/raid1/www/Hosts/bankrupt/TCRLA_Public/240501.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, May 1, 2024, Vol. 25, No. 88
Headlines
A R G E N T I N A
ARGENTINA: Central Bank Lowers Key Rate to 60%
YPF SA: Burford Capital Seeks 51% Stake to Pay USD16B Award
B R A Z I L
BRAZIL: Selic Might Not Go Far Below 10%
CASAS BAHIA: Strategic Debt Overhaul Boosts Liquidity
PETROLEO BRASILEIRO: Delivers Record Dividends in 2023
PETROLEO BRASILEIRO: Notes Production Growth Amid Challenges
C O L O M B I A
CANACOL ENERGY: S&P Downgrades ICR to 'B-' On Weaker 1P Reserves
J A M A I C A
JAMAICA: Secures USD150M World Bank Catastrophe Bond
P E R U
INTERCORP FINANCIAL: S&P Lowers ICR to BB+, Outlook Stable
- - - - -
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A R G E N T I N A
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ARGENTINA: Central Bank Lowers Key Rate to 60%
----------------------------------------------
Ignacio Olivera Doll at Boomberg News reports that Argentina's
Central Bank cut its key interest rate for the fourth time since
President Javier Milei took office in December as officials bet on
a sustained slowdown of inflation in the South American nation.
Policymakers lowered rates to 60 percent from 70 percent, according
to people with direct knowledge of the matter, who asked not to be
named discussing private information, according to Boomberg News.
The cut, which was communicated to traders on the local Siopel
system, comes hours after Milei said the nation would continue
easing policy whenever inflation falls - part of a push by the
libertarian president to clean up the central bank's balance sheet,
Bloomberg News notes.
A Central Bank spokesperson declined to comment.
Argentina's monthly inflation slowed more than expected in March,
cooling for the third consecutive time as Milei's austerity agenda
hurts consumer spending, Boomberg News relates. Consumer prices
rose 11 percent from February to March, less than economists
expectations for 12.1 percent, Boomberg News notes. From a year
ago, inflation accelerated to 287.9 percent, the highest level
since the country exited hyperinflation in the early 1990s,
Boomberg News says.
Milei's economic team sees monthly inflation slowing much faster
this year than analysts anticipate, forecasting consumer price
increases will slow to 3.8 percent by September, according to a
presentation seen by Bloomberg News that's dated April 4 and
authored by the office of Economic Policy Secretary Joaquin
Cottani, a top deputy to Economy Minister Luis Caputo. Analysts
surveyed by Argentina's central bank in March saw monthly inflation
at 6.2 percent by September, Boomberg News discloses.
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.
YPF SA: Burford Capital Seeks 51% Stake to Pay USD16B Award
-----------------------------------------------------------
Bob Van Voris & Jonathan Gilbert at Bloomberg News report that
Burford Capital asked a US judge to give it control of Argentine
state oil company YPF SA as part of its effort to collect on a
US$16-billion court judgment against the Latin American country.
In a motion filed in New York, Burford asked US District Judge
Loretta Preska to grant it the 51 percent stake in YPF currently
held by Argentina's federal and provincial governments, according
to Bloomberg News. Preska is also the judge who in September
issued the judgement that Burford is now trying to collect,
Bloomberg News notes.
Burford had sought to keep its filings secret, saying that news of
its collection effort could impede efforts to resolve the issue,
Bloomberg News relays. It would also attract attention in
Argentina "because the motion calls into question the republic's
continued majority ownership and control over YPF," Burford said in
a court filing, Bloomberg News notes. Argentina opposed.
Preska declined to seal the filings. Neither Burford nor the
Argentine government responded to emails seeking comment.
Even if Preska orders that Argentina's YPF shares be handed to
Burford, it's unclear how the litigation funding firm would enforce
that decision, Bloomberg News discloses. Argentina has in the past
fought foreign judgments, but those disputes have also harmed the
country's ability to raise overseas capital, Bloomberg News says.
Burford is asking the judge to order Argentina to transfer its
class D shares in YPF through a custodial account at Bank of New
York Mellon, Bloomberg News notes. According to the filing, the
shares are not covered by a US law that shields certain assets of
foreign governments, and Argentina has used them to back debt
securities sold to US investors, Bloomberg News relays.
But Burford acknowledged it has "a long road ahead" to collect the
full judgement, "given Argentina's many years of structuring its
assets to avoid enforcement," Bloomberg News relays. It said a
court order requiring Argentina to hand over the shares could be
the only way to force the nation to engage in negotiations over the
judgment, he added.
A 51 percent stake in YPF is currently worth about US$4 billion,
roughly a quarter of the judgment.
The case in which Burford is seeking to collect stems from the
Argentine government's seizure of YPF in 2012, Bloomberg News
recalls. Preska found that re-nationalisation violated YPF by-laws
requiring the company to make a tender offer to all shareholders,
Bloomberg News notes.
Argentina is appealing the ruling but failed to post security for
the judgment during the appeal. That led Preska to rule in January
that the judgement - the biggest ever ordered by the federal court
in Manhattan - was subject to immediate collection, before the
appeal is decided, Bloomberg News relays.
Burford, which paid US$16.6 million to acquire the interests of two
groups that held YPF shares at the time, stands to make some US$6.2
billion if the full judgment is paid, Bloomberg News notes.
The case is Argentine Republic v. Petersen Energia Inversora SAU,
23-7370, 2nd US Circuit Court of Appeals (Manhattan).
About YPF SA
YPF S.A. is a vertically integrated, majority state-owned Argentine
energy company, engaged in oil and gas exploration and production,
and the transportation, refining, and marketing of gas and
petroleum products.
Founded in 1922, YPF was an oil company established as a state
enterprise. YPF was later privatized under president Carlos Menem
and was bought by the Spanish firm Repsol in 1999, and the
resulting merged company was call Repsol YPF.
In 2012, about 51% of the firm was renationalized and this was
initiated by President Cristina Fernandez se Kirchner. The
government of Argentina agreed to pay $5 billion compensation to
Repsol.
In April 2023, S&P Global Ratings lowered its local and foreign
currency ratings on YPF SA to 'CCC-' from 'CCC+'. The outlook on
these ratings is now negative. The downgrade follows a similar
action on S&P's long-term foreign currency ratings and T&C on
Argentina, following announced plans that, if implemented, would
oblige some nonfinancial public-sector entities to exchange or sell
their holdings of global- and local-law dollar-denominated bonds
issued during the 2020 restructuring for other locally issued peso
debt, likely dollar- and/or inflation-linked bonds. In S&P's view,
the lack of clarity and the apparent motivation for the potential
transaction underscore heightened credit vulnerabilities, in
particular given the increasing pressures from the severe drought
that Argentina is facing, which further constrains the already
disrupted FX market. This expected greater pressure on the FX
markets also explains S&P's downward revision of the T&C assessment
to 'CCC-'.
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B R A Z I L
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BRAZIL: Selic Might Not Go Far Below 10%
----------------------------------------
Rio Times Online reports that amid global and local fiscal
pressures, Brazil may end its monetary easing, with the Selic rate
potentially stabilizing at 10%.
These expectations stem from delayed rate cuts by the U.S. Federal
Reserve and increased fiscal strain within Brazil due to changes in
primary fiscal targets, according to Rio Times Online. Key
financial players like Citi, XP Investimentos, and JPMorgan see a
double-digit Selic rate as a strong possibility.
A.C. Pastore & Associados recently raised their forecast from 9.25%
to 10%, incorporating three quarter-point cuts starting at the next
COPOM meeting in May, the report notes.
Current market consensus aligns the rate at around 9.5%, based on
Focus and Broadcast Projections surveys, Rio Times Online relays.
Economist Alexandre Schwartsman notes that strong growth, fiscal
doubts, and a strong dollar limit further rate cuts, the report
says.cHe has increased his growth forecast from 1.8% to 2.3%,
citing an economy outperforming its potential.
Rio Times Online says that recent U.S. inflation data has led to a
reduced forecast, from six expected rate cuts to just one or two. A
surging dollar, now over 2% higher and solidifying above R$5, is
fueling domestic inflation concerns, the report adds.
Domestically, Brazil's fiscal approach remains expansive, with
public expenditures climbing, the report discloses.
Despite a vibrant job market and gradually decreasing inflation,
expectations for significant rate cuts have waned, the report
notes.
Caio Megale of XP Investimentos advises caution due to rising
commodity prices and falling emerging market currencies, relays Rio
Times Online.
With the upcoming COPOM session, the Brazilian Central Bank may
halve the pace of interest rate cuts due to rising domestic
inflation and ongoing fiscal expansion, notes the report.
Analyst Dalton Gardimam of Agora Investimentos sees a potential
two-digit Selic rate, revising his forecast from 9.5% to 9.75%, the
report discloses.
The financial community remains vigilant, closely monitoring
Brazil's fiscal direction and its impact on monetary strategies,
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).
CASAS BAHIA: Strategic Debt Overhaul Boosts Liquidity
-----------------------------------------------------
Richard Mann at Rio Times Online reports that Casas Bahia, a major
Brazilian retailer, has faced economic downturns and tough market
competition, prompting significant financial restructuring.
The company secured a vital agreement extending its debt terms,
thereby stabilizing cash flow and ensuring financial stability,
according to Rio Times Online.
This deal with primary creditors Bradesco and Banco do Brasil
preserves BRL.3 billion ($842.16 million) in liquidity until 2027,
allowing the company to revamp its strategy, the report notes.
Due to declining sales and a costly operational structure, Casas
Bahia launched an extrajudicial recovery plan, the report relays.
This approach, involving Bradesco and Banco do Brasil, who control
66% of the restructured debt, focuses solely on unsecured debts
like debentures and CCBs, Rio Times Online discloses.
It avoids entanglements with suppliers and insurers, making it
simpler than a judicial recovery, says the report.
CEO Renato Franklin pointed out the strategic benefits, emphasizing
the strong cash position that enables seizing market opportunities
and negotiating better supplier terms, Rio Times Online discloses.
By late 2023, Casas Bahia had BRL3.5 billion ($686.27 million) in
cash reserves, the report relays.
The restructuring reduces debts due by 2027 from BRL4.8 billion
($941.18 million) to BRL0.5 billion ($98.04 million), deferring
most payments to beyond 2028, Rio Times Online notes.
This follows negotiations addressing BRL1.5 billion ($294.12
million) due shortly, showing proactive financial management, the
report discloses.
Additionally, the debt repayment period has extended from 22 to 72
months, the report relays.
This adjustment cuts costs by 1.5 percentage points to CDI + 1.20%,
saving BRL400 million ($78.43 million) and allowing resource
reallocation towards more profitable ventures, the report notes.
Strategic Debt Overhaul Boosts Casas Bahia's Liquidity
Since taking over in May 2023, Franklin has led both financial and
operational restructuring, aiming for growth from 2025, the report
notes. He emphasized that the focus has shifted more towards
operational efficiencies.
The pending plan will replace existing debts with new BRL4.1
billion ($803.92 million) debentures, split into two series, the
report relays.
The first series gives creditors 37% of their credit at CDI + 1.5%,
the report notes.
The second series, due in 2030 at CDI + 1%, allows for
credit-to-share conversions, potentially turning creditors into
equity partners, the report discloses.
This strategy ensures a return to growth and protects against
future financial issues, reflecting proactive corporate governance,
the report relays.
Franklin is optimistic as Casas Bahia prepares to discuss detailed
plans with investors and analysts, the report adds.
PETROLEO BRASILEIRO: Delivers Record Dividends in 2023
------------------------------------------------------
Rio Times Online reports that Petroleo Brasileiro S.A. or Petrobras
announced a groundbreaking total shareholder payout for 2023 of
BRL94.35 billion ($18.32 billion).
This included BRL22 billion ($4.27 billion) in extraordinary
dividends, setting a new record in their financial dealings,
according to Rio Times Online.
The company paid BRL58.214 billion ($11.30 billion) in advances
this year and proposed another BRL36.139 billion ($7.01 billion) in
extra dividends, the report notes.
Shareholders are set to receive BRL2.89495671 ($0.56) per share
after adjustments based on the Selic rate, the report relays. This
figure includes an increment of BRL0.09538421 ($0.02) per share,
the report discloses.
The payouts are scheduled in two installments: the first in May and
the second in June 2024, each providing BRL1.44747835 ($0.28) per
share, the report says.
The choice to cap payouts at 50% of potential extraordinary
dividends balanced investor rewards with operational reinvestment,
the report notes.
This arrangement was crucial to bolster Brazil's government budget,
potentially enriching it by about BRL6 ($1.15) billion, the report
relays.
Despite the substantial dividends, tensions regarding the
management of these payouts and political influences were evident,
the report notes.
These issues were prominently discussed in shareholder meetings,
reflecting the complexities of managing a state-controlled entity,
the report discloses.
The shareholder cutoffs are key: B3 by April 25, 2024, and NYSE ADR
by April 29, 2024; stocks go ex-dividend soon after, the report
notes.
Petrobras emphasizes its commitment to financial stability and
shareholder value, boosting investor confidence and its global
stance, the report adds.
About Petrobras
Petroleo Brasileiro S.A. or Petrobras (in English, Brazilian
Petroleum Corporation - Petrobras) is a semi-public Brazilian
multinational corporation in the petroleum industry headquartered
in Rio de Janeiro, Brazil. Petrobras control significant oil and
energy assets in 16 countries in Africa, the Americas, Europe and
Asia. But, Brazil represents majority of its production.
The Brazilian government directly owns 54% of Petrobras' common
shares with voting rights, while the Brazilian Development Bank
and Brazil's Sovereign Wealth Fund (Fundo Soberano) each control
5%, bringing the State's direct and indirect ownership to 64%.
A corruption scandal was uncovered in 2014 that involved
Petrobras.
The scandal related to money laundering that involved Petrobras
executives. The executives were alleged to get received kickbacks
from overpriced contracts, to the tune of about $3 billion in
total. Over a thousand warrants were issued against politicians
and businessmen in relation to the scandal. In 2016, Marcelo
Odebrecht, CEO of Odebrecht, was sentenced to 19 years in prison
after being convicted of paying more than $30 million in bribes to
Petrobras executives.
In January 2018, Petrobras agreed to pay $2.95 billion to settle a
U.S. class action corruption lawsuit. In September 2018,
Petrobras agreed to pay $853.2 million to settle with Brazilian and
U.S. authorities.
In July 2022, Fitch Ratings affirmed Petrobras' BB- Long-Term
Issuer Default Rating. In addition, Fitch has revised the Rating
Outlook to Stable from Negative following a similar revision to
Brazil's Sovereign Rating Outlook. Also in July 2022, Egan-Jones
Ratings Company upgraded the foreign currency and local currency
senior unsecured ratings on debt issued by Petrobras to BB+ from
BB.
In January 2024, S&P Global Ratings assigned a new management &
governance (M&G) assessment of moderately negative to Brazil-based
Petroleo Brasileiro S.A. - Petrobras. At the same time, S&P has
affirmed its issuer credit ratings on Petrobras at 'BB' on the
global scale and 'brAAA' on the Brazilian national scale. S&P has
also affirmed its issue-level ratings on the company, and removed
all its ratings from under criteria observation (UCO).
PETROLEO BRASILEIRO: Notes Production Growth Amid Challenges
------------------------------------------------------------
Rio Times Online reports that in Q1 2024, Brazil's Petroleo
Brasileiro S.A. (Petrobras) reported a production of 2.776 million
barrels per day (bpe/d), a 3.7% increase from 2023.
Despite this, there was a 5.4% decline from the previous quarter.
Specifically in Brazil, production reached 2.742 million bpe/d, up
3.9% year-over-year but down 5.5% from the previous quarter,
according to Rio Times Online.
The company linked the quarterly drop to more losses from scheduled
maintenance and the natural decline of mature fields, notes the
report.
Nevertheless, commercial oil and natural gas production still
amounted to 2.428 million bpe/d, Rio Times Online relays. This was
a 3.2% rise from early 2023, though a 5.6% decrease from the
preceding quarter.
In the Atlantic's presalt layers, Petrobras extracted 1.857 million
barrels per day from January to March 2024, the report says.
Rio Times Online discloses that this rate was 9.1% higher than in
Q1 2023 but fell 4.1% from Q4 2023.
Meanwhile, total sales volumes of derivatives decreased by 2.8%
early in 2024 compared to late 2023, totaling 1.648 million barrels
per day, Rio Times Online relays.
Year-over-year, there was a 4.9% drop in sales volumes. Gasoline
sales decreased by 5.2% quarter-over-quarter and 6.8%
year-over-year, reaching 386,000 barrels per day, the report says.
Diesel sales also saw a decrease, dropping 3.2% year-over-year and
7.6% from the last quarter, totaling 691,000 barrels per day, Rio
Times Online notes.
The report says that despite these obstacles, Petrobras's ongoing
production growth showcases its resilience and strategic response
to a volatile market.
This performance emphasizes the complexity and dynamism within the
global oil sector, Rio Times Online discloses.
Background
Last week, Petrobras has announced a $73 billion investment plan,
the report relays.
This substantial investment is directed towards expanding its oil
exploration and production capacities, the report notes.
Rio Times Online says that this funding promises to invigorate not
just the oil sector but also the maritime and offshore industries,
marking a significant economic thrust.
The investment strategy encompasses the development of oil
platforms, maritime support vessels, and cabotage ships, Rio Times
Online notes.
It also includes the environmentally responsible decommissioning of
outdated units, the report adds.
About Petrobras
Petroleo Brasileiro S.A. or Petrobras (in English, Brazilian
Petroleum Corporation - Petrobras) is a semi-public Brazilian
multinational corporation in the petroleum industry headquartered
in Rio de Janeiro, Brazil. Petrobras control significant oil and
energy assets in 16 countries in Africa, the Americas, Europe and
Asia. But, Brazil represents majority of its production.
The Brazilian government directly owns 54% of Petrobras' common
shares with voting rights, while the Brazilian Development Bank
and Brazil's Sovereign Wealth Fund (Fundo Soberano) each control
5%, bringing the State's direct and indirect ownership to 64%.
A corruption scandal was uncovered in 2014 that involved
Petrobras.
The scandal related to money laundering that involved Petrobras
executives. The executives were alleged to get received kickbacks
from overpriced contracts, to the tune of about $3 billion in
total. Over a thousand warrants were issued against politicians
and businessmen in relation to the scandal. In 2016, Marcelo
Odebrecht, CEO of Odebrecht, was sentenced to 19 years in prison
after being convicted of paying more than $30 million in bribes to
Petrobras executives.
In January 2018, Petrobras agreed to pay $2.95 billion to settle a
U.S. class action corruption lawsuit. In September 2018,
Petrobras agreed to pay $853.2 million to settle with Brazilian and
U.S. authorities.
In July 2022, Fitch Ratings affirmed Petrobras' BB- Long-Term
Issuer Default Rating. In addition, Fitch has revised the Rating
Outlook to Stable from Negative following a similar revision to
Brazil's Sovereign Rating Outlook. Also in July 2022, Egan-Jones
Ratings Company upgraded the foreign currency and local currency
senior unsecured ratings on debt issued by Petrobras to BB+ from
BB.
In January 2024, S&P Global Ratings assigned a new management &
governance (M&G) assessment of moderately negative to Brazil-based
Petroleo Brasileiro S.A. - Petrobras. At the same time, S&P has
affirmed its issuer credit ratings on Petrobras at 'BB' on the
global scale and 'brAAA' on the Brazilian national scale. S&P has
also affirmed its issue-level ratings on the company, and removed
all its ratings from under criteria observation (UCO).
===============
C O L O M B I A
===============
CANACOL ENERGY: S&P Downgrades ICR to 'B-' On Weaker 1P Reserves
----------------------------------------------------------------
S&P Global Ratings lowered its issuer credit and issue-level
ratings to 'B-' from 'BB-' on Colombian natural gas producer
Canacol Energy Ltd.
S&P said, "The negative outlook reflects our view that the
company's liquidity could be insufficient to meet the investments
to strengthen reserves, as well as to maintain current production.
We could further lower the ratings within the next 12 months if
there's no sufficient evidence of operating viability for the long
term."
As of Dec. 31, 2023, Canacol's proved (1P) reserves declined by 13%
to 295 billion cubic feet equivalent (cfe; from 339 billion cfe in
2022), while maintaining a weak reserve life index (RLI) of about
4.6 years and the 32% replacement ratio. These operating results
suggest weaker project execution and potential production
shortfalls if not addressed in the near term. Canacol has spent
about $200 million in growth capex for the past 12 months, with no
favorable production/reserve returns. Canacol's operating results
are significantly below those of the nearest rated peer Crew Energy
Inc. (B/Stable/--) with 1P reserves growing by 17% and its
replacement ratio of 129% as of Dec. 31, 2023. Hence, S&P revised
its assessment of Canacol's business risk profile to weak from
fair.
As of March 22, 2024, the company reported (in its conference call)
about $30 million in available cash, even after disbursing the
total committed revolving facility (RCF) of $200 million for capex
and working capital. However, these investments didn't raise
production, nor the company will increase sales after exiting the
Jobo-Medellin project that was supposed to boost sales by about 20%
by 2024. S&P said, "Hence, we believe the company's cash generation
will be limited for the next 12 months, and we no longer believe
current levels can cover the future additional capex needed for
production growth and reserve replacements. Our assumed capex is
about $198 million, about $50 million above the company’s
guidance, as we believe investments need to be higher to strengthen
production and reserve base. Otherwise, this will jeopardize the
company's future sales prior to the maturities of its RCF and bond
in 2027 and 2028, respectively. It is important to add that the
bond is currently trading way below par at $52, which implies that
Canacol may also face difficulties accessing financial markets to
refinance its debt. We expect that the company’s tax
restructuring plan will save about $40 million per year in tax
payments, which could further support liquidity."
S&P said, "The company generated $240 million in EBITDA in 2023,
and we continue to expect $280 million in 2024, mostly related to
the increase in contracted prices and stronger operating netbacks
of 75%. On the other hand, since the company has fully drawn its
RCF and given financial covenant limitations, adjusted debt will
remain at $770 million and debt to EBITDA at 2.7x. In our opinion,
access to financial markets is limited, and Canacol may rely on
divestments of noncore assets, working capital financing
alternatives, and/or delays in raising production to achieve
sufficient sources of cash. This could cause a deviation from our
expectations for financial metrics in the next 12 months, weakening
Canacol's financial risk profile.
"Even though the decision to exit the Jobo-Medellin pipeline
project was taken considering future operating difficulties that
could affect the company's operations, this decision significantly
reduced expected cash generation for 2024 onwards (compared to our
expectations). In addition, the low reserve replacement ratios
point to weak management decisions to effectively respond to past
operational crises and address operating vulnerabilities.
"We will continue to evaluate Canacol’s ability to strengthen
reserve replacement ratios, production growth rates, and cash
generation.
"With 1P reserve replacement ratios significantly below 100%
(standard measure), we believe production shortfalls are likely,
which could hinder the operating viability by the time the bond
matures in 2028, if not addressed. Hence, we will continue to
monitor Canacol’s upcoming strategies to strengthen reserves and
achieve sufficient production cushion to remain in operations.
The company is at a breakeven point between liquidity sources and
uses, but Canacol will require additional capex or to pause
maintenance capex in order to withstand any cash shortfalls.
Moreover, the company could breach its maintenance covenants if it
takes on additional debt. Therefore, we believe that even though we
assess Canacol's liquidity as weak, its difficulties accessing
additional liquidity sources imply a potential risk to current
operations, future cash flow and potential restructuring of its
debt.
"The negative outlook reflects our view that we could further
downgrade Canacol in the next 12 months if it's unable to
strengthen production and 1P reserves, while reserve replacement
ratios are subpar. This would imply that the current capital
structure may become unsustainable compared with the company’s
business growth prospects and potential cash generation. We will
continue to monitor developments in Canacol’s production and
liquidity sources to evaluate its business risk and liquidity
profiles."
S&P could downgrade Canacol in the next 6-12 months if:
-- The company faces liquidity shortfall and its access to
financial markets is limited; or
-- S&P perceives the current capital structure is unsustainable
compared with expected production and reserve growth prospects; or
-- S&P perceives there is a potential distressed scenario for the
company through a debt restructuring; or
-- Take-or-pay, fixed-price contracts represent less than 60% of
total production, increasing the company's price volatility risk;
or
-- Debt to EBITDA weakens beyond S&P's expectations to above 3x on
a consistent basis.
S&P said, "We could revise the outlook to stable in the next 12
months if the company increases cash generation enough to cover
expected capex for reserve replacements, production growth, while
strengthening its cash balance. In addition, the outlook revision
to stable would require higher production, while 1P reserves also
increase replacement ratios and RLI."
=============
J A M A I C A
=============
JAMAICA: Secures USD150M World Bank Catastrophe Bond
----------------------------------------------------
Javaughn Keyes at RJR News reports that Jamaica has secured its
second catastrophe bond, with assistance from the World Bank.
Finance Minister Dr. Nigel Clarke says the facility will provide
more than US$100 million in coverage, in the event of damage from
named storm events, according to RJR News.
"The catastrophe bond is a risk transfer instrument that allows
Jamaica to transfer the fiscal risk of a direct hit by a hurricane
to international capital market. International investors put up
the principal amount of the bond in the amount of US$150 million or
just under $24 billion and those funds are held in trust by the
World Bank. Jamaica pays an annual premium and in the event of a
direct hit by a hurricane, the World Bank pays out to Jamaica
according to the severity of the hurricane and the location," he
explained, the report notes.
Jamaica will benefit from this coverage for the hurricane seasons
up to 2027, the report relays.
The Facility will trade on the Hong Kong Exchange.
In 2021, Jamaica became the first developing country in the world
to independently sponsor a Catastrophe Bond, 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.
=======
P E R U
=======
INTERCORP FINANCIAL: S&P Lowers ICR to BB+, Outlook Stable
----------------------------------------------------------
S&P Global Ratings lowered its ratings on Credicorp Ltd., Banco de
Credito del Peru (BCP), MiBanco Banco de La Microempresa S.A.,
Scotiabank Peru S.A.A., Banco BBVA Peru, and Intercorp Financial
Services Inc. (IFS). The outlooks on all entities are stable. At
the same time, S&P affirmed its ratings on Banco Internacional del
Peru S.A.A. - Interbank and Corporacion Financiera de Desarrollo
S.A. (COFIDE), and the outlooks remain stable. See the ratings list
for details.
The rating actions on the financial entities follow S&P's downgrade
of Peru. This is because it believes the sovereign influences the
creditworthiness of financial institutions due to the direct and
indirect effects sovereign stress would have on banks' business
conditions. S&P Global Ratings lowered its foreign currency ratings
on Peru to 'BBB-/A-3' from 'BBB/A-2' and its local currency ratings
to 'BBB/A-2' from 'BBB+/A-2'. The outlook on the long-term ratings
is stable.
S&P said, "We expect Peru's complex political landscape will
persist in the run-up to the next presidential and Congressional
elections. This, in turn, limits the government's capacity to
implement more timely policies to boost the investment and economic
growth outlook, in our view. Lingering political uncertainties pose
an opportunity cost to growth despite favorable copper prices."
Moderate growth, especially in per capita terms, will limit
improvement in Peru's socioeconomic conditions. Peru already has
lower income levels than many regional and similarly rated peers.
Subdued growth also limits the resilience to weather new shocks.
S&P said, "Our Banking Industry Country Risk Assessment (BICRA) of
Peru already incorporates challenging political conditions. Our
bank criteria use our BICRA's economic risk and industry risk
scores to determine a bank's anchor, the starting point in
assigning an issuer credit rating. For Peru, our anchor for a
commercial bank operating only in the country is 'bbb-'. Peru's
economic risk trend remains negative based on the downside risks to
growth and investment from continued political volatility.
"Our assessment of Peru's economic risk could weaken if political
developments and other events (like climate events) significantly
dent economic resilience, damaging banks' operating performance and
asset quality.
"If we were to revise down our economic risk assessment, the
starting point (or anchor) would remain 'bbb-'. However, the weaker
economic risk score, which calibrates the risk weights for our
risk-adjusted capital (RAC) framework, could lead to higher risk
charges. This could lower the RAC ratios for some financial
institutions operating in the country, which could affect the
stand-alone credit profiles (SACPs), but not our ratings on these
entities."
Outlook
Credicorp
The stable outlook on Credicorp for the next two years reflects
that on Peru, which will continue influencing the group's credit
fundamentals. Credicorp, the holding company, receives a
substantial portion of dividends from its Peruvian operations
across various financial segments. In addition, the holding company
has substantial liquid assets that ensure debt service coverage,
even in a scenario of low or no dividends.
The stable rating outlook on the holding company also indicates the
resilience of the group's largest subsidiary, BCP, which S&P
doesn't expect to downgrade unless its SACP falls below 'bbb-',
which is unlikely.
Downside scenario. A downgrade of Peru could trigger a similar
action on Credicorp. S&P could also lower the rating on the holding
company if its liquidity decreases and the challenging business
conditions result in a significant weakening in dividends
received.
Upside scenario. S&P could upgrade Credicorp if it was to take a
similar action on the sovereign, while the group's intrinsic
creditworthiness fundamentals remain unchanged.
Banco de Credito del Peru
The stable outlook on BCP during the next two years mirrors the
outlook on Peru. S&P expects that the ratings on the bank will move
in tandem with those on the sovereign because of BCP's high
exposure to the domestic market. S&P rarely rates financial
institutions higher than the sovereign where they operate because
S&P considers it unlikely that these institutions would remain
unaffected by developments in domestic economies.
On the other hand, if higher risks materialize, damaging the
operating conditions for banks in Peru--indicated by a downward
revision of the BICRA economic risk score--it could hurt the bank's
capitalization and intrinsic credit fundamentals, but not the
ratings.
The stable outlook on BCP also considers that increased systemic
risks for financial entities operating in Peru, combined with a
hypothetical deterioration in the bank's intrinsic
creditworthiness, would not have an impact on the ratings, unless
the SACP falls below 'bbb-', which is unlikely at this point.
Downside scenario. S&P could take a negative rating action on BCP
if it was to take a similar action on the sovereign.
Upside scenario. S&P could upgrade BCP if it was to take a similar
action on the sovereign, while the bank's SACP remains above
'bbb-'.
MiBanco
The stable outlook on MiBanco during the next two years is based on
that on its parent, BCP, as long as the former remains a core
subsidiary to the group.
Downside scenario. S&P could downgrade MiBanco if it was to take
the same action on BCP, which could happen if it downgrades Peru.
Upside scenario. S&P could upgrade MiBanco if it was to take a
similar action on BCP.
Scotiabank Peru
The stable outlook on Scotiabank Peru during the next two years
reflects the outlook on Peru. S&P said, "We expect that the ratings
on the bank will move in tandem with those on the sovereign because
Scotiabank Peru has operations only in the country. We rarely rate
financial institutions higher than the sovereign where they operate
because we consider it unlikely that these institutions would
remain unaffected by developments in domestic economies."
Increased systemic risks for financial entities operating in Peru,
combined with a hypothetical deterioration in the bank's intrinsic
creditworthiness, would not have an impact on the ratings because
of parent support. However, if the SACP falls below 'bb-', which is
unlikely, that would affect the ratings. Scotiabank Peru is a
strategically important subsidiary that could receive group
support, which could result in up to three notches of rating uplift
above the subsidiary's SACP.
Downside scenario. S&P could downgrade the bank if it was to take a
similar action on the sovereign.
Upside scenario. S&P could upgrade Scotiabank Peru if it was to
take a similar action on the sovereign.
Banco BBVA Peru
The stable outlook on Banco BBVA Peru for the next two years
mirrors the outlook on Peru. S&P said, "We expect that the ratings
on the bank will move in tandem with those on the sovereign because
of Banco BBVA Peru's high exposure to the domestic market. We
rarely rate financial institutions higher than the sovereign where
they operate because we consider it unlikely that these
institutions would remain unaffected by developments in domestic
economies."
Increased systemic risks for financial entities operating in Peru,
combined with a hypothetical deterioration in the bank's intrinsic
creditworthiness, would not have an impact on the ratings because
of parent support. However, if the SACP falls below 'bb-', which is
unlikely, that would affect the ratings. Banco BBVA Peru is a
strategically important subsidiary that could receive group
support, which could result in up to three notches of rating uplift
above the bank's SACP.
Downside scenario. S&P could downgrade the bank if it was to take a
similar action on the sovereign.
Upside scenario. S&P could raise the rating on Banco BBVA Peru if
it was to take a similar action on the sovereign.
IFS
The stable outlook on IFS for the next two years reflects that on
Peru, which will continue influencing the group's credit
fundamentals. In addition, S&P expects that the holding company
will retain enough liquidity to cover debt service and that it will
keep an adequate debt maturity profile.
Higher risks could materialize, damaging the operating conditions
for financial institutions in Peru--as indicated by a downward
revision of the BICRA economic risk score. However, that would not
affect the group's intrinsic credit fundamentals and ratings given
its high capital buffer within its current category under our
capital framework.
Downside scenario. A downgrade of Peru could trigger a similar
action on IFS. S&P could also lower the ratings on IFS if the
challenging business conditions result in a significant weakening
in dividends received by the holding company.
Upside scenario. S&P could upgrade IFS if it was to take a similar
action on the sovereign, while the group's intrinsic
creditworthiness fundamentals remain unchanged.
Interbank
The stable outlook on Interbank in the next two years reflects the
outlook on Peru's foreign currency rating and S&P's expectation
that the bank will maintain stable intrinsic credit fundamentals.
Higher risks could materialize, damaging the operating conditions
for banks in Peru--as indicated by a downward revision of the BICRA
economic risk score. However, that would not affect the bank's
intrinsic credit fundamentals and rating given its high capital
buffer within its current category under our capital framework.
Downside scenario. S&P said, "We could lower our rating on
Interbank if we were to lower our foreign currency sovereign rating
on Peru. We rarely rate financial institutions higher than the
sovereign where they operate because we consider it unlikely that
these institutions would remain unaffected by developments in
domestic economies."
S&P would also downgrade Interbank if its SACP were to fall below
'bbb-', but it believes this is unlikely in the next 12-24 months.
Upside scenario. S&P could upgrade Interbank if it was to take the
same action on the foreign currency sovereign rating and revise up
the bank's SACP above 'bbb-'--for example, owing to consistent
capital strengthening.
COFIDE
S&P said, "The stable outlook on COFIDE in the next two years
reflects the outlook on Peru and our expectation that its intrinsic
creditworthiness will remain stable, with a RAC ratio above 5% in
2024-2025. In addition, we expect the government to continue
providing support to COFIDE given our view that it will remain the
government's important financing tool in its plans to restart the
domestic infrastructure sector." The entity also continues to be a
key lending intermediary to small and midsize enterprises.
Downside scenario. S&P said, "We could downgrade COFIDE if we lower
our ratings on Peru. We rarely rate financial institutions higher
than the sovereign where they operate because we consider it
unlikely that these institutions would remain unaffected by
developments in domestic economies."
S&P could also lower the ratings on COFIDE if it was to revise down
its SACP.
Upside scenario. An upgrade of the entity is unlikely at this
point, given the challenging conditions for the Peruvian government
that somewhat limit its capacity to support government entities.
S&P could upgrade COFIDE if it was to take the same action on Peru
and revise up COFIDE's SACP.
Ratings List
DOWNGRADED; CREDITWATCH/OUTLOOK ACTION
TO FROM
BANCO BBVA PERU
Issuer Credit Rating BBB-/Stable/A-3 BBB/Negative/A-2
Subordinated BB+ BBB-
TO FROM
SCOTIABANK PERU S.A.A.
Issuer Credit Rating BBB-/Stable/A-3 BBB/Negative/A-2
TO FROM
BANCO DE CREDITO DEL PERU
Issuer Credit Rating BBB-/Stable/A-3 BBB/Negative/A-2
Senior Unsecured BBB- BBB
Subordinated BB+ BBB-
TO FROM
BANCO DE CREDITO DEL PERU, PANAMA BRANCH
Subordinated BB+ BBB-
TO FROM
MIBANCO BANCO DE LA MICROEMPRESA S.A.
Issuer Credit Rating BBB-/Stable/A-3 BBB/Negative/A-2
TO FROM
CREDICORP LTD.
Issuer Credit Rating BBB-/Stable/-- BBB/Negative/--
Senior Unsecured BBB- BBB
TO FROM
INTERCORP FINANCIAL SERVICES INC.
Issuer Credit Rating BB+/Stable/B BBB-/Negative/A-3
Senior Unsecured BB+ BBB-
RATINGS AFFIRMED
BANCO INTERNACIONAL DEL PERU S.A.A. - INTERBANK
Issuer Credit Rating BBB-/Stable/--
Senior Unsecured BBB-
Subordinated BB+
RATINGS AFFIRMED
CORPORACION FINANCIERA DE DESARROLLO S.A.
Issuer Credit Rating BBB-/Stable/A-3
Senior Unsecured BBB-
Subordinated BB+
*********
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.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
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