/raid1/www/Hosts/bankrupt/TCRLA_Public/240416.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, April 16, 2024, Vol. 25, No. 77
Headlines
A R G E N T I N A
ARGENTINA: Decree Removes Price Caps for Telecommunications Market
ARGENTINA: Exxon Mobil May Join Exit Amid Milei's Economic Makeover
BUENOS AIRES: 13.2% Inflation in March, Slight Slowdown From Feb
GAUCHO GROUP: Delays Filing of 2023 Annual Report
B A H A M A S
FTX GROUP: Bankruptcy Estate to Repay Customers by End of 2024
B R A Z I L
LAVERTU CAPITAL: Case Summary & 17 Unsecured Creditors
RUMO SA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
C O L O M B I A
PA AUTOPISTA: Fitch Lowers Rating on UVR Notes to 'BB', Outlook Neg
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: San Pedro de Macoris Enterpreneurs Get RD$54.6M
U R U G U A Y
BANQUE HERITAGE: S&P Raises ICR to 'BB' on Various Improvements
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Decree Removes Price Caps for Telecommunications Market
------------------------------------------------------------------
Buenos Aires Times reports that following in the footsteps of
changes for private healthcare providers, President Javier Milei's
government is moving to deregulate Argentina's telecommunications
market.
The La Libertad Avanza leader's government issued Decree 302/2024
releasing the Information and Communication Technology (ICT) market
of price caps and controls that regulate telephone, cable
television and Internet services, according to Buenos Aires Times.
"ICT Service licensees will set their prices, which must be fair
and reasonable, cover operating costs and tend towards an efficient
service and reasonable operating margin," reads the text of the
decree, the report notes.
The decision was made via the intervention by ENACOM, as defined by
the Executive Branch last January, the report relays. Licensee
Juan Martin Ozores is currently the body's Comptroller, the report
notes.
Milei's DNU amends Argentina Digital Law No. 27,078 and represents
a step towards the de-regulation of prices in the sector, which the
government said will "encourage competition and investment, and to
improve the quality of the service for users across the country,"
the report discloses.
It reads: "The President, with general agreement by the ministers,
hereby decrees: Article.- Article 48 of Argentine Digital Law No.
27,078, as amended, is hereby replaced by the following text: 'ICT
Service licensees shall set their prices, which must be fair and
reasonable, cover operating costs and tend towards an efficient
service and reasonable operating margin,'" the report says.
The decree re-affirms the classification of ICT services as
essential and strategic, underlining the State's commitment to
ensure universal access to said services, despite the move to
deregulate prices, which were capped by the previous administration
led by former president Alberto Fernandez, the report relays.
Milei recently made a similar intervention into the private
healthcare market, the report discloses. In response prices have
soared, outpacing runaway inflation, the report notes. Earlier,
Economy Minister Luis Caputo expressed concern at the soaring cost
of the schemes, describing it as an "attack" on the middle class,
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.
ARGENTINA: Exxon Mobil May Join Exit Amid Milei's Economic Makeover
-------------------------------------------------------------------
Buenos Aires Times reports President Javier Milei is trying to draw
foreign investment to help stabilise a faltering economy. Some big
international companies are abandoning the country instead.
HSBC Holdings PLC announced plans to sell its business in Argentina
to Grupo Financiero Galicia for US$550 million, along with a
US$1-billion pretax loss, according to Buenos Aires Times. Clorox
has ended operations there, while Exxon Mobil Corp may also pull
out, the report notes. This comes after Banco Itau pulled up
stakes last year while Walmart Inc, Falabella SA and LatAm Airlines
Group SA departed during the pandemic, the report discloses.
HSBC's unit in Argentina, "generates substantial earnings
volatility for the Group," Chief Executive Officer Noel Quinn said
in a statement, adding its business there has "limited connectivity
to the rest of our international network," the report relays.
The decisions to leave come amid Argentina's worst economic crisis
in more than two decades, Buenos Aires Times says. Analysts expect
its economy to contract for a second straight year, the report
notes.
To help combat inflation and shrink the fiscal deficit, Milei has
devalued the peso by more than 50 percent and slashed government
spending, Buenos Aires Times discloses. While monthly inflation
has slowed - albeit still at crisis levels - analysts surveyed by
Bloomberg expect prices reached nearly 300 percent annually in
March, the report says.
"There is a lot of interest in Argentina abroad, but foreign
investors are expecting fiscal discipline and sustainable changes,"
said Fabian Kon, the CEO of Galicia, adding the need for strong
institutions, Buenos Aires Times notes.
As some multinationals leave, Milei's cuts to public spending and
monetary supply have sparked a rally largely fuelled by hedge funds
and local Argentine investors: the stock market is up 35 percent in
dollars and sovereign bonds maturing in 2029 have risen 47 percent
so far this year, the report relays. With that rally as a
backdrop, traders in Buenos Aires believe that foreign investment
has yet to flow into capital markets or the real economy, the
report notes.
Eduardo Constantini, the CEO of Consultatio, a financial firm in
Argentina that bought local broker TPCG, expects medium-term
investors are likely keeping a close eye on political developments
before making a bet on the country, the report discloses.
Constantini is waiting to see if Milei can negotiate an agreement
with Congress on his package of reforms after lawmakers rejected
the first version of the bill earlier this year, Buenos Aires Times
notes.
"It's very early and reasonable to think that foreign investors
aren't making direct investments only three or four months into
this government," Constantini said in an interview. "The reality
is the federal government has to shrink. We'll have to see if
politicians reach a deal," he added.
Beyond HSBC, Exxon Mobil Corp is mulling bids for its Argentine
shale assets as it looks to unwind its bet on the nation's oil and
gas riches, Buenos Aires Times says. Clorox sold two production
plants and brand rights to Apex Capital and revised its full year
forecast, the report notes.
Galicia's Kon sees reason for optimism.
"Argentina is going in the right macro direction - it needs fiscal
balance, a single exchange rate, lifting of currency controls and a
stable regulatory framework," Kon said. "If this happens,
inflation will come down and Argentina will start to grow," he
added.
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.
BUENOS AIRES: 13.2% Inflation in March, Slight Slowdown From Feb
----------------------------------------------------------------
Buenos Aires Times reports inflation in Buenos Aires City hit 13.2
percent in March, pushed higher by the rising cost of public
services, private school fees and private health insurance
premiums.
The figure, published by City Hall, is a slight slowdown from the
14.1 percent in February and reveals that consumer prices rose by
57.3 percent in the nation's capital in just the first quarter of
the year, according to Buenos Aires Times.
Compared to the same month last year, cumulative inflation totals
285.3 percent, the report notes.
The report from the City's statistics bureau shows that goods rose
by 9.7 percent, whereas services did so by 16.3 percent, Buenos
Aires Times discloses. In addition, seasonal prices (fruits and
vegetables, for instance) rose by 5.4 percent, while regulated
prices were up 22.4 percent, Buenos Aires Times relays.
According to the breakdown of the sample, education topped the
rises at 36.8 percent, followed by telecommunication at 24.5
percent, the report discloses. This was followed by housing and
rent with a 17.9-percent increase, while healthcare came in fourth
at 16.9 percent, Buenos Aires Times says.
Food prices rose 11 percent during the month and have risen by 60
percent since the last quarter, the report relays. Year-on-year
the rise is a staggering 336.9 percent, the report notes.
Within that division, the main surges came from Milk, dairy and
eggs (18.2 percent), Meats and related products (9.4 percent),
Vegetables, tubers and legumes (22.4 percent) and Bread and cereals
(8.8 percent), Buenos Aires Times discloses.
Personal care and hygiene products increased by 10 percent, with
clothing and textile prices up 11.2 percent, the report says.
Household equipment experienced an 8.6-percent rise, similar to
transport (8.5 percent), the report notes.
The City data are still a warning sign for President Javier Milei's
Government, which was anticipating a higher slowdown pace of
inflation, the report discloses. National data for March is due to
be released soon, the report relays.
The Central Bank's REM market expectations survey showed analysts
forecasting a rate of 12.5 percent for March, the report adds.
GAUCHO GROUP: Delays Filing of 2023 Annual Report
-------------------------------------------------
Gaucho Group Holdings, Inc. was unable to file its Annual Report on
Form 10-K for the year ended Dec. 31, 2023 by April 1, 2024, the
due date for such filing because the audit for the Company's
consolidated financial statements for the year ended Dec. 31, 2023
has not been finalized.
As a result, the Company could not, without unreasonable effort or
expense, file its Form 10-K on or prior to the original due date.
The Company anticipates that it will be able to file the Form 10-K
within the extension period provided pursuant to Rule 12b-25.
About Gaucho Group
Headquartered in New York, NY, Gaucho Group Holdings, Inc.'s
mission has been to source and develop opportunities in Argentina's
undervalued luxury real estate and consumer marketplace. The
Company has positioned itself to take advantage of the continued
and fast growth of global e-commerce across multiple market
sectors, with the goal of becoming a leader in diversified luxury
goods and experiences in sought after lifestyle industries and
retail landscapes. With a concentration on fine wines
(algodonfinewines.com & algodonwines.com.ar), hospitality
(algodonhotels.com), and luxury real estate
(algodonwineestates.com) associated with its proprietary Algodon
brand, as well as the leather goods, ready-to-wear and accessories
of the fashion brand Gaucho - Buenos Aires (gaucho.com), these are
the luxury brands in which Argentina finds its contemporary
expression.
Gaucho reported a net loss of $21.83 million for the year ended
Dec. 31, 2022, compared to a net loss of $2.39 million for the year
ended Dec. 31, 2021. As of Sept. 30, 2023, the Company had $18.91
million in total assets, $11.02 million in total liabilities, and
$7.89 million in total stockholders' equity.
New York, NY-based Marcum LLP, the Company's auditor since 2013,
issued a "going concern" qualification in its report dated April
17, 2023, citing that the Company has a significant working capital
deficiency, has incurred significant losses and needs to raise
additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's operating needs include the planned costs to operate
its business, including amounts required to fund working capital
and capital expenditures. Based upon projected revenues and
expenses, the Company believes that it may not have sufficient
funds to operate for the next twelve months from the date these
financial statements are made available. Since inception, the
Company's operations have primarily been funded through proceeds
received from equity and debt financings. The Company believes it
has access to capital resources and continues to evaluate
additional financing opportunities. There is no assurance that
the Company will be able to obtain funds on commercially acceptable
terms, if at all. There is also no assurance that the amount of
funds the Company might raise will enable the Company to complete
its development initiatives or attain profitable operations. The
aforementioned factors raise substantial doubt about the Company's
ability to continue as a going concern for a period of one year
from the issuance of these financial statements, according to the
Company's Quarterly Report for the period ended Sept. 30, 2023.
=============
B A H A M A S
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FTX GROUP: Bankruptcy Estate to Repay Customers by End of 2024
--------------------------------------------------------------
Ronak Kumar of The Crypto Times reports that the bankruptcy estate
of the cryptocurrency exchange FTX, managed by the Joint Official
Liquidators of FTX Digital in the Bahamas, aims to begin repaying
customers by the end of 2024.
This process involves two parallel procedures, a Chapter 11
bankruptcy in a Delaware court in the US and the official
liquidation of FTX Digital in the Bahamas due to complex accounting
issues.
The notes from the meeting on March 15 stated, "a shared goal to
make the first interim distribution by the end of 2024 to creditors
with admitted claims and satisfactory KYC documentation."
Both entities are working together to ensure fair treatment for
creditors, allowing them to submit claims to either side without
receiving less than they're owed.
Creditors have been able to submit claims since March 1 via FTX's
claims portal, with a deadline initially set for May 15, 2024 but
now expected to extend to at least June 2024. Claims will be valued
as of November 11, 2022, the original bankruptcy date.
The cooperative approach between Chapter 11 Debtors and Joint
Official Liquidators aims to facilitate timely repayments to
creditors with admitted claims and proper KYC documentation.
This development signifies progress in resolving FTX's financial
obligations and provides clarity for creditors seeking
restitution.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9, 2022, struck a deal to
sell itself to its giant rival Binance, but Binance walked away
from the deal amid reports on FTX regarding mishandled customer
funds and alleged US agency investigations. Bankman-Fried agreed
to step aside, and restructuring vet John J. Ray III was quickly
named new CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
billion in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year.
According to Reuters, SBF shared a document with investors on Nov.
10, 2022, showing FTX had $13.86 billion in liabilities and $14.6
billion in assets. However, only $900 million of those assets were
liquid, leading to the cash crunch that ended with the company
filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims
agent, maintaining the page
https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
===========
B R A Z I L
===========
LAVERTU CAPITAL: Case Summary & 17 Unsecured Creditors
------------------------------------------------------
Debtor: Lavertu Capital Holdings LLC
d/b/a A1 Stoneworld
827 Leonard C. Taylor Parkway
Green Cove Springs, FL 32043
Business Description: Founded in 2006, A1 Stone World started as a
countertop fabricator in Green Cove Springs,
FL. The Company offers a wide range of
products including granite, marble, quartz,
quartzite, and soapstone from some of the
most respected brands. The products the
Company offers come from quarries around the
world in locations such as Brazil, Spain,
Italy, and India.
Chapter 11 Petition Date: April 13, 2024
Court: United States Bankruptcy Court
Middle District of Florida
Case No.: 24-01043
Judge: Hon. Jason A. Burgess
Debtor's Counsel: Jeffrey S. Ainsworth, Esq.
BRANSONLAW, PLLC
1501 E. Concord Street
Orlando, FL 32803
Tel: 407-894-6834
E-mail: jeff@bransonlaw.com
Total Assets: $288,699
Total Liabilities: $4,272,277
The petition was signed by Kenneth Lavertu, Jr. as owner/CEO.
A full-text copy of the petition containing, among other items, a
list of the Debtor's 17 unsecured creditors is available for free
at PacerMonitor.com at:
https://www.pacermonitor.com/view/6KVKNFI/Lavertu_Capital_Holdings_LLC__flmbke-24-01043__0001.0.pdf?mcid=tGE4TAMA
RUMO SA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
---------------------------------------------------------
Fitch Ratings has affirmed Rumo S.A.'s (Rumo) Long-Term Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs)
and its unsecured bonds, issued by Rumo Luxembourg S.a.r.l. at
'BB+'. Fitch has also affirmed Rumo and its subsidiaries' National
Scale Long-Term Ratings and unsecured debentures at 'AAA(bra)'. The
Rating Outlook for the corporate ratings is Stable.
Rumo's ratings incorporate its solid business position as one of
the largest railroad operators in Brazil, with expected solid and
increasing operating cash generation and margins. The risk of
concentration in the agribusiness sector is mitigated by the strong
competitive advantages of railways in cargo transport in Brazil.
Fitch expects the group will maintain strong liquidity and low to
moderate net leverage despite of the forecasted negative FCFs for
the coming years. Rumo has a high capex program, which should
strength its network and add volumes transported.
Fitch rates Rumo based on its standalone credit profile (SCP), due
to the porous linkage with its weaker parent, Cosan S.A. (Cosan; FC
IDR BB/Stable; LC IDR BB/Stable; National Scale Long-Term Rating
AAA(bra)/Stable), as per application of Fitch's Parent and
Subsidiary Linkage Rating Criteria. This consideration limits
Rumo's LC IDR to two notches above Cosan's LC IDR, which means that
currently it is not a constrain.
KEY RATING DRIVERS
Solid Industry Fundamentals: Railroad sector risks are low due to
strong demand and limited competition. Rumo benefits from its
market position as the main rail transportation company in the
South and Midwest regions of Brazil, with ample network through
five concessions to operate more than 13,000km of tracks and access
to three ports. Due to a low-cost structure, the company has solid
competitive advantages over truck transportation, which supports
stable demand, mitigates operating concentration in agribusiness
and limits volume volatility over cycles.
Strengthening Business Profile: The recent projects of Rumo Malha
Central line and expansion of Rumo Malha Norte up to Lucas do Rio
Verde are credit positives, as these stretches drive opportunities
for capturing greater grain volumes. Rumo should transport 81
billion revenue ton kilometers (RTK) in 2024, compared to 77
billion RTK in 2023. Volumes should increase by approximately 6.0%
- 6.5% annually from 2025 to 2027, driven by the ramp-up of Rumo
Malha Central network, combined with market share gains in other
rail networks. Rumo's primary cargo is agricultural products that
are predominately exported, mainly soybean and soymeal (41%), corn
(29%), fertilizers (7%) and sugar (6%).
FCF Remains Under Pressure: Rumo's robust EBITDA margin is likely
to increase to the 46%-50% range over the coming years, as Rumo
Malha Central matures and the group gains scale. Fitch's rating
case forecasts EBITDA and cash flow from operations (CFFO) of
BRL6.5 billion and BRL4.7 billion, respectively, in 2024, and
BRL6.9 billion and BRL5.1 billion in 2025, as per Fitch's criteria.
New obligations related to the Rumo Malha Paulista's concession
renewal and the significant capex requirements for the extension of
Rumo Malha Norte will likely pressure FCF. Fitch projects high
capex of around BRL21 billion in 2024-2026 to result in negative
FCF of roughly BRL6.3 billion in the period. Fitch considers Rumo
Malha Norte expansion to start operations in 2026.
Low to Moderate Leverage: Rumo should report moderate leverage
ratios, even during the high investment period. Fitch's base case
scenario forecasts improvements in Rumo's operating cash flow
generation, with gains of scale from investments, resulting in net
debt/EBITDA limited at 2.5x in 2024-2027. Gross leverage should
decline towards 3.5x over the medium term, compared with average
5.3x from 2020 to 2023.
Credit Linkage Incorporated: Rumo's ratings reflect its SCP,
despite linkage with the parent. Rumo's legal ring-fencing to limit
Cosan's access to its cash is viewed as porous, as debt instruments
limit dividend distributions and leverage metrics. Fitch also
assessed Cosan's effective control over Rumo as porous and the
issuer's funding and cash management policy as insulated. This
analysis allows Rumo's rating to be higher than Cosan's 'BB' LC IDR
up to two notches.
The ratings of Rumo and its subsidiaries are equalized mainly due
to strong legal ties among them relative to guarantees and
cross-default clauses on their debt. Medium or high strategic and
operational incentives for Rumo to support its subsidiaries, if
needed, also reinforce the ratings equalization.
DERIVATION SUMMARY
Rumo's LC IDR is below than other class one railroad companies in
North America, which are generally rated in the high 'BBB' to low
'A' categories. Rumo's 'BB+' negatively compares with 'BBB+' of
Grupo Ferroviario Mexicano, S.A. de C.V (GFM), in Mexico, and the
'A-' of Union Pacific Corporation (UPC), in the U.S. Although the
three railroads operate with similar business profile and
competitive position in their respective market, GFM and UPC are
more mature, more geographically diversified - accessing Mexican,
U.S. and Canadian markets - and less leveraged rail companies.
Rumo's LC IDR is lower than Brazilian peer MRS Logistica S.A.'s
(MRS; LC IDR BBB-/ Stable). MRS is the best-positioned railroad in
Brazil, due to its more resilient cargo profile, track record of
positive FCF, captive customer base who also are shareholders, and
lower net leverage.
Rumo's LC IDR is above that of Hidrovias do Brasil S.A. (HdB; LC
IDR BB-/Stable) due to Rumo's ability to generate more stable
operating cash flow and to finance its large investments to
increase volumes. Fitch expects HdB's net leverage to remain higher
than Rumo's over the next two to three years.
KEY ASSUMPTIONS
- Agricultural volumes in the North and South networks increase by
an average of 3.0% in 2024 and 4.3% in 2024;
- Central network volumes to reach 12.0 billion RTK in 2024 and
14.3 billion RTK in 2025;
- Industrial volumes to increase by GDP from 2024 onwards;
- Average tariffs to increase by 20.0% in 2024 and 3% in 2025;
- Total capex of BRL25.9 billion in 2024-2027, with BRL6.0 billion
in 2024;
- Dividends corresponding to 25% of net income from 2024 onwards.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrades to Rumo's LC IDR depend on positive FCF trends and
maintenance of net leverage below 3.0x;
- A higher Country Ceiling for Brazil coupled with an upgrade on
the LC IDR would lead to a positive action on the FC IDR;
- Positive actions on National Scale Long-Term Rating do not apply,
as the rating is at the top of the national scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- An inability to finance capex with long-term and low-cost debt,
pressuring Rumo's debt amortization schedule;
- Substantial weakening of its EBITDA margins;
- Net adjusted leverage trends above 3.5x on a sustained basis;
- If Cosan LC IDR is downgraded to 'B+' or below, Rumo's LC IDR
would be downgraded to Cosan's rating plus two notches, in case
Cosan's access to Rumo's cash remains unchanged.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Fitch expects Rumo's liquidity to remain healthy
during the higher investment cycle. Cash-to-short-term debt ratio
has been strong and above 3.0x since 2019. Rumo's ability to raise
long-term funds to finance negative FCF and preserve its liquidity
is a positive credit consideration. On Dec. 31, 2023, Rumo had cash
and equivalents of BRL8.6 billion, which favorably compare with
BRL3.4 billion maturing until until 2026. Consolidated total debt
was BRL19.2 billion, mainly consisting of debentures of BRL10.1
billion, senior notes of BRL4.2 billion (net of derivatives) and
debt with Banco Nacional de Desenvolvimento Economico e Social
(BNDES) of BRL2.3 billion.
ISSUER PROFILE
Rumo is Latin America's largest independent rail-based logistics
operator, offering complementary services of railroad
transportation, port terminal and warehousing services. Its service
area extends over Mato Grosso, Sao Paulo and other southern states
in Brazil. The company is the logistics arm of Cosan Group.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Confirming (reverse factoring) operations adjusted on Rumo's
debt;
- Fitch considers restricted cash (including long term) as readily
available liquidity;
- Net derivatives adjusted to debt; D&A excluded from COGS;
Dividends from associates and minorities are adjusting EBITDA;
- Fitch considers as operating expenses, impacting EBITDA, the
lease and concession expenses.
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
----------- ------ -----
Rumo Luxembourg
S.a.r.l
senior unsecured LT BB+ Affirmed BB+
Rumo Malha
Paulista S.A. Natl LT AAA(bra) Affirmed AAA(bra)
senior unsecured Natl LT AAA(bra) Affirmed AAA(bra)
Rumo Malha
Norte S.A. Natl LT AAA(bra) Affirmed AAA(bra)
Rumo Malha Sul S.A. Natl LT AAA(bra) Affirmed AAA(bra)
Rumo S.A. LT IDR BB+ Affirmed BB+
LC LT ID BB+ Affirmed BB+
Natl LT AAA(bra) Affirmed AAA(bra)
senior unsecured Natl LT AAA(bra) Affirmed AAA(bra)
===============
C O L O M B I A
===============
PA AUTOPISTA: Fitch Lowers Rating on UVR Notes to 'BB', Outlook Neg
-------------------------------------------------------------------
Fitch Ratings has removed from Rating Watch Negative (RWN) and
downgraded P.A. Autopista Rio Magdalena's ratings as follows:
- Unidad de Valor Real (UVR) notes for COP915,500 million due in
June 2036 downgraded to 'BB'/'AA(col)' from 'BB+'/'AA+(col)'.
- UVR loan for COP278,000 million due in June 2036 downgraded to
'BB'/'AA(col)' from 'BB+'/'AA+(col)'.
The Rating Outlook is Negative.
The rated notes coexist on a pari-passu basis with two loans for an
amount of USD200 million and COP825,000 million that mature in 2031
and 2035, respectively.
The downgrade reflects impacts from Construcciones El Condor,
S.A.'s (CEC) deteriorating credit quality. CEC is the sole
contractor for the execution of the toll road's functional units
(UF) UF1 and UF2. Under Fitch's "Completion Risk Criteria," the
Level of Performance Security to cover Replacement Cost Premium is
adequate; however the project rating is limited by the credit
quality of the engineering, procurement and construction (EPC)
contractor during the construction phase.
As of January 2024, according to the Independent Engineer (IE)
report, the overall construction progress is 64.5%. According to
data reported by grantor Agencia Nacional de Infraestructura (ANI),
the overall progress is 77.6% as of March 2024. Fitch believes the
project still faces relevant completion risk.
The Negative Outlook reflects the project's tight margin to meet
ANI's and financial agreement construction milestones. Despite
deadline extensions, there remain several milestones to be
achieved. The timely completion of UF2 and the extension of the UF1
completion deadline by the ANI could result in a revision of the
Rating Outlook to Stable.
RATING RATIONALE
The ratings reflect the project's exposure to completion risk and a
concession agreement that limits revenue risk, due to the existence
of traffic top-ups and grant payments. The transaction includes an
adequate tariff adjustment mechanism that allows annual
inflationary adjustments. The ratings also incorporate a strong
debt structure that includes reserve accounts, cash sweeps and
pre-payment mechanisms that largely protect the transaction from
traffic performance being materially different than expected.
Under Fitch's rating case, the project's minimum loan life coverage
ratio (LLCR) of 1.4x is strong for the rating, according to
applicable criteria and the revenue profile, where toll revenues
represent only about 20% of total revenues. The ratings are
constrained by CEC's credit quality, per Fitch's 'Stronger'
completion risk assessment, in conjunction with the project's
qualitative attribute assessments and available security package.
KEY RATING DRIVERS
Completion Risk Limited by Weak Contractor [Completion Risk:
Stronger]: Construction works are performed under a fixed-price
date-certain EPC contract for UF1 and UF2. According to the IE, the
work is of low complexity and executed by an experienced
contractor, and the completion schedule is adequate. The security
package provides adequate liquidity should their be a need to
replace the EPC contractor by means of either a combination of
performance bonds, letters of credits and EPC contract retention
clauses of 5% and an additional 4% in case of major delays.
Low Exposure to Volume Risk [Revenue Risk - Volume: High Midrange]:
The assessment only reflects the road's traffic characteristics as
per applicable criteria. However, exposure to traffic risk is
rather limited due to the concession framework. The road connects
the Colombia's largest cities, Medellin and Bogota, with the
Caribbean coast and the country's main ports. There is only one
operational toll plaza with low traffic volatility, but two new
plazas are expected to start operating between 2024 and 2025. There
is a moderate exposure to heavy vehicles traffic. Additionally, the
road is expected to face some competition upon completion of all
UFs and operate with moderate tolls.
The project's main revenue sources are ANI's contributions, toll
revenues and traffic top-up payments to be made periodically by ANI
to compensate the concessionaire if toll collections are below the
amounts established in the concession contract.
Inflation Adjusted Toll Rates [Revenue Risk - Price: Midrange]:
Toll rates are adjusted annually based on the previous year's
inflation. Tariffs have not been timely adjusted in two occasions
and the tariff catch-up to account 2023 inflation is still pending,
but it will be set by December 2024. Nonetheless, the concession
agreement protects against discretionary discounts or tariff
modifications and allows for quarterly compensation of lost revenue
to the concessionaire. The toll rates are moderate, and if the net
present value of the toll revenue received in the 9th, 14th, 19th
and last year of the concession is less than the guaranteed values,
ANI is obliged to cover the shortfall after deductions.
Adequate Maintenance Plan [Infrastructure Development and Renewal:
Midrange]: The project depends on a moderately developed capital
and maintenance plan to be implemented by the concessionaire. The
plan will be largely funded from the project's cash flows. The
structure includes a dynamic 12-months forward-looking operating
and maintenance (O&M) reserve that accounts for expected O&M as
well as periodic major maintenance expenditures. The O&M plan,
organizational structure and budget, appear reasonable and in line
with similar projects in Colombia.
Robust Structural Features [Debt Structure: Stronger]: Debt is
denominated in U.S. Dollars (USD), Unidad de Valor Real (UVR) and
Colombian Pesos (COP). USD-denominated debt is matched with
USD-linked currency revenues settled in COP (24% of future budget
allocations [Vigencias Futuras] are USD-linked), and will be
partially exposed to variable rate. COP-denominated debt is indexed
to inflation. Structural features also include 12-month principal
and interest prefunded onshore and offshore debt service reserve
accounts (DSRA), and cash sweep mechanisms for traffic over and
underperformance, according to preestablished debt service coverage
ratio (DSCR) levels.
Financial Profile
The most relevant financial metric for the project is LLCR, given
the transaction's structure. Although under Fitch's rating case,
DSCRs below 1.0x are projected, the existence of cash sweep
mechanisms and reserve accounts support liquidity in case top-up
payments are not timely received. Fitch's base and rating case
LLCRs is 1.4x, which is strong for the rating category according to
applicable criteria and compared with other similarly rated
transactions, particularly in light of the project's low exposure
to volume risk.
PEER GROUP
ARM is comparable with Fideicomiso P.A. Pacifico Tres (Pacifico;
BB+/Stable, AA+[col]/Positive). The projects are part of the 4G
toll road program in Colombia and share similar assessments for all
risk attributes. Pacifico has a higher contribution of toll
revenues to total revenues (around 30%) compared to ARM (20%),
which results in a higher exposure to volume risk. Pacifico also
has a rating case's minimum LLCR at 1.4x, but its international
rating is constrained by the counterparty risk of the ANI. Unlike
ARM, Pacifico's exposure to completion risk is very limited due to
the advanced stage of construction progress.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Deterioration in CEC's credit quality that results in Fitch's
completion risk rating below that of the debt rating;
- Completion difficulties leading to delays and cost overruns
beyond those already contemplated in Fitch's scenarios;
- Deterioration in Fitch's view regarding the credit quality of
ANI's grantor obligations.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Completion of UF2 on time and on budget according to EPC contract
deadlines;
- Extension of the UF1 completion deadline by the ANI to mirror the
expected completion dates of the EPC contract;
- Improvement in CEC's credit quality, resulting in an increase in
Fitch's Completion Risk Rating.
CREDIT UPDATE
According to the latest available IE report, overall construction
progress as of January 2024 is 64.5% versus the 84.6% programed.
According to the IE, lower than expected advancement in UF1 and UF2
is due to the contractor's low production rates, triggered by its
financial vulnerability, heavier than expected rains in 2022 and
the miners' protests in 1H23. In March 2024, the concessionaire
signed the 7th amendment to the EPC contract in which new
completion dates were agreed. The new expected completion dates are
September 2024, October 2024 and January 2025, for UF2, UF1-2 and
UF1-1, respectively. The latter is anticipated to alleviate
contractual pressures and to align the expected completion dates
with the reality of the project's progress.
Additionally in 2023, ARM agreed to three amendments to the EPC
contract in order to alleviate the liquidity stress of CEC. Under
amendment 4, ARM agreed to make an additional advance payment of
COP 8 billion. Under amendment 5, ARM agreed to make payments
directly to CEC's subcontractors to avoid further delays in the
progress. Finally, under amendment 6, it was agreed to optimize the
designs to achieve savings on the project, to be shared equally
between ARM and CEC.
The concessionaire requested the recognition of Liability
Exculpatory Event (LEE) for UF1 and UF2 due to miners' strike and
heavy rainy season in the region, which affected construction works
in 1Q23. In September 2023, the ANI approved a LEE only for the
disruptions caused by the miners' strike, so completion dates for
UF1 and UF2 were extended for only 14 days, instead of the +30 days
that were requested by the concessionaire.
In 2023, average annual daily traffic (AADT) in Puerto Berrio toll
booth reached 2,726 vehicles, which was 15% above 2022 and 11.2%
above Fitch's base case expectations (2,452 vehicles). According to
the concessionaire, the performance is mainly explained by a strong
growth in 1H2023 following a landslide occurred in the
Medellin-Bogota road, which induced additional traffic to the
project.
In January 2024, the government approved tariffs' adjustment that
had been frozen by Decree 050, in order to reflect 2022 inflation
(13.1%). As of the date of this commentary, there is no official
announcement regarding when the 2023 inflationary adjustment (9.3%)
will be made. According to the decree, the government has to design
and apply a mechanism to re-establish the tariffs scheme by
December 2024. In addition, the issuer has the right to receive a
quarterly compensation for the forgone toll revenues.
Toll revenues in 2023 were COP12.4 billion, which is 16.3% above
2022 and 10.1% above Fitch's base case expectations (COP11.3
billion), explained by the traffic performance. In June 2023, the
project received COP9.2 billion corresponding to trapped toll
collections of UF3. In addition, the project collected COP143
billion (COP36 billion from 2022) corresponding to Future Budget
Allocations (FBA) of UF3 and UF4, which is in line with Fitch's
base case expectations of COP137 billion. Following the completion
of UF3 in April 2023, the project is entitled to receive 27.3% of
the toll collections (14.4% corresponding to UF3 and 12.9% to
UF4).
Operational expenses in 2023 were COP14.1 billion, which were 41%
below annual budget (COP24 billion). According to the IE report,
this was due to underspending and a delayed completion of UF3 in
1H2023 as well as undefined operational contracts and unexecuted
purchases.
The issuer properly complied with its debt service obligations of
COP183 billion in 2023, which included interest payments of COP166
billion and commitment fees of COP17 billion. Debt drawdown was
lower than expected due to construction delays. As of January 2024,
33% of the available debt was still available.
As of January 2024, the project maintains a DSRA of COP99 billion
for the COP-denominated debt and USD6 million for the USD loans, in
line with their target amounts.
FINANCIAL ANALYSIS
Fitch's base case (BC) assumes a ramp-up phase for all toll plazas
in the project until 2026, driven by its construction phase and the
completion of future infrastructure projects expected to induce
traffic to the project. The compounded annual growth rate (CAGR)
traffic is 15.8% between 2024 and 2026 and 3.4% onward.
Fitch's rating case (RC) assumes similar ramp-up phases but assumes
additional delays in construction compared and conservative traffic
figures compared to BC. The compounded annual growth rate (CAGR)
traffic is 14.1% between 2024 and 2026 and 2.5% onwards.
Other assumptions for Fitch's cases used to calculate credit
metrics:
- Additional tariff increases in 2025 in Puerto Berrio tolls once
the UF 3 "punch list" (weighting station and service areas) works
are completed and verified by the ANI. The increases are in line
with the concession title.
- Colombia CPI growth: 2024: 6.0%; 2025: 3.8%; 2026 onward: 3.5%
every year.
- U.S. CPI growth: 2024: 2.8%; 2025: 2.6%; 2026 onward: 2% every
year.
- Opex stress: 3% (BC); 5% (RC).
- Capex stress: 5% (BC); 7.5% (RC).
- Completion dates: The expected under the 7th amendment to the EPC
contract for the BC and the Long Stop Dates (LSD; February 2025)
for both UFs under RC.
- ANI contribution's payment delay: Three months after the end of
previous year.
- Top-up payment delay: 12 months under BC and 18 months under RC
(maximum delay before termination event).
- Deductions to FBA's and top-up payments: 0.5%
- Performance ratio: 99% (BC); 98% (RC).
- SOFR rate: 2024: 4.5% (BC) and 5.5% (RC); 2025+: 4% (BC) and 6%
(RC).
- COP/USD exchange rate: 2024: 4,051; 2025: 4,321 and 2026+:
depreciation of 2% per year.
Credit Metrics
- Minimum LLCR: 1.4x (BC and RC).
SECURITY
The security package includes a pledge of the project company's
shares, a first priority security interest in all of its assets, a
pledge of all onshore and offshore accounts, EPC contract security
package, proceeds from credit enhancements and
insurance/reinsurance, and a pledge of the right to receive the
termination payment under the concession agreement.
In December 2014, ANI granted the concession to build,
rehabilitate, improve, operate and maintain the Rio Magdalena 2
toll road, to ARM, a company fully-owned by Aleatica S.A.U. The
project has a length of 144km and will include 87km of construction
works, 47km of rehabilitation and 10km of improvement, the latter
connecting to Ruta del Sol highway. It aims to improve the
connection between the southwest, central Colombia, including
Bogota and Medellin, and the Caribbean coast to the main ports of
Colombia, Cartagena and Barranquilla.
Sources of Information
Information received from the issuer, Independent Engineer Reports,
Trust documents
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
----------- ------ -----
P.A. Autopista
Rio Magdalena
P.A. Autopista
Rio Magdalena/
Project Revenues
- First Lien/1 LT LT BB Downgrade BB+
P.A. Autopista
Rio Magdalena/
Project Revenues
- First Lien/1 Natl LT Natl LT AA(col)Downgrade AA+(col)
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: San Pedro de Macoris Enterpreneurs Get RD$54.6M
-------------------------------------------------------------------
Dominican Today reports that the National Council for the Promotion
and Support of Micro, Small, and Medium Enterprises (Promipyme) has
announced the disbursement of RD$54.6 million in loans to 286
microentrepreneurs in San Pedro de Macoris, with 69% of the
recipients being women.
Providing further details, the entity revealed that 58% of the
beneficiaries are under the age of 50, with 74% of the funds
allocated to the commercial sector, 20% to services, and 6% to
industry, according to Dominican Today. Since November 15,
Promipyme has disbursed over RD$1,910 million in credits, the
report notes.
Fabricio Gomez Mazara, General Director of Promipyme, emphasized
the significance of supporting entrepreneurs striving to enhance
their profitability and sustainability, ther eport relays. "At
Promipyme, we extend beyond mere financing; we foster development
and serve as a catalyst for progress," he asserted, the report
discloses.
Promipyme's objective, as stated in a press release, is to
stimulate job creation and business development through the
provision of both financial and non-financial services, 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.
=============
U R U G U A Y
=============
BANQUE HERITAGE: S&P Raises ICR to 'BB' on Various Improvements
---------------------------------------------------------------
S&P Global Ratings upgraded Banque Heritage (Uruguay) S.A. to 'BB'
from 'BB-' on the global scale and to 'uyA+' from 'uyA-'. S&P also
raised its assessment of the bank's capital and earnings to strong
from adequate and its stand-alone credit profile (SACP) to 'bb'
from 'bb-'. The outlook remains stable.
This results from a combination of factors, such as the bank's
improved capitalization--providing enough cushion to maintain its
business growth plan--and better asset quality metrics than the
system average, despite its loan portfolio concentration in terms
of clients. In addition, its funding base grew consistently,
aligned with its business growth plan, although it's mostly made of
wholesale deposits.
In 2023, the bank's risk-adjusted capital (RAC) improved to 11.0%
from 9.2% in 2022 thanks to various factors. In December 2022, the
bank issued a $4 million subordinated bond convertible into equity.
S&P includes this in the bank's regulatory capital ratios and our
adjusted capitalization ratios, since it assigned it an
intermediate equity content. The bank has historically not
distributed dividends.
In addition, the bank posted record profits in 2023, with a return
on average assets of 1.5% and return on average equity of 25%, from
a loss of 0.1% and 1.3%, respectively, in 2022. The bank benefited
from stronger margins--supported by higher local and international
interest rates--along with lower provisioning needs and higher
income from loan recoveries. The bank's loan portfolio is highly
sensitive to interest-rate movements, due to its short tenor. On
the other hand, its funding structure of mostly dollar-denominated
deposits is highly liquid and therefore more resilient to changing
rates.
Moreover, over the last two years the bank's total loan portfolio
remained rather stable, following exchange rate appreciation, and
its effects on the bank's dollarized credit portfolio (78% of
loans). In addition, given high competition, the bank took a
cautious lending approach, (given its mandate to focus on
profitability and capital protection).
However, the bank maintains high client concentration in its loan
portfolio, with the top 20 largest exposures representing 39% of
its total loans and almost 2x its total adjusted capital, which
could cause additional capital volatility.
In the last years, the bank's asset quality metrics have improved,
thanks to the charge-off of old nonperforming loans, the
restructuring and recovery of others, and good credit portfolio
performance. At the end of 2023, the bank's nonperforming loans
decreased to 0.04% from 0.3% in 2022 and 0.8% in 2021, better than
the industry average of 1.7%. In addition, it did not charge off
any credit, and loan loss reserves remained high, covering more
than 900% of the past-due portfolio.
The bank's funding continues to rely mainly on stable deposits
(almost 98% of the total funding base). However, its wholesale
deposit base and higher-than-average ratio of nonresident deposits
to total deposits (14% versus the 8% banking industry average)
continue to moderate S&P's view of its funding, because S&P views
these deposits as less stable than resident or retail deposits. In
2023, Banque Heritage's deposit base increased 10% in nominal
terms, while the system deposit base remined stable.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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