/raid1/www/Hosts/bankrupt/TCRLA_Public/240410.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
Wednesday, April 10, 2024, Vol. 25, No. 73
Headlines
A R G E N T I N A
ARGENTINA: State Firms Lost US$18BB During Fernandez's Government
B R A Z I L
BANCO BTG: Fitch Puts Final 'BB' Rating to USD500M Sr. Unsec Notes
BANCO DAYCOVAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
BANCO FIBRA: Fitch Alters Outlook on 'B+' LongTerm IDR to Negative
BRAZIL: Industrial Sector Faces Mixed Fortunes in February
C O L O M B I A
COLOMBIA TELECOMUNICACIONES: Fitch Lowers LongTerm IDR to 'BB+'
UNE EPM: Fitch Hikes LongTerm IDR to 'BB', Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Banreservas Opens Credit Line for Exporters
J A M A I C A
DIGICEL GROUP: Verticast Files Lawsuit Against Firm
JAMAICA: Banks Brace for Add'l Costs to Comply w/ New ABM
JAMAICA: BOJ Says Market Interest Rates Rose in 2023
M E X I C O
TOTAL PLAY: Fitch Assigns 'CCC+' Rating to New Sr. Secured Notes
P A N A M A
BANCO NACIONAL: Fitch Lowers LT IDR to 'BB+', Outlook Stable
P E R U
VOLCAN COMPANIA: Fitch Lowers Rating on Sr. Unsecured Notes to 'CC'
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Electricity Bills Could Jump 124% by 2028
V E N E Z U E L A
VENEZUELA: Inflation at 1.2% in March
- - - - -
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A R G E N T I N A
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ARGENTINA: State Firms Lost US$18BB During Fernandez's Government
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Buenos Aires Times reports state companies were left in the red to
the tune of US$18 billion during Alberto Fernandez's government
(2019-2023), new data shows.
The figure represents the cumulative operating deficit for state
firms between 2020 and 2023. It comes from data published by the
Finance Secretariat of the Economy Ministry, according to Buenos
Aires Times. The biggest loss-marker was state-run energy company
ENARSA, mostly through subsidies, while national carrier Aerolineas
Argentinas lost nearly US$3 billion over the period, the report
notes.
Looking just at last year, the operating deficit of more than 30
non-financial state companies left a negative balance of 1.6
trillion pesos, which at the average exchange rate for 2023 (295.21
pesos) works out at around US$5.44 billion, the report relays.
President Javier Milei, a vocal proponent of privatization, is
eager to sell-off many state firms but his attempts thus far have
been thwarted by legislation and opposition in Congress, the report
discloses.
The 2020-2023 period (President Fernandez took office in December
2019) shows that the losses of state companies amounted to a total
of US$18.03 billion, the report relays. This figure was reached by
calculating the cumulative operating deficit every year in pesos,
which is then converted to US dollars at the average exchange rate
of each 12-month period, the report notes.
The global operating deficit (the difference recorded by each of
the companies between income generated and expenses incurred
exclusively by its activity) is mostly explained by the Fernandez
administration's very deliberate policy of applying subsidies, the
report discloses.
Hence at the top of the list there is always Enarsa. The company
imports energy at a market value and delivers it to the local
market at a subsidised price, the report relays. The cost of state
railway services and water also cost up heavily, the report notes.
State airline Aerolineas Argentinas also delivered heavy losses,
despite offering fares at similar prices to its private
competitors, the report discloses.
Despite repeated years in which they failed to break even, many
state firms managed to keep their staffing levels more or less
stable, the report says. On the last day of 2023, the report
highlights, "the staff of all non-financial state companies amounts
to 92,058, whereas as of December 31, 2022, the staff was 93,095
people," the report discloses.
Milei government officials have already begun cutbacks at many
public companies and further lay-offs are expected, the report
relays.
The cost to public coffers over the three years amounted to roughly
one point of Argentina's GDP, the report discloses. This figure
will likely drop given the Milei administration's moves to slash
subsidies for utilities, with energy and gas prices soaring, the
report says.
Enarsa, in particular, will look healthier in the end-of-year
accounts. In 2023, covering subsidies amounted to around 40
percent of the firm's total operating deficit, some 713 billion
pesos (US$2.41 billion), the report recalls.
State train services were also responsible for a large portion of
the losses, the report notes. Last year, the government
transferred 335 billion pesos or US$1.13 billion, or around US$3.1
million per day, the report relays. It made 344 billion pesos back
in the sale of tickets, the report discloses.
The Argentine railway system is a main employer in the country,
with a staff of nearly 32,000 people, the report notes. One out of
three employees at state companies work on the railways, the report
relays.
The report also reveals that Aerolineas Argentinas had an operating
deficit of 231.26 billion pesos, or US$783 million, Buenos Aires
Times discloses. Over the four years of the Fernandez
administration, the state airline accumulated an operating deficit
of nearly US$3 billion, the report notes.
Out of the 33 "non-financial state companies," some made money
back. Nucleoelectrica Argentina (NASA) has been in the black for
the last few years, the report relays. In 2023, it closed with an
operating profit of nearly US$350 million, 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 March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings 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.
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B R A Z I L
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BANCO BTG: Fitch Puts Final 'BB' Rating to USD500M Sr. Unsec Notes
------------------------------------------------------------------
Fitch Ratings has assigned a 'BB' final Long-Term rating to Banco
BTG Pactual S.A.'s (BTG Pactual) USD500 million senior unsecured
notes. The notes due were issued through its Cayman Islands Branch
and are due 2029 with a 6.25% annual interest rate.
The final rating is in line with the expected rating that Fitch
assigned to the proposed debt on April 1, 2024. Please see "Fitch
Expects to Rate Banco BTG's Proposed Senior Notes 'BB(EXP)'.
KEY RATING DRIVERS
The rating on the notes corresponds to BTG Pactual's Long-Term
Foreign Currency Issuer Default Rating (IDR, BB/Stable) and ranks
equal to its other senior unsecured debt as the default on the
notes equals to the default of the bank. BTG Pactual's ratings are
driven by its standalone creditworthiness, as measured by its 'bb'
Viability Rating (VR).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The rating of the notes could be downgraded in the event of a
downgrade of BTG Pactual's VR and IDR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The rating of the notes could be upgraded in the event of an
upgrade of BTG Pactual's VR and IDR.
For further information on BTG's rating rationale and sensitivities
please refer to latest press release "Fitch Takes Actions on 12
Brazilian Banks Following Sovereign Upgrade" dated Aug. 2, 2023.
DATE OF RELEVANT COMMITTEE
01 August 2023
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco BTG Pactual S.A.
senior unsecured LT BB New Rating BB(EXP)
BANCO DAYCOVAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Banco Daycoval S.A.'s (Daycoval)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-'. The Rating Outlook on the IDRs is Stable. Fitch has also
affirmed the bank's National Long-Term Rating at 'AA(bra)'/Outlook
Stable.
KEY RATING DRIVERS
Established Segmented Franchise, Strong Earnings: Daycoval's IDRs
and National Ratings are driven by its intrinsic strength, as
reflected in its 'bb-' Viability Rating (VR), which is in line with
the bank's implied VR.
Daycoval's ratings reflect its well-established second-tier banking
franchise in Brazil, with a strong market position in the
Corporate/SMEs business (large/big companies represent at 38.7% and
SMEs at 30.0% of the total credit), and moderate risk profile that
underpins good operating profitability and well-managed
asset-quality through the cycles. The ratings also reflect
capitalization buffers with adequate buffers over regulatory
minimums, prudent liquidity management and stable funding profile,
albeit wholesale oriented.
Sustainable Business Performance: Daycoval's revenue profile is
dependent on net interest income, but the stability of this income
has been maintained at a fairly consistent level throughout the
cycles. Fitch's 'bb' business profile assessment reflects
Daycoval's total operating income (TOI) of USD855 million for the
average of 2020-2023. Daycoval's TOI is supported by the bank's
well-established and specialized banking franchise in the
Corporate/SMEs segment, which provides sound origination capacity,
as well as a complementary presence mainly in the secured payroll
deduction loan, auto loan and FX business, which helps to defend
business volumes through the cycles.
Moderate Risk Profile: Its 'bb-' assessment of Daycoval's risk
profile considers the bank's more diversified loan book than
mid-sized bank in the country (65% of total assets at end-2023) and
securities portfolio (11%), mostly invested in Brazilian government
debt. Despite Daycoval's loan book is concentrated in
Corporate/SMEs (70% to total expanded loans), which are more
sensitive to business cycles, Fitch considers the bank ample
experience and demonstrated risk pricing expertise in the segment
have resulted in lower credit costs and write-offs compared to
peers. The bank's exposure to payroll deductible loans (25% to
total expanded loans), that default rates are less cyclical, have
supported also the credit costs.
Managed Asset Quality Risks, Adequate Loss Buffers: Daycoval was
well positioned to withstand an increase in default rates in 2022
and 2023, even in more adverse scenarios than Fitch had previously
expected from structurally higher rates and inflation. Daycoval's
front-loading of loan loss provisions in 2020 increased the
coverage of impaired loans (D-H) to 105% in that year, allowing the
bank to cope with rising default rates in the subsequent years.
Tighter underwriting and a proactive approach to asset quality
management led to a mild deterioration in asset quality in 2023, as
expected, with an impaired loan ratio of 4.6% to total expanded
loans at end-2023 (3.7% if exclude a large corporate client that
was 100% provisioned). Fitch expects Daycoval to maintain the core
ratio close to 4.5% in 2024 and 2025, driven by write-offs, and a
moderation in the inflow of impaired loans. Loan loss provisions
for impaired loans are now lower at 84%, but remain at the high end
of the domestic peers' average.
Resilient Profitability: Daycoval's operating profit/risk-weighted
assets (RWAs) ratio of 3.0% in 2023 remains below the bank's
four-year average of 4.2%, but viewed as strong in the context of
successive shocks domestically, above its peer average, and
underpinning its earnings & profitability assessment on the bank of
'bb'. Fitch expects Daycoval's profitability to remain sound
through 2024-2025, as Fitch expects asset-quality risks to
gradually ease relative to the prior year and some moderation on
operating expenses after strong business expansion in the previous
years.
Adequate Capitalization: Fitch believes Daycoval is well
capitalized relative to its risk profile. Fitch has revised its
capitalization and leverage assessment of Daycoval to 'bb-' from
'b+', reflecting the maintenance of adequate buffers relative to
regional peers. Daycoval's capital buffers have improved through
2023 reflecting adequate earnings generation and lower risk
weighted assets inflation, with a common equity Tier 1 (CET1) ratio
of 11.8% at end-2023.
Stable Funding and Liquidity: The bank's four-year average core
loans-to-deposits ratio was 261% at end-2023, given a lower share
of customer deposits relative to peers. However, Fitch assigns a
funding and liquidity score of 'bb', which is above the implied
score of the 'b' and below' category reflecting Daycoval's ample
liquidity, comfortable asset-liability management and a large
proportion of long-term funding given good access to debt markets.
Daycoval's non-deposit funding to non-equity funding is around 60%,
level that compare favorable among other mid-sized banks in the
country.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Daycoval's ratings are vulnerable to a significant weakening of
the operating environment in Brazil, for example, due to much
slower economic growth than its forecasts, which could result in
higher default rates and lead to a deterioration of the bank's
asset quality and capital metrics.
- Asset-Quality deterioration or if operating profit falls below
1.25% of RWAs without prospects of recovery in the short term. This
is especially true if the CET1 ratio falls below 10% and capital
encumbrance by unreserved impaired loans rises materially above
current levels on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The combination of a stronger business and risk profile resulting
in a stronger level of TOI, while maintaining an impaired loan
ratio sustainably below 5%, operating profit/RWA at least above 3%
and CET1 ratio consistently above 12%.
- National Ratings are sensitive to strengthening creditworthiness
relative to other Brazilian issuers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Debt
- Daycoval's senior unsecured debt is rated in line with its IDRs
as the likelihood of default on these obligations reflects the
likelihood of default of the entity.
GOVERNMENT SUPPORT RATING (GSR)
The GSR of 'No Support' (ns) reflects Daycoval's small franchise
within the Brazilian financial system (less than 1% of customer
deposits at YE 2023). In Fitch's view, there is no reasonable
assumption of support being forthcoming.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Senior Debt
- Daycoval's senior unsecured debt rating is sensitive to changes
in its IDR. Therefore, a downgrade of the bank's IDR would
automatically trigger a downgrade on the debt ratings.
- Daycoval's senior unsecured debt rating is sensitive to changes
in its IDR. Therefore, an upgrade of the bank's IDR would
automatically trigger a upon the debt ratings.
GSR
- Daycoval's GSR of 'ns' is sensitive to changes in Fitch's
assessment about the ability and / or propensity of the sovereign
to provide timely support to the bank and would only be likely to
occur with a significant increase in the bank's systemic
importance.
VR ADJUSTMENTS
The VR was assigned in line with the implied VR.
The 'bb-' for Funding & Liquidity was assigned above the implied
'b' Funding & Liquidity Score due to a Non-Deposit Funding
adjustment (positive).
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco Daycoval
S.A. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(bra) Affirmed AA(bra)
Natl ST F1+(bra)Affirmed F1+(bra)
Viability bb- Affirmed bb-
Government Support ns Affirmed ns
senior
unsecured LT BB- Affirmed BB-
BANCO FIBRA: Fitch Alters Outlook on 'B+' LongTerm IDR to Negative
------------------------------------------------------------------
Fitch Ratings has revised the Rating Outlook on Banco Fibra S.A.'s
(Fibra) 'B+' Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) and on its 'BBB+(bra)' National Long-Term Rating to
Negative from Stable, and affirmed all of Fibra's ratings. The
Negative Outlook reflects Fibra's weak core profitability and
challenges to improve core revenue generation.
Although implementing new commercial plans and cost saving
initiatives could help restore operating efficiency in the medium
to long term, Fitch's Negative Outlook considers high earnings
variability over the recent years, as well as downside risks
associated with the execution of these changes. Fibra's weak
execution of its business plan has limited its financial
flexibility to build growth and to start generating capital through
earnings.
Fitch has reflected this in a negative trend in Fitch's assessment
of the bank's business profile, earnings and profitability, and
capitalization and leverage.
KEY RATING DRIVERS
Business, Risk Profile Drive Ratings: Fibra's IDRs and National
Ratings are driven by its intrinsic strength, as reflected in its
'b+' Viability Rating (VR). Fibra's main rating weakness are their
limited core profitability and internal capital generation. The
ratings also reflect Fibra's low-risk lending profile, resulting in
sound asset quality, and adequate funding and liquidity profile.
Weak Core Earnings: Fibra has reported core operating losses for
the past three years, although capital gains from asset sales
(considered non-operating under Fitch's definition) have helped
mitigate some of the negative impact. Fibra has a low-risk business
model; however, its core revenue capacity is hindered by a
low-yielding corporate loan book.
This is further worsened by subdued business expansion, due to
modest capital buffers and a challenging operating environment over
the past years. Those issues limit its ability to generate
sufficient scale, and impact negatively Fibra's cost/income ratio,
that averaged 104% over the last four years.
Uncertain Profitability Prospects: Fitch expects the bank's core
earnings to remain negative for one more year (in 2024, excluding
non-operating gains) and to gradually become positive from 2025, as
ongoing investments to renew its operational infrastructure should
support incremental business volumes and revenue momentum over the
medium-term.
Fibra's access to customer relationships through its sister company
Companhia Siderurgica Nacional (CSN; BB/Positive), the largest
steel producer in Brazil, supports this plan. The bank expects the
majority of restructuring costs to be expensed or capitalized, with
a return to a more normalized cost base from 2024 onwards.
DTAs Constrains Capitalization: Fibra's common equity Tier 1 (CET1)
ratio of 8.8% at end 2023 was stable from end-2Q23, but that's
largely due to asset-de risking, that eased risk-weighted assets
inflation. However, Fitch views the bank's capitalization as only
modest given low internal capital generation through the cycle. The
high level of Deferred Tax Assets (DTAs - BRL1.1 billion) in the
capital base constrains the regulatory core ratio and limits
headroom for growth.
Low-Risk Lending Profile: Fibra's asset quality indicators compare
well with the peer average, supported by a low-risk lending book
that is predominantly focused on corporates, SMEs (small and
midsize enterprises) and agribusiness. At December 2023, impaired
D-H loans/total gross loans remained low relative to the domestic
average at 2.0%. Loan-loss reserves/impaired loans ratio was
adequate at 64.6% at end-2023, and Fitch believes the bank is in an
adequate position to absorb credit deterioration given the
well-collateralized and dispersed nature of its lending
receivables.
Adequate Funding and Liquidity: Fibra largely funds its loan book
through wholesale deposits. However, a high share of non-lending
assets and access to retail funding though partner brokerages
support comfortable liquidity, adequate funding stability, and
explains its low gross loan-to-customer deposits ratio of 75%. As
of 2023, liquid assets totaled BRL1.8 billion, covering 43% of
short-term deposits.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings would be downgraded if the implementation of the
turnaround strategy fails to materialize into incremental core
revenue and profitability in the short to medium term, increasing
the likelihood of further losses extending into 2025. Additionally,
ratings could be downgraded if losses and other setbacks threaten
Fibra's capacity to meet minimum capital requirements, without
timely solution prospects.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The Outlook could be revised to Stable if the bank demonstrated
improved near-term prospects of becoming profitable on a sustained
basis, maintaining satisfactory asset quality ratios. This,
combined with the achievement of the bank's cost and revenue
guidance, would demonstrate execution discipline and provide rating
stability.
Higher capital buffers over regulatory minimums that provide
capital relief to support volume growth would also be positive for
the ratings.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco Fibra S.A. LT IDR B+ Affirmed B+
ST IDR B Affirmed B
LC LT IDR B+ Affirmed B+
LC ST IDR B Affirmed B
Natl LT BBB+(bra)Affirmed BBB+(bra)
Natl ST F2(bra) Affirmed F2(bra)
Viability b+ Affirmed b+
Government Support ns Affirmed ns
BRAZIL: Industrial Sector Faces Mixed Fortunes in February
----------------------------------------------------------
Richard Mann at Rio Times Online reports that Brazil's industrial
output dipped by 0.3% in February, following a decline the previous
month, as reported by the IBGE on April 3, 2024.
This downturn was felt across 10 of 25 sectors, with
pharmaceuticals, printing, chemicals, and extractive industries
experiencing the most significant drops, according to Rio Times
Online.
However, the narrative wasn't all negative, as 13 sectors witnessed
growth, the report notes.
The automotive industry, in particular, surged by 6.5%, while the
pulp and paper sector saw a 5.8% increase, indicating areas of
robust performance within the broader industry, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
a
strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. Fitch said Brazil's ratings are supported by its large and
diverse economy, high per-capita income, and deep domestic markets
and a large cash cushion that support the sovereign's financing
flexibility and its high local-currency debt share. Strong external
finances support resilience to shocks, underpinned by a flexible
exchange rate, robust international reserves and a sovereign net
external creditor position. The ratings are constrained by weak
economic growth potential, relatively low governance scores, high
and rising government debt/GDP, and budgetary rigidities. A new
fiscal framework introduced this year aims to anchor a gradual
consolidation process and address these fiscal weaknesses, but its
effectiveness is increasingly unclear.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
===============
C O L O M B I A
===============
COLOMBIA TELECOMUNICACIONES: Fitch Lowers LongTerm IDR to 'BB+'
---------------------------------------------------------------
Fitch Ratings has downgraded Colombia Telecomunicaciones S.A.
E.S.P.'s (ColTel) ratings, including the Long-Term Foreign Currency
(FC) and Local Currency (LC) Issuer Default Ratings (IDR) to 'BB+'
from 'BBB-' and the National Scale rating to 'AA+(col)' from
'AAA(col)'. Fitch also downgraded ColTel's USD500 million notes due
2030 and local issuances of bonos ordinarios to 'BB+' from 'BBB-'
and to 'AA+(col)' from 'AAA(col)', respectively . Fitch affirmed
the National Short-Term rating at 'F1+(col)'. The Rating Outlook is
stable.
The downgrade reflects Coltel's credit metrics above Fitch's
previous rating sensitivities, pressured by EBITDA margin from
intense competition, and negative free cash flow generation due to
higher interest paid and capex, including spectrum payments. The
'BB+' rating factors in the company's strong market position in the
competitive Telecom Colombian sector, as well as the shift of the
company toward an asset-light model in the fixed and mobile
segments with the recent network sharing agreement with UNE EPM
(Tigo Une).
KEY RATING DRIVERS
Steady Net Leverage: ColTel's net leverage reached 3.2x (3.9x
adjusted for capitalized leases and connectivity fees) in 2023,
which is in line with a 'BB+' rating. Fitch expects net leverage to
remain steady in 2024 and 2025 at close to 3x, assuming no material
improvement in its free cash flow generation due to pressure on the
mobile segment, increased connectivity fees, and high capex,
including spectrum. Fitch forecasts adjusted EBITDA to improve
modestly to about COP 1.2 trillion from COP 1.1 trillion in 2023,
based on high single-digit fixed RGUs growth with one million new
homes passed, reaching a total of 6 million by YE24, while mobile
revenue is projected to remain steady.
Negative FCF: Fitch anticipates that free cash flow (FCF) will
remain negative and be constrained by significant capital
expenditures, including the renewal of spectrum anticipated for
2024 and 2025. The expected capex, including spectrum renewals, is
projected to average COP 875 billion in 2024-2025, compared to COP
871 billion in 2023. Post-2026, ColTel will benefit from a further
decrease in capex (including spectrum) owing to the mobile network
sharing agreement with Tigo Une. This agreement enables both Tigo
and Movistar to create a new jointly owned mobile access
infrastructure and share radio spectrum usage. It also allows both
companies to operate their mobile networks and the spectrum they
use more efficiently, in addition to the rollout of 5G in
Colombia.
Intense Price Competition: The Colombian mobile market should
continue to show significant pricing pressure as incumbent
operators maintain promotional activity. The country's mobile
penetration, which is above 150% compared to 135% in 2019, is also
contributing to lower ARPU. Competition is growing in fixed
broadband as well, although Fitch expects ColTel to be a challenger
in this segment, with fiber-optic expansion accelerating customer
acquisitions and leading to market share gains over the rating
horizon.
Good Market Positions: ColTel enjoys a good market position as the
second-largest mobile operator in Colombia, behind America Movil
S.A.B. de C.V.'s (A-/Positive) subsidiary Claro Colombia S.A.,
which is roughly twice the size, and is the third-largest in
broadband internet. Coltel maintains its leadership in FTTH and
continues to defend its position in the mobile market. The
company's competitive position is supported by subscriber shares of
25% in mobile and 16% in broadband (increasing market share by
about 2% yoy). In addition, the company has a solid
business-to-business offering, which generates approximately 28% of
its consolidated revenue through the expansion of digital
services.
Parent and Government Linkages: The company is 67.5% owned by
Telefonica SA (BBB/Stable), but ColTel's ratings are assessed on a
standalone basis without assuming Telefonica's support. This is
because Fitch views the potential for legal, strategic, and
operational support to be low. There are no debt guarantees or
cross-default clauses linking the two entities, and ColTel
contributes less than 4% to Telefonica's consolidated revenues.
ColTel operates and finance independently. Although the Colombian
government holds a 32.5% stake in ColTel, it does not influence the
company's management, so the government's involvement does not
directly impact the ratings.
DERIVATION SUMMARY
ColTel's overall business is similar to direct competitor UNE EPM
Telecomunicaciones S.A, with a similar revenue share of the overall
Colombian market, although Tigo Une has a longer history of
maintaining lower leverage but suffer from weaker governance
structure due to the dynamics between its Tigo UNE's shareholders,
Millicom and Empresas Publicas de Medellin (EPM). Tigo Une is also
relatively stronger in the fixed broadband in terms of market share
and PayTV business.
Telefonica del Peru, S.A.A. (TdP; B+/Negative), has a
well-diversified business, but the company's market position and
profitability have been weakened as a result of intense competition
in Peru. Fitch expects TdP leverage to weaken over the rating
horizon, given the expectation that a portion of the tax payments
will be financed with debt financing.
Empresa Nacional de Telecomunicaciones S.A.'s (Entel; BBB-/Stable)
benefits from its position as the leading mobile player in Chile.
Tigo UNE and ColTel are concentrated in Colombia, which is a
riskier market than Chile.
ColTel's greater scale and diversified revenue streams compare
favorably with Colombian fixed-line provider Empresa de
Telecomunicaciones de Bogota, S.A., E.S.P. (BB+/Negative), which
has a conservative financial structure.
KEY ASSUMPTIONS
- Net Fixed subscriber additions of about one million in 2024;
- Fixed RGUs grows to high-single digits in 2024;
- Steady blended fixed ARPUs 2024;
- Steady Mobile revenues in 2024-2025;
- Fiber take-up rate at about 25% -26% in 2024;
- Capex including spectrum average COP 875 billion in 2024-2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Total net debt/EBITDA falling below 2.5x on a sustained basis;
- EBITDA margin above 20%;
- (CFO-Capex)/Debt above 7.5%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Total net debt/EBITDA rising above 3.5x or
capitalization-adjusted adjusted net debt leverage of 4.5x on a
sustained basis due to a weakening of competitive position,
- Weak liquidity;
- Multi notch downgrade of Colombia.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Liquidity is supported by operating cash flow
generation and good access to bank debt. The company had cash and
equivalents of COP362 billion as of YE23 and maintains good access
to bank debt. The company faces COP348 billion of local notes due
in May 2024 and COP298 billion bank debt in 2024, which Fitch
expects the company to repay thanks to access to bank lines.
ColTel's USD500 million 2030 bond is fully hedged, which reduces FX
risk.
ISSUER PROFILE
ColTel is an integrated telecommunications provider that offers
mobile, fixed voice, Pay TV and broadband services to consumers,
businesses, and government customers in Colombia. The company is
67.5% owned by Telefonica S.A. of Spain and 32.5% owned by the
Colombian government.
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
----------- ------ -----
Colombia
Telecomunicaciones
S.A. E.S.P. BIC LT IDR BB+ Downgrade BBB-
LC LT IDR BB+ Downgrade BBB-
Natl LT AA+(col)Downgrade AAA(col)
Natl ST F1+(col)Affirmed F1+(col)
senior unsecured LT BB+ Downgrade BBB-
senior unsecured Natl LT AA+(col)Downgrade AAA(col)
UNE EPM: Fitch Hikes LongTerm IDR to 'BB', Outlook Stable
---------------------------------------------------------
Fitch Ratings has upgraded UNE EPM Telecomunicaciones S.A.'s (Tigo
UNE) Long-Term Foreign Currency and Local Currency Issuer Default
Ratings (IDRs) to 'BB' from 'B+', National Long-Term Rating to
'AA(col) from 'A-(col)', and COP unsecured notes to 'AA(col)' from
'A-(col)'/'RR4'. Fitch has also upgraded Tigo UNE's National
Short-Term Rating to 'F1+(col)' from 'F2(col)' and its CP rating
under the "Programa de Emisión y Colocación de Bonos Ordinarios y
Papeles Comerciales" to 'F1+(col)' from 'F2(col)'. The Rating
Outlook is Stable following the upgrade.
The upgrades and Stable Outlook reflect Tigo UNE's improved
liquidity due to equity support from its two shareholders, Millicom
and Empresas Publicas de Medellin (EPM), in 2023 and proceeds from
recent tower sales. The company has also demonstrated its ability
to access external debt financing. Fitch expects Tigo UNE's FCF
generation to improve over the rating horizon as it focuses on cost
control initiatives. The ratings also consider the company's
governance structure.
KEY RATING DRIVERS
Improved Liquidity: Tigo UNE's liquidity was reinforced by capital
injections from its shareholders in 2023. This support also allowed
it to enter into a new bank loan with Bancolombia. In January 2024
the company announced it had entered into an agreement to sell
approximately 1,100 towers to KKR in a sale-and-leaseback
transaction with proceeds anticipated over the coming year. Fitch
expects the company to refinance its upcoming debt maturities
through readily available cash and new bank debt or local bonds.
Free Cash Flow Trends: Fitch projects Tigo UNE's FCF to remain
negative in 2024 but gradually improve over the rating horizon as
the company implements cost cutting initiatives to improve EBITDA
margins. Spectrum costs should be less of a headwind as the company
benefits from its network sharing agreement with Movistar. Tigo
UNE's FCF was highly pressured in 2023 due to high levels of
spectrum-related capex, the impact of higher interest expense, and
ongoing competitive challenges in the industry. This led to a
liquidity crunch in 2H23 that ultimately resulted in the company's
shareholders providing a timely equity injection.
Intense Price Competition: The Colombian mobile market is likely to
continue to remain highly competitive as incumbent operators
maintain promotional activity to defend market share. Fitch
anticipates that industry ARPUs will continue to be particularly
pressured in the post-paid segment as WOM Colombia S.A.S. seeks to
become a significant player. The country's mobile penetration,
which is above 150% compared with 135% in 2019, is also
contributing to lower ARPU. Competition is also growing in fixed
broadband. Movistar has continued their aggressive promotional
strategy to gain share to fill out network capacity as demand for
broadband services has slowed post-pandemic.
Defending Market Position: Tigo UNE demonstrates relative strength
in the fixed home segment, a strong spectrum position aligned with
its coverage strategy, and a mobile network buildout with strong
post-paid data user growth. Fitch believes these factors will help
the company weather WOM Colombia's entry into the country's mobile
market and aggressive promotional activity in the home segment from
competitor Movistar.
Broad Service Offerings: The company's service diversification
compares well with other operators in the region. Tigo UNE is
well-diversified across home, mobile, and B2B, with respective
service revenue shares of approximately 35%, 41% and 20% during
2023. Tigo UNE operates entirely within the Colombian
telecommunications market.
Parent Subsidiary Linkages: Fitch believes Tigo UNE has a weaker
standalone credit profile compared to Millicom. Based on Fitch's
Linkage Factor Assessment, legal, strategic, and operational
incentives are assessed as low, and accordingly no uplift is
considered in Tigo UNE's rating. The company's ratings incorporate
weak linkages with both Empresas Publicas de Medellin E.S.P. (EPM;
BB+/Negative Watch) and Millicom International Cellular S.A.
(BB+/Stable). The ratings of both entities are limited by sovereign
risks, the first as a Colombian government related entity and the
second by the majority of its cash flows from speculative grade
countries. Although UNE EPM is structured as a 50/50 joint venture
(JV), of the two parent entities, Millicom exerts greater
influence.
ESG - Governance: The ratings remained constrained by Tigo UNE's
shareholder structure, which results in a one-notch differential
from the Standalone Credit Profile. While Millicom and EPM were
able to come to an agreement on an equity injection, the
shareholder structure provides less financial flexibility than its
peers due to a more onerous process required for financing needs.
DERIVATION SUMMARY
Tigo UNE's business profile is comparable to other diversified
telecom operators in Latin America; however, governance concerns
and weak cash flow generation constrain Tigo UNE's ratings.
Tigo UNE's overall business is similar to that of direct competitor
Colombia Telecomunicaciones (BBB-/Negative), with similar revenue
shares of the overall Colombian market, although Tigo UNE has a
longer history of maintaining lower leverage. Tigo UNE is also
relatively stronger in the fixed broadband and pay-TV business,
which could imply more subscription like cash flows, as the
Colombian mobile market is still mostly prepaid.
With greater scale and diversification, Tigo UNE's business profile
is somewhat stronger than 'BB' category domestic telecom peers,
such as Empresa de Telecomunicaciones de Bogota, S.A., E.S.P. (ETB;
BB+/Negative), while Tigo UNE's corporate governance concerns
demonstrate a weaker credit profile.
Another non-investment-grade peer, Telefonica del Peru, S.A.A.
(TdP; B+/Negative), has a comparatively strong but deteriorating
market share in both fixed and mobile, as Peru's mobile market
continues to be highly competitive while TdP's historic dominance
in fixed is being challenged by fiber-based competitors. Tigo UNE
carries lower leverage than TdP as TdP's profitability has suffered
in recent years and has been burdened by an unfavorable outcome
from a dispute with the Peruvian tax authority.
Tigo UNE is rated below Telefonica Moviles Chile S.A.
(BBB-/Stable), the leading integrated telecommunications service
provider in Chile. In comparison, Tigo UNE holds a secondary
position in Colombia behind Claro in the fixed business and is the
third largest mobile player, by market share. Both telcos operate
in highly competitive markets.
KEY ASSUMPTIONS
- Broadband and pay-TV revenue generating units (RGUs) contract
slightly in 2024 due to heightened competition; pay-TV RGUs
continue to be flat to down over the rating horizon while broadband
RGUs will be approximately flat;
- Blended home ARPUs down in 2024, due to competitive pressures in
broadband and pay-TV and secular declines in fixed voice;
flat-to-slightly up thereafter;
- B2B revenue growth in the mid-single digits on growing demand for
digital services;
- Total mobile subscriptions grow in the low single digits as
conversion of customers from prepaid to post-paid continues;
- Blended mobile ARPUs growing modestly in the low to
mid-single-digit range due to mix-shift effects from strong
post-paid growth;
- EBITDA margins improving to over 28% by FY2025 from trough levels
of 24.1% in 2022, as cost control measures more than offset high
pressures from competition;
- Capital intensity around 19-20% over the rating horizon, down
from ~29% in 2023, due in part to cost control efforts on
non-spectrum-related capex and lower spectrum payment needs;
- Gross debt/EBITDA of around 1.6x-1.9x and net debt to EBITDA of
around 1.5x-1.8x over the rating horizon;
- No material dividends over the rating horizon as the company
focuses on investments and debt repayment.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A sale of EPM's stake to Millicom could lead to an upgrade;
- Sustained (CFO-capex)/debt above 2.5%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Continued shareholder disputes, or inability to access financing
due to governance issues could lead to a multiple notch downgrade;
- Deterioration in business position due to competitive pressures;
- Net leverage above 3.5x.
LIQUIDITY AND DEBT STRUCTURE
Improved Liquidity: Tigo UNE's liquidity has improved since the
company received the joint equity contributions from company's
shareholders, Millicom and EPM in 4Q23. As of Dec. 31, 2023, the
company's debt totalled COP2.9 trillion, of which 93% was Colombian
peso-denominated, with the remainder comprised of a USD50 million
syndicated loan. The company's debt is evenly split between bank
loans and COP bonds. Tigo UNE had COP122 billion in cash and
equivalents as of Dec. 31, 2023.
In February 2024, the company received the disbursement of a COP85
billion bank loan and has received initial payments from the
previously announced sale of towers to Towernex. The company has a
COP160 billion bond maturing in May 2024, which Fitch expects that
the company will have sufficient liquidity to repay. Fitch also
expects the company to refinance the USD syndicated loan maturing
in December 2024.
ISSUER PROFILE
Tigo UNE is an integrated telecommunications services provider in
Colombia. The company offers mobile, broadband internet, fixed
telephony, and Pay-TV. The company operates as a JV between
Millicom International Cellular S.A. and Empresas Publicas de
Medellin (EPM).
ESG CONSIDERATIONS
UNE EPM Telecomunicaciones S.A. has an ESG Relevance Score of '5'
for Governance Structure due to the dynamics between its Tigo UNE's
shareholders, Millicom and Empresas Publicas de Medellin (EPM),
that have impacted their ability to address the company's
capitalization needs. This has a negative impact on the credit
profile and is relevant to the ratings in conjunction with other
factors.
UNE EPM Telecomunicaciones S.A. has an ESG Relevance Score of '4'
for Management Strategy due to ongoing governance concerns, which
have impaired management's ability to execute on its strategy. This
has a negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Banreservas Opens Credit Line for Exporters
---------------------------------------------------------------
Dominican Today reports that the Banco de Reservas made available
an initial credit portfolio of US$3 million for Dominicans seeking
to export from the Dominican Republic to Miami, considered the
"hub" of commerce in the United States.
The bank's general manager, Samuel Pereyra, stated that this line
of credit will be expanded as demand increases, according to
Dominican Today.
He said that Dominican exporters have an excellent opportunity to
sell their products in Miami and distribute them throughout the
State of Florida and the rest of the United States, the report
notes.
He recalled that in November 2023, they opened a Banco de Reservas
Representative Office in this city, the third financial institution
installed abroad, to serve Dominicans living abroad. The others are
in Madrid and New York, the report relays.
He specified that this is why Miami and New York were chosen as the
headquarters of the Banreservas representative offices: the
majority of Dominicans in the United States live in New York, New
Jersey, and Florida, the report discloses.
The new office is next to the Dominican Consulate, at 1101 Brickell
Avenue, Suite N-1402, Miami, Florida 33131.
Pereyra expressed that this year, they will hold a real estate fair
in Miami and another one in Madrid, the report notes. They had
great success in the first one held at the end of March 2024 in New
York and Lawrence, where Dominicans residing there purchased homes
in the Dominican Republic for a value of more than RD$8,500
million, equivalent to some 1,800 properties, the report says. A
total of 4,000 people attended this event, 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.
=============
J A M A I C A
=============
DIGICEL GROUP: Verticast Files Lawsuit Against Firm
---------------------------------------------------
Peter Christopher at Trinidad and Tobago Guardian reports that
after almost two years of unsuccessfully negotiating the broadcast
of live English Premier league games on Digicel and Flow cable
packages, the Verticast Media Group has filed an anti-competitive
lawsuit against the telecommunication companies.
In a release forwarded to the Guardian by Verticast president and
CEO Oliver McIntosh, the company said it filed the lawsuit in the
Supreme Court of Jamaica earlier, according to Trinidad and Tobago
Guardian.
Verticast is the holder of English Premier League (EPL) broadcast
rights in the Caribbean and the operators of the CSport cable
channels and website, the report notes.
The company said it sued defendants Digicel (Jamaica), Columbus
Communications Jamaica and Cable&Wireless Jamaica for restricting
Verticast's access on their pay television cable networks, the
report relays. Columbus COmmunications and Cable&Wireless are both
subsidiaries of Liberty Latin America, the report notes.
Verticast said, "This action reflects Verticast's unwavering
commitment to ensuring that consumers are not harmed by
anti-competitive behaviour where new entrants are hindered and
consumer choices are restricted, as has been the case regarding
VertiCast's channels and content offering," the report says.
In the lawsuit, VertiCast alleges the defendants employed
anti-competitive practices to exclude Verticast channels CSport &
CSport2 from their pay television cable networks, the report
discloses. The company has argued this would stifle competition
and limit consumer options, the report says.
Verticast said, "Upon launch of the Verticast channels CSport and
CSport2 with the (English) Premier League, FIFA World Cup and other
premium content, VertiCast signed broadcast deals with more than 20
cable operators regionally at market rates, the report relays.
Despite VertiCast offering market terms, there have been no
commercial terms in response from the defendants, the report notes.
This refusal, VertiCast contends, obstructs consumer access to
content and distribution, undermining fair competition," the report
says.
The statement continued, "VertiCast invested in content and
distribution to create channels with content that is in high demand
by consumers, such as the English Premier League. We have gone
above and beyond to work with the defendants to provide their
consumers with access. These attempts at negotiations have not been
successful and thus we had no option but to stand up for both
consumers rights and the rights of media companies in the
industry," the report relays.
Verticast secured the rights to the EPL in 2022 ahead of the
league's 2022/2023 season, the report notes. Since then, the
company has been unable come to an agreement with Flow and Digicel,
two of the largest cable providers in the Caribbean, the report
discloses. In August 2022, Verticast issued an open letter to
Flow, which is part of the Liberty Latin America group, urging the
company to negotiate terms to allow the EPL to be broadcast via the
cable provider, the report relays.
Flow, however, stated it was unable to come to an agreement with
Verticast citing concern over the cost, while Digicel simply
commented it would be unable to broadcast the league, the report
ntoes.
This left TSTT affiliate Amplia, which commands less of the market
than both Digicel and Flow, as the only cable provider in T&T with
CSport channels which broadcast the league, the report relays.
Forty-nine per cent of TSTT is owned by Liberty Latin America, the
report notes.
After the conclusion of the 2022/2023, McIntosh once again made a
call for Flow and Digicel to renegotiate but once again no deal was
made, in an interview published in the Business Guardian on June
22, 2023, the report relays.
However since February, CSport has been unable to broadcast live
matches of the Premier League, leaving much of Caribbean without
the option to view live matches through official or "legal"
channels, as reported in the Business Guardian, the report
discloses.
McIntosh is a former investment banker who helped found SportsMax
in 2002, the report recalls.
When Digicel acquired a majority stake in International Media
Content, the parent company of SportsMax, in 2014, McIntosh stayed
on to run the company as CEO, the report relays. He resigned from
the company in 2021 and founded Verticast in 2022, the report
adds.
In a response to the Guardian's question concerning the status of
the broadcast in the region, the EPL, said it had no comment at
this time on the ongoing blackout in the Caribbean.
About Digicel Group
Digicel Group is a mobile phone network provider operating in 33
markets across the Caribbean, Central America, and Oceania
regions.
The company is owned by the Irish billionaire Denis O'Brien, is
incorporated in Bermuda, and based in Jamaica.
As reported in the Troubled Company Reporter-Latin America in April
2020, Moody's Investors Service downgraded Digicel Group Limited's
probability of default rating to Caa3-PD from Caa2-PD. At the same
time, Moody's downgraded the senior secured rating of Digicel
International Finance Limited to Caa1 from B3. All other ratings
within the group remain unchanged. The outlook is negative.
Also in April 2020, the TCR-LA reported that Fitch Ratings has
downgraded Digicel Limited to 'C' from 'CCC', and its outstanding
debt instruments, including the 2021 and 2023 notes to 'C'/'RR4'
from 'CCC'/'RR4'. Fitch has also downgraded Digicel International
Finance Limited to 'CCC+' from 'B-'/Negative, and its outstanding
debt instruments, including the 2024 notes and the 2025 credit
facility, to 'CCC+'/'RR4' from 'B-'/'RR4'. Fitch has removed the
Negative Rating Outlook from DIFL.
JAMAICA: Banks Brace for Add'l Costs to Comply w/ New ABM
---------------------------------------------------------
RJR News reports that bank operators say they will face additional
costs to comply with the new ABM Service Standards.
Audrey Tugwell Henry, President of the Jamaican Bankers Association
(JBA), says while a longer time would have been preferred for
compliance, the banks are committed to the policy implementation,
according to RJR News.
"All the financial institutions have established operating
standards for managing their ABM networks. So we would, for
example, all be monitoring our uptime, we all have agreements with
our cash courier service providers. And so the standard is not
like we're starting from scratch as an industry. What the central
bank is aiming to do is to standardise across the industry what is
considered acceptable levels of service for the Jamaican
consumers," she noted, the report notes.
Mrs. Tugwell Henry said some banks will have more to do, compared
to others, and the service providers to the banks, which include
cash couriers, have also committed to meeting the new standards,
the report relays.
"There will be some cost implications but the ABM is a channel that
all players have invested significant financial, technical and
human resources to keep the ABM channel up and running," she said,
the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
JAMAICA: BOJ Says Market Interest Rates Rose in 2023
----------------------------------------------------
RJR News reports the Bank of Jamaica (BOJ) says market interest
rates rose in 2023, with the exception of private money market
rates.
In its annual report, the central bank says the weighted average
for lending rate on bank loans to the private sector as at December
2023 was 12.30 per cent, according to RJR News.
This reflects an increase of 56 basis points relative to December
2022, the report notes.
Interest rates on deposits also increased, reaching an average 2.47
per cent as at December, the report relays.
That's an increase of 85 basis points compared with the previous
year, the report discloses.
However, the central bank says there were declines in the daily
averages of private money market rates during the year, the report
relays.
The 30-day and the overnight private money market rates at December
2023 were 8.25 per cent and 7.77 per cent, a decline of 35 basis
points and 25 basis points, respectively, the report notes.
The BOJ has been monitoring interest rates in the market,
especially since it has increased the policy interest rate to 7 per
cent over the last three years, the report says.
This was in a bid to stem inflation, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
===========
M E X I C O
===========
TOTAL PLAY: Fitch Assigns 'CCC+' Rating to New Sr. Secured Notes
----------------------------------------------------------------
Fitch Ratings has assigned a 'CCC+'/'RR4' rating to Total Play
Telecomunicaciones S.A.P.I de C.V.'s (Total Play) new secured
senior notes due in 2028. Net debt proceeds will be used to
exchange any and all of the outstanding 7.5% remaining unsecured
notes due 2025.
The new senior secured notes are being issued as part of an
exchange offer for Total Play's existing remaining USD361.5 million
senior unsecured notes due in 2025. The new 2028 secured notes are
secured by designated receivables, bear an annual interest rate of
10.5% and have an increasing amortization schedule, with 20% in
2026, 30% in 2027 and 50% in 2028, respectively.
Participant noteholders who tender their notes by early
participation date will be exchanged at par. Participating
noteholders have similar conditions that were offered in the
Private Exchange with a group of investors for USD213.5 million
made in Feb. 21, 2024 of its USD575 million senior notes due 2025.
Different to the Private Exchange, the new 2028 notes will be
listed and registered on the Singapore Exchange (SGX).
With the notes exchange Total Play is seeking bondholders to
consent to amend the 2025 documents. The amendments eliminate
substantially all restrictive covenants, certain events of default
and other provisions contained in the Existing Notes Indenture. The
proposed amendments will not eliminate the restrictive covenants
from the original 6.375% senior notes due 2028.
Fitch does not deem the exchange offer a distressed debt exchange
(DDE), as it is not expected to result in a material reduction in
terms, and Total Play is not conducting the exchange to avoid a
traditional payment default, bankruptcy or similar insolvency
proceedings. The rating of the existing notes due 2025 and 2028
will be re-assed based on the final capital structure post debt
exchange.
KEY RATING DRIVERS
Governance Concerns: Fitch believes Grupo Salinas'
governance-related events add uncertainty about similar practices
in the future. TV Azteca's default and Total Play's private
exchange support Fitch's previous assessment that Grupo Salinas is
uneven in its treatment of stakeholders. Fitch believes these
practices could impact Total Play's ability to access funding.
Debt Refinancing: With the current debt exchange, the remainder of
the USD575 million unsecured bonds will be aligned with the
conditions offered to the private exchange. Following these
liability management transactions Total Play reduces its
refinancing needs and extends its debt maturity profile. The
expected senior secured note rating is equalized with Total Play's
Long-Term Issuer Long-Term Issuer Default Rating (IDR) and reflects
a capital structure heavily leaned to a secured debt structured
with a proportion of subordinated creditors. Assuming a 100%
exchange, around 73% of the total debt will be secured.
In February 2024, the company launched a private exchange offer on
its USD575 million unsecured bond due in 2025. The offer was
secured by accounts receivables, with an annual interest rate of
10.5% and have an increasing amortization schedule. The private
exchange was made to a group of investors that held USD213.5
million.
The original 2025 that may not be tendered in the exchange and the
original 2028 notes will be subordinated from the IDR, as the new
notes are secured by accounts receivables and, in Fitch's view,
have lower recovery prospects in an event of default.
Increasing Cost of Debt: The use of secured debt further limits
Total Play's financial flexibility. The new secured senior notes'
interest rate is 10.5%, which is higher than the original 2025
senior unsecured notes. The company's percentage of secured debt
and cash interest expense will increase given its limited financing
options, impacting cash flow generation.
Expectation of Neutral FCF: Fitch expects FCF to be neutral in
2024, given Total Play's MXN12.5 billion capex plan, a level that
would not allow the company to address its refinancing needs and
prioritize debt repayment by strengthening liquidity. Total Play
also faces higher interest expense and a more competitive
landscape.
Fitch expects FCF to be neutral to positive in 2025-2026,
considering average annual capex of MXN13 billion. Fitch believes
the company has the ability to cut non-essential capex temporarily
by nearly half from a current 2024 capex budget of MXN12.5 billion
to MXN6 billion. Total Play has historically always reported
negative FCF generation. The company has invested MXN70 billion,
mainly in network deployment in the last five years, with
capex/revenue ratios of 62% in 2022, 64% in 2021 and 73% in 2020.
Profitability Continuously Improving: Operational performance is in
line with Fitch's expectations and enabled the company to generate
positive cash flow from operations (CFO) in 2023. Total Play's
services are performing well, with solid revenue and EBITDA
expansion in recent years, backed by extensive network deployment
that increased homes passed, business scale and profitability.
Increased network penetration, while maintaining a low-cost
structure and working capital requirements, is key to growing
revenue and expanding margins. Fitch expects network penetration to
increase to 29.0% as of YE 2024, compared with 12% in 2018, while
EBITDA margins reach about 42.7% at YE 2024. Fitch expects EBITDA
to continue to improve in 2024, maintaining leverage ratios below
3.5x.
Market Share and Diversification: Total Play is an important
participant in the industry in terms of network coverage, homes
passed and revenue generating units. The company has maintained
strong growth despite operating in a competitive industry. Total
Play reached 17.5 million homes passed and 4.6 million subscribers
in 4Q23, a faster growth rate of 35% than the industry average of
6%. Total Play has a balanced revenue mix and customer and service
diversification.
ESG - Governance Structure: Fitch believes Grupo Salinas'
governance-related events add uncertainty about similar practices
in the future. TV Azteca's default and Total Play's private
exchange support Fitch's previous assessment that Grupo Salinas is
uneven in its treatment of stakeholders. Fitch believes these
practices could impact Total Play's ability to access funding.
DERIVATION SUMMARY
Total Play's ratings reflect its tight liquidity position and
refinancing risk. Compared with consolidated Grupo Televisa, S.A.B.
(BBB/Negative), which has a more diversified business, Total Play
has higher leverage, a smaller market share and lower network
penetration.
Cable & Wireless Communications Limited (C&W BB-/Stable) has
similar leverage to Total Play and a solid liquidity position, with
a long-dated debt amortization profile and better service and
geographic diversification. C&W benefits from operations in a
series of mainly duopoly markets, excluding Panama mobile. Revenue
mix per service is well-balanced, with mobile accounting for around
26% of total sales, fixed-line at 26% and business to business with
48% of revenue in 2022. C&W's strengths are tempered by Liberty
Latin America Ltd.'s financial management, which limits any
material deleveraging.
VTR Finance N.V. (CCC-) has higher leverage than Total Play and
also faces limited financial flexibility. Its rating also reflects
the expectation of a weak operational performance in 2024 due to
the continuation of a highly competitive environment in Chile and a
sustained negative FCF.
KEY ASSUMPTIONS
- Revenue growth of 10% in 2024 due to the company's strategy of
increasing in-network penetration;
- EBITDA margins of 43% in 2024;
- Capex to sales ratio at around 28.1% in 2024, capex should be
more aligned to customer increases;
- FCF generation turning neutral in 2024;
- No dividend payments.
RECOVERY ANALYSIS
Fitch's criteria considers bespoke recovery analysis for issuers
with 'B+' IDRs and below. The bespoke recovery analysis assumes
that Total Play would be considered a going concern in bankruptcy
and that the company would be reorganized rather than liquidated.
Total Play's going concern EBITDA of MXN10.2 billion is based on
Fitch's expectation of a sustainable, post-reorganization EBITDA
level. This compares with a LTM EBITDA of MXN17.2 billion and
reflects the increased competition in the Mexican market and the
company´s limited financial flexibility. The enterprise
value/EBITDA multiple applied is 5.0x. This figure reflects Total
Play's market position.
Fitch applies a waterfall analysis to the post-default enterprise
value based on the relative claims of debt in the capital
structure. Fitch's debt waterfall assumptions consider total debt
as of Dec. 31, 2023. The waterfall results in a 'RR4' Recovery
Rating for the new senior secured notes due in 2028. Fitch
considers that given the high amount of cashflows that go the
master trust, there is subordination in the original 2025 notes and
2028 notes.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade
The possibility of any positive ration action in the short term in
unlikely. However, factors that could be considered positive for
the issuer's credit quality include:
- Change in the funding mix towards unsecured debt and a
diversification of its funding sources;
- A more balanced capital structure between liabilities and
equity;
- A CFO-Capex/Total Debt ratio consistently at or above 2.5%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade
- Failure to address its refinancing needs, launching of a coercive
debt exchange or announcing a debt restructuring;
- Neutral to negative CFO-Capex/Total debt ratio that prevents
further liquidity improvements;
- Weaker operating performance and loss of market share;
- Unfavorable regulatory changes;
- For the senior unsecured issuances, the completion of the
exchange could have a negative impact that result in an additional
notch downgrade.
LIQUIDITY AND DEBT STRUCTURE
Exchange intended to Improve Liquidity: Liquidity will benefit from
the exchange of USD361.5 million. However Total Play's financial
flexibility remains limited. The company is still exposed to risk
from short- term debt of MXN9.1 billion (including factoring and
leasing of MXN4.5 billion) that matures in 2024 and an accounts
payable amount of MXN13 billion. The company had readily available
cash and equivalents of MXN2.3 billion as of Dec. 31, 2023 and
restricted cash of MXN3.3 billion, which Fitch assumes will be used
for debt repayment. The company expects to refinance MXN1.0 billion
in local bonds that mature in April 2024.
The increase in the percentage of secured debt limits Total Play's
financial flexibility. Its liquidity position is tempered by still
elevated capex in 2024, (at 28.1% capex/revenue), that continues to
pressure its FCF generation, higher interest expense and a
difficult market environment as it aims to execute on refinancing
short-term debt.
Fitch factors accounts payable of approximately MXN2.2 billion in
its debt calculations. The factoring adjustment allows Fitch to
compare issuers that may use different sources of funding, as
immediate replacement funding is required if the payables financing
shuts down.
ISSUER PROFILE
Total Play Telecomunicaciones S.A. de C.V. (BB-/Stable) is a
Mexican provider of fixed telecommunications services to
residential and enterprise customers including government entities.
The company offers pay-television, fixed-broadband and fixed-voice
services through its competitive fiber-to-the-home (FTTH) via a
gigabit passive-optical network (GPON) network.
ESG CONSIDERATIONS
Total Play Telecomunicaciones, S.A.P.I. de C.V. has an ESG
Relevance Score of '5' for Governance Structure due to the
ownership concentration and the company's aggressive related-party
treatment toward different stakeholders, which has a negative
impact on the credit profile and is highly relevant to the rating
in conjunction with other factors.
Total Play Telecomunicaciones, S.A.P.I. de C.V. has an ESG
Relevance Score for Financial Transparency of '4' due to the level
of detail and transparency of financial disclosure that is weaker
than other industry peers. This has a negative impact on the credit
profile and is highly 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 Recovery
----------- ------ --------
Total Play
Telecomunicaciones,
S.A.P.I. de C.V.
senior secured LT CCC+ New Rating RR4
===========
P A N A M A
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BANCO NACIONAL: Fitch Lowers LT IDR to 'BB+', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has conducted a portfolio review of five Panamanian
banks and related entities following the downgrade of Panama's
sovereign Rating to 'BB+' from 'BBB-', and revision of Fitch's
assessment of the operating environment (OE) factor for Panamanian
banks to 'Negative' from 'Stable'. The OE was affirmed at 'bb+'.
For additional details on the sovereign rating action see "Fitch
Downgrades Panama to 'BB+'; Outlook Stable".
The OE outlook revision to 'Negative' from 'Stable' reflects
Fitch's expectation that the economic slowdown, high financing cost
and overall OE uncertainty may limit the banks' business growth and
pressure their loan quality and financial performance.
The banks' national ratings, as well as those of other financial
institutions rated in Panama, are not directly impacted, as they
reflect the relative strengths and weaknesses of each institution
in a specific jurisdiction.
KEY RATING DRIVERS
State-owned Banks
Banco Nacional de Panama and Caja de Ahorros
Fitch downgraded Banco Nacional de Panama's (Banconal) and Caja de
Ahorros' Long-Term Issuer Default Ratings (IDRs) to 'BB+' from
'BBB-', Short-Term IDRs to 'B' from 'F3' and Government Support
Ratings (GSR) to 'bb+' from 'bbb-'. The Rating Outlook is Stable.
Banconal's and Caja de Ahorros's IDRs and GSRs are aligned with
Panama's Long-Term IDR, reflecting the government's explicit
guarantee for all of their liabilities established under their
inception laws.
Fitch's view on the propensity of support is high due to Banconal's
and Caja de Ahorros' liability structure, as funds from the
government and all public entities are kept at Banconal, while also
a sizable part of Caja de Ahorros' funding comes from a single
public institution, reflecting these banks' policy roles. In turn,
the banks' policy role has high importance in Fitch's assessment
and is a strong factor in the government's propensity for support.
Banconal's history demonstrates that it fulfills an unofficial role
as Panama's lender of last resort and serves as the financial arm
of the Panamanian government and all public entities, and manager
of the Panamanian banking system clearing house. Caja de Ahorros'
mandate at its creation is to promote savings and access to housing
by Panamanians, and is the government's main tool for national
housing policy. Fitch believes these roles are long-lasting and
difficult to transfer to other government agencies.
Banconal's Viability Rating (VR) was downgraded to 'bb+' from
'bbb-'. The downgrade reflects Fitch's assessment in the bank's
business profile, risk profile and asset quality strong link with
the sovereign rating and the agency's view on the OE. Banconal's
business profile is supported by its public nature and the benefits
that come from being a bank with a strong link to the government,
moving in tandem with the sovereign rating.
However, the bank's risk profile and asset quality assessment
reflect the risk exposure due to the high proportion of sovereign
debt, which accounts for 1.0x of equity, one of the highest
exposures in the local system.
Caja de Ahorros' VR was affirmed at 'bb-', and reflects its sound
business profile underpinned by its strong market position in the
Panamanian mortgage lending segment for social housing, along with
its special policy role and status in the Panamanian government.
Its VR also reflects its exposure to low-to-middle income segments
not traditionally served by private commercial banks, which has
driven to higher-than-peers impairment levels.
The bank's narrow profitability from its social purpose, moderate
capitalization levels that are sustained by support from Panamanian
government, solid funding profile from its strong deposit
franchise, and financial agent role for the state are also
considered in its VR.
Private Banks
Banco General
Fitch has affirmed Banco General, S.A.'s (BG) Long-Term IDR at
'BBB-', Short-Term IDR at 'F3' and its VR at 'bbb-'. The Rating
Outlook for the Long-term IDR is Stable. The ratings are one-notch
above the sovereign to reflect the agency's expectation that the
bank would be capable of servicing its obligations in a scenario of
sovereign default. In Fitch's view, the bank's strong credit
profile is mainly based on its robust loss absorption capacity,
stable funding franchise, along with its limited external financing
and low sovereign exposure.
BG's VR and IDR weight its strong position in the domestic market,
as its leadership results in consistent profit generation and
greater resilience of its loan portfolio than peers. This is
reflected in an operating profit to risk-weighted assets (RWAs) of
5.9% as of YE 2023, higher than the banking system average of 1.5%,
and its moderate Stage 3 loans to gross loans ratio, at 2.3%.
Fitch's assessment of BG's credit profile is influenced by its high
loss absorption capacity, stable deposit base and high liquidity,
among other attributes. BG's common equity tier 1 (CET1) to RWAs is
20.2% and loan loss allowances coverage on Stage 3 loans is 150.4%,
while liquid assets represented 41.2% of total funding (YE 2022:
41.0%).
BG's 'no support' (ns) GSR reflects that external support, while
possible, cannot be relied upon, given Fitch's view of Panama's
limited ability to support the banking system and D-SIBs primarily
due to its large size related to the economy and the lack of a
lender of last resort.
Banco General (Costa Rica)
Banco General (Costa Rica)'s (BGCR) Long- and Short-term National
Ratings were affirmed at 'AAA(cri)' and 'F1+(cri)', respectively,
to reflect the likelihood of support that would receive from BG if
needed. Fitch's assessment of BG's ability to support considers its
credit profile strength as reflected in 'BBB-' IDR and Stable
Outlook, as well as the small size of the potential support
relative to BG's consolidated assets.
Fitch's assessment of BG's propensity to support mainly weights the
strategic role that BGCR plays in its geographical diversification
strategy, the relevant reputational risk for BG if its subsidiary
defaults, and the high operative and commercial integration between
both entities. BGCR's Stable Outlook mirrors BG's Rating Outlook.
Credicorp Bank
Fitch has revised Credicorp Bank, S.A.'s Long-Term IDR Outlook to
Negative from Stable and affirmed the IDR at 'BB+'. Fitch has also
affirmed Credicorp's Short-Term IDR at 'B' and VR at 'bb+'. The
Outlook revision reflects the pressure on the bank's asset quality
and risk profile assessments, with a negative trend. This is a
result of a deteriorating operating environment for 2024, already
reflected in the change of the OE trend, and the evolution of asset
quality, as measured by the increase in the stage 3 ratio.
The business profile score was also downgraded in a challenging
environment that limits the upside potential of the bank's business
model, which previously offset the entity's small market position.
With the reduction in the business profile score, the implied VR
falls to 'bb'. However, the risk profile is still a strong factor
to support the current rating, albeit it remains sensitive to the
negative trend noted above.
The GSR of 'ns' reflects Fitch's view that, although possible,
external support cannot be relied upon, given the banking system's
large size relative to the economy and the lack of a lender of last
resort.
Global Bank Corporation
Fitch downgraded Global Bank Corporation's (GBC) Long-Term IDR to
'BB' from 'BB+' and VR to 'bb' from 'bb+' as the agency believes
that the Panamanian OE along with the downside risks limit the
bank's VR from being at the sovereign rating level. Fitch has also
affirmed GBC's Short-Term IDR at 'B'. The Rating Outlook for the
Long-Term IDR is Negative. The bank's credit quality remains a
challenge, such that the stage 3 loans to gross loans metric stood
at 4.2% at December 2023.
Whereas profitability, measured as operating profits to RWA,
continued to recover in 2H23, it remained below 1.0% (December
2023: 0.9%). The capitalization level, measured by the CET1 capital
ratio, remained relatively stable in the 2H23, and was at 8.8% as
of December 2023. However, Fitch also considers additional
loss-absorbing features provided by the countercyclical buffer and
AT1 securities.
GBC's 'ns' GSR reflects that external support, while possible,
cannot be relied upon, given Fitch's view of Panama's limited
ability to support the banking system and D-SIBs, primarily due to
its large size relative to the economy and the lack of a lender of
last resort.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Banconal
- Banconal's IDR, GSR and VR would be downgraded following a
downgrade on the sovereign.
Caja de Ahorros
- Caja de Ahorros' IDR and GSR would be downgraded following a
downgrade on the sovereign.
- Caja de Ahorros' VR could be negatively affected in case of
ineffective credit controls for maintaining controlled impairment
levels along with a consistent decline in profitability (operating
profit to RWAs consistently below 0.5%) and sustained decline in
capitalization (CET1 and regulatory dynamic reserves continuously
below 9% of its RWAs).
Banco General
- The IDR and VR could be downgraded due to a downgrade of Panama's
sovereign rating. According to Fitch criteria, the current uplift
from the Sovereign rating is unlikely to widen more than one notch
due to the high correlation between sovereign and banks credit
profile.
- BG's ratings could be negatively affected by a sustained and
material deterioration of asset quality that could pressure its
financial performance reflected in an operating profit to RWA
consistently below 2.0% or a decline in CET1 ratio consistently
below 12%.
- Because these are the lowest levels in the respective scale,
there is no downside potential for GSR.
Banco General (Costa Rica):
- BGCR's ratings could be downgraded if BG's IDR is downgraded.
- BGCR's ratings could be downgraded due to a lower propensity of
its parent company to provide support.
Credicorp Bank
- Credicorp's IDR and VR would be downgraded if the stage 3 ratio
maintains its current level above 3.0%. Also, if there is a
potential downward revision on Fitch's assessment of the OE further
undermines the bank´s credit profile;
- Because these are the lowest levels in the respective scale,
there is no downside potential for GSR.
Global Bank Corporation
- GBC's IDR and VR could be downgraded if there is a downward
revision on Fitch's assessment of the OE which undermines its
credit profile;
- GBC's IDRs and VR could be downgraded if the bank's risk profile
weakens further due to a continued deteriorating asset quality;
- A decline in the operating profit to RWA ratio consistently below
0.5%, which impacts the CET1 to RWA ratio, including loss-absorbing
items, to less than 10% could downgrade the bank's IDRs and VR.
- Because these are the lowest levels in the respective scale,
there is no downside potential for GSR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Banconal and Caja de Ahorros
- Banconal's and Caja de Ahorros' IDR and GSR, and Banconal's VR,
have limited upside potential and would come from a similar action
on the sovereign.
- Caja de Ahorros' VR has also limited upside potential given the
challenges of the bank in terms of profitability, asset quality and
capitalization.
Banco General
- BG's VR and IDRs could be upgraded by the confluence of an
improvement of the OE and the sovereign rating, while the bank
maintains a very strong financial profile that allows it to remain
rated one notch above the sovereign. However, an upgrade under
current conditions is unlikely given the Negative Outlook on the OE
factor.
- As Panama is a dollarized country with no lender of last resort,
an upgrade of the GSR is unlikely.
Banco General (Costa Rica):
- BGCR ratings are at the top of the national scale in Costa Rica,
so they cannot be upgraded.
Credicorp Bank
- Upside potential is limited given the Negative Outlook on the
ratings. An Outlook revision to Stable would be based on a
demonstrable recovery of asset quality, as reflected in a
sustainable ratio close to 2.5% of tier 3 loans, and an improvement
in reserve coverage.
- As Panama is a dollarized country with no lender of last resort,
an upgrade of the GSR is unlikely.
Global Bank Corporation
- The Negative Outlook on GBC's Long-Term rating would be revised
to Stable if asset quality improves such that its core metric
stabilizes at a level below 4.0%.
- As Panama is a dollarized country with no lender of last resort,
an upgrade in GSR is unlikely.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Banco General
BG's senior unsecured notes due in August 2027 are rated at the
same level as the bank's Long-Term IDR because Fitch views its
likelihood of default as the same as the likelihood of default of
the bank.
Banco Nacional de Panama
Senior unsecured debt is rated at the same level as Banconal's
Long-Term IDR. Fitch views the default risk of the senior notes and
the bank as equivalent and believes the senior obligations have
average recovery prospects. The subsidiary guarantee enforceable
under Panamanian law is not a direct guarantee of the notes, which
are governed by the laws of the state of New York.
Global Bank Corporation
The bank's senior unsecured global debt was downgraded to 'BB' from
'BB+', as it is rated at the same level as the bank's Long-Term
IDR, since the likelihood of a default of the notes is the same as
that of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Banco General
- Senior unsecured debt would be downgraded if BG's Long-Term IDR
is downgraded.
Banco Nacional de Panama
- The senior unsecured debt ratings would be downgraded if
Banconal's Long-Term IDR is downgraded.
Global Bank Corporation
- The bank's Long-Term senior unsecured debt rating would mirror
any potential downgrade on GBC's Long-Term IDR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Banco General
- Senior unsecured debt would be upgraded if BG's Long-Term IDR is
upgraded.
Banco Nacional de Panama
- The senior unsecured debt ratings would be upgraded if Banconal's
Long-Term IDR is upgraded.
Global Bank Corporation
- The bank's Long-Term senior unsecured debt rating would mirror
any potential upgrade on GBC's Long-Term IDR.
VR ADJUSTMENTS
Banconal, Caja, BG, Credicorp, GBC
The Operating Environment Score of 'bb+' has been assigned below
the 'bbb' category implied score due to the following adjustment
reason: Sovereign Rating (negative).
Caja de Ahorros
The Business Profile score has been assigned above the implied
score due to the following adjustment reason(s): Market Position
(positive), Group Benefits and Risks (positive).
The Capitalization & Leverage score has been assigned above the
implied score due to the following adjustment reason(s): Capital
Flexibility and Ordinary Support (positive).
Banco General
The Business Profile Score of 'bbb-' has been assigned above the
'bb' category implied score due to the following adjustment reason:
Market Position (positive).
The Earnings & Profitability Score of 'bbb-' has been assigned
above the 'bb' category implied score due to the following
adjustment reason: Historical and Future Metrics (positive).
The Capitalization & Leverage Score of 'bbb-' has been assigned
above the 'bb' category implied score due to the following
adjustment reasons: Regulatory Capitalization (positive).
The Funding & Liquidity Score of 'bbb-' has been assigned above the
'bb' category implied score due to the following adjustment
reasons: Deposit Structure (positive).
Credicorp Bank
The bank's 'bb+' VR has been assigned above the 'bb' implied VR due
to the following adjustment reason: Risk Profile (positive).
The 'bb-' Business Profile Score has been assigned above the 'b'
category implied score due to the following adjustment reason:
Business Model (positive).
The Capitalization & Leverage Score of 'bb+' has been assigned
below the 'bbb' category implied score due to the following
adjustment reasons: Historical and Future Metrics (negative).
Global Bank Corporation
The bank's 'bb' VR has been assigned above the 'bb-' implied VR due
to the following adjustment reason: Business Profile (positive).
The 'bb' Business Profile Score has been assigned above the 'b'
category implied score due to the following adjustment reason:
Market Position (positive).
The 'bb-' Capitalization and Leverage Score has been assigned above
the 'b' category implied score due to the following adjustment
reason: Core Capital Calculation (positive).
SUMMARY OF FINANCIAL ADJUSTMENTS
BGCR
Prepaid expenses and other deferred charges were reclassified to
intangibles and deducted from Fitch core capital due to their low
capacity to absorb losses.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Banconal's and Caja de Ahorros' ratings are driven by the potential
support it would receive from the Republic of Panama (BB+/Stable).
BGCR's ratings are driven by the potential support it would receive
from Banco General.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco General
S.A. LT IDR BBB- Affirmed BBB-
ST IDR F3 Affirmed F3
Viability bbb- Affirmed bbb-
Government Support ns Affirmed ns
senior
unsecured LT BBB- Affirmed BBB-
Banco General
(Costa Rica),
S.A. Natl LT AAA(cri)Affirmed AAA(cri)
Natl ST F1+(cri)Affirmed F1+(cri)
Credicorp Bank,
S.A. LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
Caja de Ahorros LT IDR BB+ Downgrade BBB-
ST IDR B Downgrade F3
Viability bb- Affirmed bb-
Government Support bb+ Downgrade bbb-
Banco Nacional
de Panama LT IDR BB+ Downgrade BBB-
ST IDR B Downgrade F3
Viability bb+ Downgrade bbb-
Government Support bb+ Downgrade bbb-
senior
unsecured LT BB+ Downgrade BBB-
Global Bank
Corporation LT IDR BB Downgrade BB+
ST IDR B Affirmed B
Viability bb Downgrade bb+
Government Support ns Affirmed ns
senior
unsecured LT BB Downgrade BB+
=======
P E R U
=======
VOLCAN COMPANIA: Fitch Lowers Rating on Sr. Unsecured Notes to 'CC'
-------------------------------------------------------------------
Fitch Ratings has downgraded Volcan Compania Minera S.A.A.'s
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
to 'CC' from 'CCC-', as well as its senior unsecured notes due in
2026 to 'CC'/'RR4' from 'CCC-'/'RR4'.
The downgrade to 'CC' reflects heightened refinancing risk and weak
financial flexibility to service debt maturities in April 2024,
while debt restructuring plans are under way. Volcan's FCF
generation suffers undue pressure given the uncertain restart of
its partially halted largest mining unit. Additionally, its
refinancing and liquidity needs remain unresolved despite ongoing
negotiations, ahead of Volcan's syndicate loan first installment in
April 30th 2024 (USD35 million).
Moreover, low zinc prices threaten to thwart cost control and
capital expenditures rationalization efforts. Asset sales or
concentrate prepayments appear delayed and proceeds are likely to
be used for Romina's capex.
KEY RATING DRIVERS
Temporary Partial Stoppage: Permitting revocations to continue
operating the expansion of the Rumichaca tailings dam prompted a
suspension of nearly 60% of the Yauli mining unit. This affects
about 40% of Volcan's consolidated revenue. The interruption is
expected to last for one month, and the company has built
stockpiles to expedite the resumption towards the last fortnight of
April. Notwithstanding, final restart dates are contingent on
additional authorities' reviews. Tailing dams do not appear to show
any structural damage.
Liquidity Crisis Intensifies: The mine halting further complicates
Volcan's financial flexibility, delays negotiations with bank
lenders and increases uncertainty ahead of the first USD35 million
installment due in April 30th. Quarterly amortizations, which total
USD105 million in 2024, increase to USD135 million in 2025 and
USD160 million in 2026 when the USD400 million bank syndicate loan
matures. The USD365 million of bonds mature in 2026. As of Dec. 31
2023, Volcan had USD62 million of cash. Fitch expects FCF to turn
negative in 2024 and remain that way through 2025.
Asset Sales Slowdown: Fitch is not assuming asset sales in its
rating case. Assets considered to be sold include Volcan's hydro
power plants and its stake in a Chilean cement producer. Even if
disposals are attained, Fitch assumes that Volcan will prioritize
the capex investment needs of its Romina project rather than debt
repayments because negotiations with creditors may limit use of
proceeds.
Refinancing Talks Underway: Volcan, its bank lenders and
bondholders hired financial advisors to engage in debt
restructuring discussions. These efforts aim to postpone maturities
under different terms. Fitch believes that a concomitant solution
for both bank lenders and bondholders is needed to enhance
financial flexibility. With conversations still in progress, it is
unclear whether a distressed debt exchange (DDE), under Fitch
criteria, will be launched.
Operating Challenges Remain: Zinc prices are still depressed at
about USD2,500/MT because market surpluses continue despite global
mine cutbacks. The Yauli curtailment will likely affect Volcan's
streamlining efforts. Cost containment strategies were slowly
delivering, prior to the stoppage. The unit cost in 2023 was 12%
higher than in 2019. Volcan is postponing the Romina expansion one
year. It would tackle short mine lives of about five years.
ESG -Complex Governance Structure: Fitch believes the shareholder
dispute accelerated Volcan's liquidity difficulties and impaired
its ability to address its refinancing needs. Additional
disagreements can further complicate the company's options and
decisions going forward. Volcan's majority shareholder, Glencore,
controls 55% of voting shares (22% economic stake) and its
minorities are Peruvian Pension Funds (51% of economic stake), and
the De Romana and Letts families (20% of voting shares).
DERIVATION SUMMARY
Volcan's production of base and precious metals diversification is
higher than peers Ero Copper Corp (B/Stable), Aris Mining Corp
(B+/Stable), Nexa Resources SA (BBB-/Stable), and Minsur SA
(BBB-/Stable). It is similar to that of Compania de Minas
Buenaventura SAA (BB-/Stable), but lower than that of Industrias
Penoles SAB de CV (BBB/Stable) or Teck Resources Ltd
(BBB-/Stable).
Volcan operates in one country (Peru), like Buenaventura, or
Penoles (Mexico), Ero (Brazil) and Aris (Colombia), whereas Nexa
and Minsur have diversified into Peru and Brazil and Teck's main
operations are located in Canada, Chile and Peru.
Volcan's scale of operations is higher than that of Ero and Aris,
similar to that of Buenaventura, but lower than that of Nexa
Resources and Minsur, and considerably smaller than that of
higher-rated miner Penoles or Teck.
Fitch projects that Volcan will have a weaker capital structure and
liquidity than these peers. Liquidity needs are much more pressing
than those of Buenaventura, Aris or Ero.
Volcan's cost position in the third quartile of the zinc all-in
sustaining costs, according to CRU, is better than that of
Buenaventura's fourth quartile in the gold curve, similar to that
of Aris Mining's third in gold and worse than Ero Copper's second
in copper.
Volcan's consolidated life of mine of five years of reserves is
also on the lower end, and is comparable with that of Buenaventura
(without Cerro Verde) but lower than Penoles' 10 years in precious
metals, Minsur's eight years in tin, Aris Mining's 18 years in
gold, Ero's 17 years in copper and Teck's 31 years in copper.
KEY ASSUMPTIONS
- Average zinc price of USD2,500/tonne in 2024, USD2,400/tonne in
2025 and USD2,300/tonne in 2026;
- Average silver price of USD23.75/oz in 2024, USD22.5/oz in 2025,
and USD20/oz in 2026;
- Capex of USD215 million, USD290 million and USD190 million in
2024, 2025, and 2026;
- Zinc output of 240,000 MT, 244,000 MT and 232,000 MT in 2024,
2025 and 2026;
- Silver output of 12.5 million oz, 13.4 million oz, and 13.3
million oz in 2024, 2025, and 2026;
- Yauli's zinc and silver production falls 4% and 6%, respectively
in 2024. Fitch expects Yauli to contribute 61% of revenues in
2024;
- Romina is expected to achieve full production in late 2026. Fitch
expects the resulting Alpamarca, with the Romina expansion, to
contribute 10% of revenues in 2027.
RECOVERY ANALYSIS
The recovery analysis assumes Volcan would be reorganized as a
going concern in bankruptcy rather than liquidated. Fitch assumed a
10% administrative claim. Volcan's going concern EBITDA assumption
is based on zinc at USD2,500/ton and USD2,400/ton in 2024 and 2025,
respectively. The going concern EBITDA estimate reflects Fitch's
view of a sustainable, post-reorganization EBITDA level upon which
it bases the enterprise valuation in a low zinc price environment.
An enterprise valuation multiple of 5x EBITDA is applied to the
going concern EBITDA to calculate a post-reorganization enterprise
value. The choice of this multiple considered the following
factors: the historical bankruptcy case study exit multiples for
peer companies were 4.0x-6.0x.
Fitch applies a waterfall analysis to the post-default enterprise
valuation based on the relative claims of debt in the capital
structure. The debt waterfall assumptions consider the company's
total debt. These assumptions result in a recovery rate for the
unsecured bond within the 'RR2' range, but due to Brazil's soft
cap, at 'RR4'. Volcan's senior unsecured debt is rated 'CC'/'RR4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade is unlikely until the company addresses the
refinancing of its credit syndicate and 2026 bond.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Failure to address its refinancing needs and/or launching of a
coercive debt exchange or announcing a debt restructuring;
- Prolonged production stoppage in Yauli mine
LIQUIDITY AND DEBT STRUCTURE
Pressured Liquidity: Volcan had USD62 million of readily available
cash and equivalents in Dec. 31, 2023 and about USD790 million in
total debt. Volcan's outstanding USD365 million of bonds mature in
2026. Its USD400 million syndicate loan matures in 2026 with
payments starting in 2024. Maturities consist of three USD35
million quarterly amortizations starting in 2Q24 totaling USD105
million of a bank syndicate.
Volcan's liquidity position is hard pressed to finance the USD140
million in capex for Romina and to refinance the approximately
USD105 million and USD135 million 2024 and 2025 installments of its
syndicate loan.
Volcan signed concentrates sale prepayment agreements for up to
USD25 million. Additional offtake agreements could be negotiated.
However, this process along with asset sales has failed to meet
previous amounts and timeframe expectations.
ISSUER PROFILE
Volcan is a polymetallic mining company with a third quartile cost
position on the global zinc cost curve per CRU. It has operated in
Peru for over 75 years. Volcan is diversified into the base metals
zinc and lead, and silver.
ESG CONSIDERATIONS
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '5' for
Governance Structure due to the dynamics between its shareholders,
Glencore and minority shareholders, such as Picasso and Letts
family, that impact their ability to address the company's
capitalization needs.
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for
Management Strategy due to ongoing governance concerns, which have
impaired management's ability to execute on its strategy, which has
a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for
Waste & Hazardous Materials Management; Ecological Impacts due to
its zinc concentrate leak. In June 2022, a truck careened off the
road spilling 30 tonnes of zinc concentrates in the Chillon river.
This has a negative impact on the 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.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Volcan Compania
Minera S.A.A. LT IDR CC Downgrade CCC-
LC LT IDR CC Downgrade CCC-
senior
unsecured LT CC Downgrade RR4 CCC-
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Electricity Bills Could Jump 124% by 2028
------------------------------------------------------------
Erik Lavoie at Trinidad and Tobago Guardian reports that the
current bi-monthly bill for the average residential household could
more than double (increasing by 124 per cent) by 2028, if the
Cabinet accepts the recommendations of the Regulated Industries
Commission (RIC) in its entirety, according to Guardian Media
estimates.
Residential electricity bills are projected to increase by between
105 per cent (200 kWh per month) and 229 per cent (5,000 kWh per
month) across the board, depending on electricity consumption, the
report relays.
A customer using 940 kWh every two months (or 470 kWh per month)
pays the Trinidad and Tobago Electricity Commission (T&TEC) $318
every two months, including VAT, at this time, the report notes.
That would work out to be $159 a month, if the RIC recommendation
for T&TEC to issue bills on a monthly basis, instead of every two
months, is accepted, the report discloses.
By 2028, the same average customer, still using 470 kWh, would pay
T&TEC around $356 a month, which is 124 per cent more than the $159
monthly equivalent, the report relays.
This adjustment arises as residential consumers are moved to pay
cost-reflective prices by the end of the Regulated Industries
Commission's (RIC) second 5-year control period (PRE2), the report
says.
Residential Revenue Recovery Not Enough
The RIC announced a proposed rate hike in 2023, sparking widespread
national discussion, the report relays. Under the proposed rate
increases for the first year of the RIC's plan, the median
household, consuming 470 kWh per month, would face a 21 per cent
increase in electricity costs, the report notes.
Despite the approximately 30 per cent increase in revenue from
residential consumers in the first year of PRE2, Guardian Media's
investigations reveal that the income from residential consumers
will not fully cover T&TEC's service costs for the residential
sector, the report discloses.
The forecast revenue to be collected by T&TEC from the residential
rate increase in the first year of the five-year plan will range
between $1.38 billion and $1.45 billion, the report relays.
This range falls significantly short—by approximately $770
million to $840 million—of the $2.22 billion required to meet the
cost of servicing residential users in the first year of PRE2, the
report notes.
Rather than implementing an immediate adjustment to cost-reflective
rates in the first year of PRE2, the RIC preferred a gradual
transition to cost-reflective rates over PRE2, the report relays.
The temporary gap in residential revenue recovery is anticipated to
be offset by higher charges for industrial users next year, as
outlined in the RIC's final determination, the report notes. The
$770 million to $840 million subsidy from industrial consumers will
be "unwound in the shortest possible time and the RIC intended to
‘phase-in' tariffs so that residential customers would pay
cost-reflective prices by the end of PRE2," according to the RIC's
final determination, the report relays.
In addition to the transition towards cost-reflective service rates
for residential users, annual RPI+X adjustments will necessitate
further yearly increases in the revenue to be recovered from each
group, the report discloses.
These adjustments are to be calculated using the RPI+X formula,
where "RPI'' stands for Retail Price Index inflation, and "X"
represents an adjustment factor, the report notes. The RIC has set
the X-factor at 1.3 per cent, while the RPI has been "fixed" at 4.7
per cent by the RIC, the report relays.
T&T's national statistical agency, the Central Statistical Office
(CSO) does not offer future inflation projections, the report
discloses.
However, the International Monetary Fund (IMF) predicts T&T's
inflation rates should be between 1.9 per cent and 2.9 per cent up
to 2030, well below the RIC's projection, the report relays. It is
unclear if the RIC will adjust its established RPI inflation rate
as a part of its annual reviews, the report notes.
By the 2027-28 period, the shift towards cost-reflective rates for
residential consumers, combined with the six per cent RPI+X yearly
adjustments, will significantly increase residential tariffs, the
report relays.
Estimates suggest that the median household's electricity bill,
using 470 kWh/month, will see an increase ranging from 101 per cent
to 136 per cent when comparing present rates to those projected for
2028, the report discloses.
Demand Decrease Could Increase Tariffs Further
The RIC forecasts that household electricity consumption will
slightly increase year-over-year, despite Guardian Media's
projected significant rise in residential electricity prices over
the next five years, the report relays.
In the case that the RIC follows through with a transition to
cost-reflective rates by PRE2, Guardian Media believes that an
aggregate decrease in residential electricity demand is a
possibility, the report disclsoes.
If electricity usage were to decrease instead of increase, T&TEC
risks a revenue shortfall, necessitating further price adjustments
to meet revenue requirements, the report relays.
Despite the significant projected increases to residential utility
bills, T&T will still have one of the lowest residential
electricity costs in the Caribbean region, the report says.
Reasons Behind the Rate Hike
Central to the tariff increases proposed by the RIC is T&TEC's
rapidly deteriorating financial health, the report relays. Given
the lack of a rate review in 14 years, T&TEC finds itself with a
debt burden of approximately $9.32 billion as of October 2023,
according to T&TEC chairman, Romney Thomas, in a Guardian interview
in October last year, the report notes. Compounding this financial
strain is the $1.4 billion still owed to T&TEC by various
government-owned agencies, the report says.
The necessity to pay off debts accruing interest combined with the
increasing costs of providing electricity service required the RIC
to put together a strategic plan designed to alleviate T&TEC's
financial distress, the report notes. Central to this plan is the
allocation of a total of $1.15 billion for T&TEC to cover a portion
of its outstanding debt to the National Gas Company, the report
relays.
Furthermore, the prospective addition of bp's 112 MW of solar
capacity by 2025 will lead to an increase in energy costs without a
corresponding reduction of capacity costs from fossil fuel
independent power producers (IPPs), as T&TEC struggles to
renegotiate capacity-based power purchase agreements with the IPPs,
the report notes.
Gov't Assistance Will Continue
Minister of Public Utilities Marvin Gonzales has affirmed the
continuation of government assistance programs as rates increase,
the report relays. The 35 per cent rebate for households with
bi-monthly bills under $300 will remain in place, although it is
unclear if the $300 cutoff will be directly transferred to monthly
rates, ther eport notes. The rebate costs the government $74
million annually, the report discloses.
Another programme called the Utility Assistance Programme (UAP)
provides up to $1200 yearly in relief for eligible vulnerable
groups, as long as households consume less than 680 kWh bi-monthly,
the report relays. Similarly, it is unclear if the migration to a
monthly payment regime will change the scope and impact of the UAP,
the report notes.
Mr. Gonzales also suggested providing "utility cards" to especially
vulnerable citizens, allowing them "full access to water and
electricity," the report discloses.
The above subsidies have not been factored into the analysis of
projected percentage increases in electricity rates, given that the
nature and implementation of these subsidies may significantly
change due to the RIC's recommendations, the report says.
Additionally, the NGC provides fuel to T&TEC at a subsidized rate
that is 50 per cent cheaper than the true economic cost,
effectively shielding T&TEC from incurring an additional $10
billion in costs, the report notes. A median household's
residential bill would instead increase as much as 204 per cent if
the NGC were to unsubsidise the price of natural gas by 2028, the
report discloses.
Proposed Changes Are Not Final
The RIC's Final Determination has not been implemented yet, as the
RIC has been waiting on the Cabinet's decision on its approval
since October 2023, the report recalls. The cabinet may
preliminarily reject the proposal, instructing the RIC to amend
certain aspects of its plan. The cabinet is set to make a decision
soon, the report notes. Mr. Gonzales has publicly expressed
concerns in T&TEC's ability to recover the revenue it needs,
stating that "there would still be a shortfall of over $500 million
on the part of T&TEC," the report relays. Consequently, the
rejection of the proposal is a possibility.
Even if the final determination is approved in its present form,
the utility bills of residential consumers may increase far less
over the 5-year period than Guardian Media's projection, the report
says. A significant portion of the forecasted increases by 2028
depends on the RIC's statement that "residential customers would
pay cost-reflective prices by the end of PRE2," the report notes.
If this statement were to be annulled in any way or form, yearly
price increases would only be based on the RPI+X escalation,
leading to an estimated bill increase of less than 58 per cent for
the median household by 2028, the report relays.
Ultimately, a lot can change over the next 5 years, the report
discloses. Should the RIC's proposal secure approval and be
implemented as written, the projections provided in the graph of
this article may provide a realistic range of residential utility
bill estimates by 2028, the report adds.
Questions to the RIC
Guardian Media sent the RIC a list of 12 questions regarding the
Final Determination. The RIC answered five of them. Here are the
four most important questions asked:
Q: What is the amount of revenue T&TEC is projected to recover from
residential users in the first year of the five-year control
period?
A: The RIC did not provide an answer.
Q: Is the entirety of the shortfall in residential revenue expected
to be recovered by the increases in industrial tariffs?
A: The RIC determines an allowed revenue requirement and thereafter
the overall allocation attributable to the broad customer class.
Starting tariffs were set for the first year of the regulatory
period to recover that allowed revenue. The RIC's aim is to unwind
cross-subsidies so that by the end of the period, all classes fully
recover their respective cost-to-serve.
Q: Will the X-factor and/or RPI stay constant throughout the
five-year period (PRE2)?
A: The X-factor of 1.3 per cent will stay constant throughout PRE2.
It does not matter if the RPI exceeds the RIC's assumption. The
increase in
the allowed Revenue Requirement is capped at 6 per cent year on
year.
Q: Did the RIC assume in its calculations that the price elasticity
of demand of electricity in T&T is perfectly inelastic?
A: The RIC did not provide an answer.
Disclaimer: Utility bill cost projections for specific monthly kWh
consumption by 2028 are purely predictive. Guardian Media
recognizes that these forecasts may diverge substantially from the
actual outcome in 2028, including potential percentage increases
beyond the "high confidence" interval.
=================
V E N E Z U E L A
=================
VENEZUELA: Inflation at 1.2% in March
-------------------------------------
Reuters reports that Venezuela's consumer price growth in March hit
1.2%, maintaining the same pace as February, the country's central
bank said.
March's inflation is the lowest since August 2022, according to
Reuters.
The country's 12-month inflation through last month stood at
67.75%, according to Reuters calculations based on central bank
figures, the report notes.
Venezuela's government is redoubling efforts to control inflation
by holding the exchange rate at 36 bolivars to the dollar, while
weighing its spending amid an election year, the report relays.
The government has said inflation this year will be in the double
digits, after years of triple-digit annual figures, the report
adds.
About Venezuela
Venezuela, officially the Bolivarian Republic of Venezuela, is a
country on the northern coast of South America, consisting of a
continental landmass and a large number of small islands and
islets in the Caribbean sea. The capital is the city of Caracas.
Hugo Chavez was president to Venezuela from 1999 to 2013. The
Chavez presidency was plagued with challenges, which included a
2002 coup d'etat, a 2002 national strike and a 2004 recall
referendum. Nicolas Maduro was elected president in 2013 after
the death of Chavez. Maduro won a second term at the May 2018
Venezuela elections, but this result has been challenged by
countries including Argentina, Chile, Colombia, Brazil, Canada,
Germany, France and the United States who deemed it fraudulent and
moved to recognize Juan Guaido as president.
The presidencies of Chavez and Maduro have challenged Venezuela
with a socioeconomic and political crisis. It is marked by
hyperinflation, climbing hunger, poverty, disease, crime and death
rates, social unrest, corruption and emigration from the country.
Moody's has withdrawn 'C' local currency and foreign currency
ceilings for Venezuela in September 2022. Standard & Poors has
also withdrawn its 'SD/D' foreign currency sovereign credit ratings
and 'CCC-/C' local currency ratings on Venezuela in September 2021
due to lack of sufficient information. Fitch withdrew its own
'RD/C' Issuer Default Ratings on Venezuela in June 2019 due to the
imposition of U.S. sanctions on the country's government.
*********
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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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
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