----
Inpasa
Agroindustrial S/A LT IDR BB- Affirmed BB-
LT IDR WD Withdrawn BB-
LC LT IDR BB- Affirmed BB-
LC LT IDR WD Withdrawn BB-
Natl LT A+(bra)Affirmed A+(bra)
Natl LT WD(bra)Withdrawn A+(bra)
===============
C O L O M B I A
===============
COLOMBIA: Should Lower 35% Corporate Tax Rate, Petro Says
---------------------------------------------------------
Bloomberg News reports that Colombia President Gustavo Petro has
proposed lowering the country's corporate tax rate and increasing
income taxes for its highest earners. The move, which he has not
yet detailed, would allow companies to grow and make the tax system
more just, he said in a post on X, according to the report.
Petro also spoke in broad terms about the tax reform proposal in
remarks broadcast after he announced that the government will
increase the minimum wage by 12% next year, the report notes.
The Andean nation's corporate levy is 35%, one of the world's
highest, and in 2022 Congress approved a package of taxes including
a permanent wealth tax, limited deductions for high-income
individuals and an increased dividend tax, the report relays.
The nation's tax system has been "radically transformed" by
judicial decisions and needs reform to elevate overall
productivity, Petro said, the report notes.
In the post on X, formerly Twitter, the president also proposed
removing value-added tax for tourism-related activities and
creating exemptions for clean energy, the report discloses.
Petro called for informal talks between workers, business leaders
and the national government to discuss the reforms "to generate,
after growing the minimum wage by 12%, the conditions to increase
production and profitability in Colombia," he said during the
broadcast remarks, the report relays. Any changes to the tax code
must be approved by Congress, the report adds.
PA AUTOPISTA RIO: Fitch Puts 'BB+' Loan Rating on Watch Negative
----------------------------------------------------------------
Fitch Ratings has taken the following rating actions on two
Colombian toll roads after Construcciones El Condor, S.A.'s (El
Condor) deteriorated credit quality:
- P.A. Autopista Rio Magdalena's (ARM) COP915,500 million UVR notes
and COP278,000 million UVR loan 'BB+' and 'AA+(col)' ratings placed
on Rating Watch Negative (RWN);
- P.A. Concesion Ruta al Mar's (RAM) COP522,000 million UVR notes
'BB+' and 'AA(col)' ratings placed on Rating Watch Negative (RWN).
RATING RATIONALE
The rating actions reflect the projects' exposure to the credit
quality of El Condor, who has signed engineering, procurement and
construction (EPC) contracts with ARM and RAM. During the
completion phase, the projects are exposed to the credit quality of
their EPC contractors, including El Condor. In Fitch's view, El
Condor's credit quality has deteriorated.
ARM
El Condor is in charge of the execution of the toll roads's
functional units (UF) UF1 and UF2. As of October 2023, according to
the Independent Engineer (IE) report, the overall construction
progress is 51.1%. According to the Agencia Nacional de
Infraestructura's (ANI) website the overall progress is of 69% as
of November 2023. Therefore, the project still has a relevant
completion risk. Therefore, according to Fitch's Completion Risk
Criteria, ARM's ratings are constrained by El Condor's credit
quality. The Negative Watch reflects Fitch's view that the credit
quality of El Condor has deteriorated and the impact on ARM's rated
debt will be evaluated after the update of the IE view on the
Replacement Cost Premium given construction progress. Fitch
considers the Level of Performance Security to Cover Replacement
Cost Premium as an input to define project's completion risk credit
view.
The Negative Watch on ARM will be resolved once Fitch has completed
its assessment according to the Completion Risk Criteria.
RAM
El Condor is RAM's sole contractor. Although completion risk is
assessed as 'High Stronger' due to its qualitative attribute
assessments and available security, RAM's rated debt could still be
constrained by El Condor's credit quality in case there is not
available liquidity to repay the debt or replace the contractor in
case needed. The construction advance is close to 93.5% with 85% of
UFs (functional units) above 98%. The Negative Watch reflects
Fitch's view that the impact of El Condor's deteriorated credit
quality could impact the ability of the concessionaire to service
the debt, if available liquidity is not sufficient.
Fitch notes that, as of today, the transaction has performance
bonds covering the EPC agreement, letter of credits to secure
equity injections and reserve accounts. The Negative Watch on RAM
will be resolved once Fitch has completed its assessment of
project's liquidity and dependence on El Condor's creditworthiness
to complete the construction of the remaining works, according to
the Completion Risk Criteria.
KEY RATING DRIVERS
ARM
Completion Risk Limited by Weak Contractor [Completion Risk:
Stronger]:
Construction works are performed under two fixed-price date-certain
EPC contracts. According to the IE, works are of low complexity and
are executed by experienced contractors, and the completion
schedule is adequate. The security package provides adequate
liquidity should the EPC contractor need to be replaced, by means
of combination of performance bonds, letters of credit and EPC
contract retention clauses between 5.0% and 7.5%.
RAM
Completion Risk Reasonably Mitigated [Completion Risk: High
Stronger]:
Construction works are being performed by Construcciones El Condor
under a fixed-price date-certain engineering, procurement and
construction (EPC) contract. The works comprise the construction of
short road stretches and minor bridges, and the improvement of
existing roads. Fitch views the complexity of the construction
works as low and without a critical path. The advanced stage of
construction and remaining duration and costs to complete the works
drive the assessment for completion, duration and scale, according
to applicable criteria.
Although construction is expected to continue for one more year and
end-of-year in 2024, the most complex works have already been
completed. As of October 2023, IE report shows a construction
progress of 93.5%, and excluding UF 7.1 (Lorica) progress is at
97.7%. Only ~7% of remaining progress is trying to move forward
project end date to December 2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
ARM:
- Fitch concludes the analysis of the level of liquidity embedded
in the EPC agreement given IE's updated view on the replacement
cost premium;
- Completion difficulties leading to delays and cost overruns
beyond those already contemplated in Fitch's scenarios;
- Deterioration in Fitch's view regarding the credit quality of
ANI's grantor obligations;
RAM:
- Lack of liquidity to service the debt in 2024 in case of further
delays in the completion of Functional Units;
- Fitch's conclusion that completion risk remains exposed to El
Condor's creditworthiness
- Completion difficulties leading to delays and cost overruns
beyond those already contemplated in Fitch's scenarios;
- No tariff inflation adjustment in 2024;
- Tariff catch up for the 2022 inflation does not occur within the
next one to two years;
- Traffic performs materially below Fitch's rating case levels of
annual average daily traffic (AADT) 29,111 in 2023 and 29,939 in
2024;
- Removal, relocation or modification of the Caimanera toll or its
fees without compensation that mitigates the resulting loss of cash
flows.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
ARM:
- A positive rating action is unlikely in the short term given the
rating is on Negative Watch.
RAM:
- A positive rating action is unlikely in the short term given the
rating is on Negative Watch.
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 Recovery Prior
----------- ------ -------- -----
P.A. Autopista Rio
Magdalena
P.A. Autopista Rio
Magdalena/Project
Revenues - First
Lien/1 LT LT BB+ Rating Watch On BB+
P.A. Autopista Rio
Magdalena/Project
Revenues - First
Lien/1 Natl LT Natl LT AA+(col)Rating Watch On AA+(col)
P. A. Concesion
Ruta al Mar
P. A. Concesion
Ruta al Mar/Toll
Revenues - First
Lien/1 LT LT BB+ Rating Watch On BB+
P. A. Concesion
Ruta al Mar/Toll
Revenues - First
Lien/1 Natl LT Natl LT AA(col) Rating Watch On AA(col)
===================================
D O M I N I C A N R E P U B L I C
===================================
[*] DOMINICAN REPUBLIC: Investment Funds Boost Growth
-----------------------------------------------------
Dominican Today reports that the Dominican Association of
Investment Fund Administrators (ADOSAFI) has highlighted the
significant impact of investment funds on the country's economy and
job market. As of June 2023, these funds have created 10,515
direct jobs and 19,569 indirect jobs, totaling over 30,000
employment opportunities, according to Dominican Today. This
substantial contribution to job creation demonstrates the crucial
role of investment funds in fostering economic growth and
stability, the report notes.
ADOSAFI also reported that, by June of 2023, investment funds have
injected $1.7 billion USD into the productive sector, the report
relays. This investment accounts for approximately 1.6% of the
Dominican Republic's Gross Domestic Product (GDP), underscoring the
substantial role of these funds in the national economy, the report
discloses.
Santiago Sicard, the executive president of ADASAFI, emphasized the
multifaceted benefits of investment funds, the report relays.
According to Sicard, these funds not only generate returns for
investors but also create wealth for the broader community by
generating jobs and providing families with stable sources of
income, the report notes. This approach aligns with building a
stronger and more prosperous nation, the report says.
The $1,705 million investment has been channeled into 131 projects
across 14 different types of productive activities, the report
relays. These projects span a wide range of sectors, including
tourism, sustainable energy, industrial parks and free zones,
construction and real estate, health, and other areas integral to
the lives of Dominicans, the report discloses.
Investors, including pension funds, are increasingly interested in
projects contributing to the country's growth and the well-being of
its population, the report says. ADOSAFI remains committed to
monitoring and reporting the positive impacts of these investments,
ensuring transparency and accountability, the report notes.
The growth of investment funds and the stock market in the
Dominican Republic is changing the landscape of investment,
allowing pension savings to be directed towards profitable,
future-oriented activities, the report relays. These investments
also yield immediate, tangible benefits, enabling broader
participation in projects and activities that were once limited to
a select few, the report discloses. This shift marks a significant
advancement in the economic empowerment of the Dominican workforce
and the nation's overall development, 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 December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service 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.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Imbert Clarifies Property Tax Misinformation
---------------------------------------------------------------
Trinidad Express reports that Finance Minister Colm Imbert says he
has observed a persistent campaign of deliberate misinformation
regarding property tax in the public domain.
"Despite many public clarifications, statements in Parliament,
full-page advertisements, press releases and press conferences,
there is still a misguided belief among some property owners that
the Annual Rental Values stated in the Notices of Valuation sent
out by the Valuation Division in 2023 are equivalent to the amount
of the property tax that will be due and payable in 2024," Imbert
stated in a release, according to Trinidad Express.
He stated that this is not the case, the report notes.
"These Notices of Valuation are NOT Property Tax Notices," Imbert
stated, the report relays.
"Property Tax Notices will be sent out by the Board of Inland
Revenue in January 2024, when it is hoped that the misinformation
campaign will cease. It is to be noted that by law, only the Board
of Inland Revenue can notify taxpayers regarding the amount of
property tax they are required to pay, while the Valuation Division
is solely responsible for determining the annual rental value of
properties to allow the BIR to calculate the property tax," he
stated, the report discloses.
According to Imbert, the Property Tax payable is, in fact, only
2.7% of the Annual Rental Value stated in the Notices of Valuation,
the report says.
"So, if a residential property has been assessed at an annual
rental value of $60,000, the Tax payable is $1,620 per year or $135
per month," he stated, the report ntoes.
"If a property has been assessed at an annual rental value of
$18,000, the Tax payable is $486, or $40.50 per month," Imbert
stated, the report relays.
Imbert said it should be noted that the property tax for more than
60% of all properties in Trinidad and Tobago will be between $486
per year ($40.50 per month) and $1,620 per year ($135 per month),
the report says.
"To be clear, to understand what their annual Property Tax will be,
property owners need to multiply the annual rental value in the
notices they have received by 2.7%," he said, the report relays.
"Property owners should not allow mischievous persons to mislead
them into thinking that the annual rental values and the applicable
property taxes are the same," Imbert said, the report discloses.
On November 18, Imbert issued a similar release trying to clarify
the situation, the report adds.
*********
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
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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