/raid1/www/Hosts/bankrupt/TCRLA_Public/240902.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
Monday, September 2, 2024, Vol. 25, No. 176
Headlines
A R G E N T I N A
CLISA: Fitch Cuts LT IDR 'RD' on Missed Coupon Payment
EMPRESA DISTRIBUIDORA: S&P Rates New Senior Unsecured Notes 'CCC'
GAUCHO GROUP: David Reinecke Appointed as Director
PAMPA ENERGIA: Secures Total Control of OCP Pipeline
B R A Z I L
ELETROBRAS: S&P Upgrades ICR to 'BB', Outlook Stable
JSL SA: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg.
MINERVA SA: Buys 48-MW Solar Project in Brazil
MOVIDA PARTICIPACOES: Fitch Affirms 'BB' IDR, Alters Outlook to Neg
SIMPAR SA: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg.
D O M I N I C A N R E P U B L I C
[*] DOMINICAN REPUBLIC: Economic Growth Up 8% Thru Hotel Sector
H O N D U R A S
TEGUCIGALPA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
M E X I C O
ALSEA, SAB: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Cabinet Appoints Panel to Ease Food Prices
V I R G I N I S L A N D S
ELECT GLOBAL: Fitch Cuts Rating on USD Subordinated Notes to 'BB+'
X X X X X X X X
[*] BOND PRICING: For the Week Aug. 26 to Aug. 30, 2024
- - - - -
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A R G E N T I N A
=================
CLISA: Fitch Cuts LT IDR 'RD' on Missed Coupon Payment
------------------------------------------------------
Fitch Ratings has downgraded Compania Latinoamericana de
Infraestructura y Servicios' (CLISA) Long-Term Local Currency and
Foreign Currency Issuer Default Ratings (IDRs) to 'RD' from 'C'.
Fitch has also affirmed CLISA's senior secured bond maturing July
2027 at 'C'/'RR4'.
The downgrade follows the company's missed coupon payment on its
USD 358 million senior secured note due in 2027 upon expiration of
the 30-day grace period which occurred on Aug. 26, 2024. The 'RD'
or Restricted Default rating indicates the issuer has experienced
an uncured payment default but has not entered into bankruptcy
filings or similar process and has not ceased operating.
The company is engaged in debt restructuring discussions with its
bondholders, which will likely lead to a distressed debt exchange
(DDE). The company also announced on Aug. 26, 2024 that it has
reached a preliminary agreement with majority holders to amend
certain terms and conditions of said notes. Fitch will reassess the
ratings upon the completion of a debt restructuring, based on the
new terms and conditions and capital structure.
Key Rating Drivers
Missed Coupon Payment: CLISA failed to pay the coupon on its senior
secured note due 2027 within the 30-day grace period. The coupon
was originally due on July 25, 2024 and the grace period expired on
Aug. 26, 2024. Fitch treats the uncured expiry of any applicable
original grace period as a 'RD' provided the company is still
operating and is not pursuing a bankruptcy or other formal
winding-up procedure.
Poor Liquidity and debt restructuring: Fitch believes CLISA's
liquidity and refinancing risks remain high and require the company
to restructure its debt given the current operating environment in
Argentina. In Fitch's view, the announcement of a preliminary
agreement with majority bondholders to amend terms of the 2027
bonds indicates the company is currently pursuing a DDE. As per
Fitch's criteria, a DDE occurs when a restructuring or exchange
imposes a material reduction in terms compared to existing
contractual terms and has the effect of allowing the issuer to
avoid an eventual probable default.
Significant Counterparty Risk: CLISA is exposed to high
counterparty risk which is closely linked to the Argentine public
sector as 80% to 90% of the company's revenue comes from the
national government, various municipalities and provinces. The more
stable waste management business accounts for the majority of this
figure.
The company's construction business is highly dependent upon
projects developed by federal, provincial and municipal
governments. CLISA also faces contract renewal risk which stems
from regular negotiations of public service contracts. In addition
to the reduction of contracting and funding of infrastructure
projects, the company is vulnerable to delays in collection with
the public sector as a major client.
Derivation Summary
CLISA's 'RD' Long-Term IDR reflects the uncured expiry of the
30-day grace period for the payment coupon originally due on July
25, 2024 for its senior secured 2027 notes. The grace period ended
on Aug. 26, 2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Fitch will reassess the IDRs upon successful completion of a DDE;
the updated IDR would reflect the post debt restructuring capital
structure and credit profile.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The IDR could be downgraded to 'D' in the absence of an agreement
with lenders and bondholders, leading to bankruptcy filings or
other formal insolvency procedures.
Liquidity and Debt Structure
Impaired Liquidity Position: CLISA is experiencing an impaired
liquidity position following the deterioration of the operating
environment in Argentina and significant delays from counterparty
payments in that country.
As of June 2024, the company had readily available cash in hand of
ARS19 billion and short-term debt of ARS128 billion. Fitch notes
that about three quarters of the cash is usually tied to projects
and other operations. Short-term debt consisted of the BRCC notes
amortization, self-liquidating debt and revolving facilities.
Self-Liquidating facilities are receivables factoring like
transactions with recourse to the company.
The amount outstanding on the 2027 notes is in excess of USD358
million. These bonds have a bullet payment and includes a step-up
coupon that has gone from 5.25% in 2022 to 10.5% in 2024 with an
option to PIK a portion of the interest payment until 2024.
The company also further renegotiated its privately placed 12.7%
notes under the Benito Roggio construction unit in Peru. The
balance is USD9 million for these notes and will be paid on equal
quarterly instalments with a final payment in November 2024. These
last notes are not subject to Argentina's capital controls.
Issuer Profile
CLISA is a leading Argentine infrastructure management and
development company in business for over 100 years. The company is
organized into four main business segments: Construction and Road
Concessions, Waste Management, Transportation and Water Services.
The company provides services to both the public and private
sectors, but is mostly focused on public infrastructure
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
CLISA-Compania Latinoamericana de Infraestructura y Servicios has
an ESG Relevance Score of '4' for Governance Structure due to
ownership concentration , which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
CLISA-Compania
Latinoamericana de
Infraestructura y
Servicios LT IDR RD Downgrade C
LC LT IDR RD Downgrade C
senior secured LT C Affirmed RR4 C
EMPRESA DISTRIBUIDORA: S&P Rates New Senior Unsecured Notes 'CCC'
-----------------------------------------------------------------
S&P Global Ratings assigned its 'CCC' issue-level rating to the
Argentina-based utility Empresa Distribuidora y Comercializadora
Norte S.A.'s (Edenor) new notes. At the same time, S&P affirmed its
'CCC' foreign and local currency ratings on Edenor.
The outlook remains stable, reflecting S&P's expectation that
Edenor will be able to cover its operating expenses, capex, and
other obligations in the next 12-18 months with internally
generated funds and cash, without jeopardizing its debt repayment.
The company plans to use the proceeds to fund investments in fixed
assets, repay and/or refinance the existing debt, and for general
corporate purposes. With this transaction, the company seeks to
extend its debt profile to 4.5 years from less than 2 years
currently, and to improve its short-term liquidity position, which
S&P views as positive from a credit perspective.
In February 2024, the National Electricity Regulatory Entity (known
by its Spanish acronym, ENRE) authorized a one-time 319.2% increase
in distribution rates, with automatic monthly adjustments in
May-December. But because of inflationary pressures, ENRE postponed
the planned rate increases for May, June, and July. Instead, it
approved in June an adjustment formula for August-December that
will factor in expected inflation. The postponed adjustments will
now be included in the new rate review that is currently under
discussion and expected to address revisions for 2025-2029. This
review intends to return to a stable and defined regulatory
environment in Argentina, and end companies' dependence on
discretionary rate adjustments or disbursements from the government
to cover operating and investment needs. S&P expects more news
related to the review by the end of the year.
S&P said, "In the meantime, we have updated base-case scenario for
Edenor that now includes the already approved and collected rate
adjustments and the new capital structure. We also expect EBITDA of
roughly ARP290 billion in 2024, with EBITDA margin of 15%-20%
(compared with an EBITDA loss of ARP32.05 million in 2023). In
addition, we forecast debt to EBITDA of close to 2.5x this year.
These factors triggered the upward revision of the SACP to 'ccc+'.
"Still, we believe the implementation of the rate review that
enables clearer and more predictable revenue in the medium term
will be crucial for Edenor's financial performance. Otherwise, the
company may encounter liquidity challenges in the medium term, as
in years of previous administrations, when rate increases were
discretionary and sharply lower than the rate of inflation.
"The T&C cap reflects our perception of the risk of the sovereign
interfering with the ability of domestic companies to access,
convert, and transfer money abroad, which is essential for
companies to service their financial obligations, particularly U.S.
dollars."
GAUCHO GROUP: David Reinecke Appointed as Director
--------------------------------------------------
Gaucho Group Holdings, Inc., announced the appointment of David
Reinecke to the Company's Board of Directors effective Aug. 16,
2024. Mr. Reinecke replaces Peter J.L. Lawrence, who retired from
the Board on Aug. 16, 2024.
Mr. Reinecke brings extensive experience in global finance,
strategy, and corporate development to Gaucho Holdings. Currently,
he is the chief financial officer and serves as a member of the
Executive Board of DEAG Deutsche Entertainment AG, where he has
been instrumental in driving the company's financial and
operational strategies, as well as in managing its expansion into
new markets. Mr. Reinecke's background also includes significant
roles at leading corporate and investment banks, such as Morgan
Stanley, Credit Suisse, and N26, where he has specialized in
mergers and acquisitions, debt and equity capital markets, fund
raising, and strategic advisory services. His expertise in these
areas is expected to be invaluable to Gaucho Holdings as the
Company navigates the evolving economic landscape in Argentina.
Gaucho Holdings believes Mr. Reinecke's strategic insight and
financial acumen will complement the Company's ongoing efforts to
expand its presence in the luxury markets of Argentina. The real
estate market in Argentina, including the reemergence of mortgages,
presents a timely opportunity for Gaucho Holdings to capitalize on
the increasing demand for high-quality assets. As a NASDAQ-listed
company, Gaucho Holdings is uniquely positioned to participate in
the anticipated growth of Argentine asset values and explore new
opportunities that align with its long-term vision.
"I have been following Gaucho Holdings' success story since their
inception and feel honored to be officially part of the family,"
commented David Reinecke. "With Argentina on the rise, I see
tremendous potential for further growth, and I believe Gaucho
Holdings is well positioned to capitalize on these opportunities in
the future."
"We are excited to welcome David Reinecke to our Board of
Directors," said Scott Mathis, CEO and Founder of Gaucho Group
Holdings, Inc. "David's deep experience in finance and corporate
strategy will be instrumental as we embark on a fresh plan to take
advantage of the opportunities being created in the new Argentina.
We feel it's time to double down on all things Argentina,
leveraging our existing assets and complementing them with new
endeavors to build value and drive growth for our stockholders."
The Company believes Mr. Reinecke's addition to the Board will
further enhance its ability to execute its strategic initiatives
and create value for its stakeholders in the years to come.
About Gaucho Group Holdings
Through its wholly-owned subsidiaries, Gaucho Group Holdings, Inc.
invests in, develops and operates real estate projects in
Argentina. GGH operates a hotel, golf and tennis resort, vineyard
and producing winery in addition to developing residential lots
located near the resort. In 2016, GGH formed a new subsidiary,
Gaucho Group, Inc. and in 2018, established an e-commerce platform
for the manufacture and sale of high-end fashion and accessories.
In February 2022, the Company acquired 100% of Hollywood Burger
Argentina, S.R.L., now Gaucho Development S.R.L, through
InvestProperty Group, LLC and Algodon Wine Estates S.R.L., which is
an Argentine real estate holding company. In addition to GD, the
activities in Argentina are conducted through its operating
entities: InvestProperty Group, LLC, Algodon Global Properties,
LLC, The Algodon - Recoleta S.R.L, Algodon Properties II S.R.L.,
and Algodon Wine Estates S.R.L. Algodon distributes its wines in
Europe under the name Algodon Wines (Europe). On June 14, 2021, the
Company formed a wholly-owned Delaware limited liability company
subsidiary, Gaucho Ventures I - Las Vegas, LLC, for purposes of
holding the Company's interest in LVH Holdings LLC.
New York, NY-based Marcum LLP, the Company's auditor since 2013,
issued a "going concern" qualification in its report dated April
29, 2024, 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.
PAMPA ENERGIA: Secures Total Control of OCP Pipeline
----------------------------------------------------
tipranks.com reports that Pampa Energia S.A. has successfully
completed the acquisition of the remaining 36% of Oleoducto de
Crudos Pesados (OCP) Ecuador S.A., resulting in a full 100%
ownership.
This strategic move, costing $22.9 million, allows Pampa Energia to
now fully consolidate OCP's financial statements, according to
tipranks.com.
OCP operates Ecuador's key privately-owned oil pipeline, spanning
over 485 kilometers and handling a significant portion of the
country's oil transportation, the report notes.
As reported in the Troubled Company Reporter-Latin America on Aug.
29, 2024, Fitch Ratings has assigned a 'B'/'RR3' rating to Pampa
Energia S.A.'s (Pampa) proposed unsecured notes of up to USD750
million. Net proceeds will fund any or all tender offer of its
outstanding 2027 notes and other general corporate purposes. Fitch
currently rates Pampa's Long-Term Foreign and Local Currency Issuer
Default Rating (IDR) 'B-'. The Rating Outlook is Stable.
===========
B R A Z I L
===========
ELETROBRAS: S&P Upgrades ICR to 'BB', Outlook Stable
----------------------------------------------------
S&P Global Ratings raised the global scale issuer credit and
issue-level ratings on Centrais Eletricas Brasileiras S.A. –
Eletrobras to 'BB' from 'BB-'. S&P also affirmed its 'brAAA/brA-1+'
national scale ratings on the company.
The stable outlook reflects S&P's view that Eletrobras should
continue benefiting from its position as the largest electricity
utility in the country, with over 50% of cash flow from its stable,
predictable regulated business. S&P expects it to continue
capturing efficiencies and reducing its contingent liabilities.
Since Eletrobras was privatized in June 2022, the company has
simplified its corporate structure, optimized its capital
allocation and liability management, managed contingencies,
developed energy commercialization capabilities, and restored its
capacity to invest.
These initiatives have already lowered annualized personnel,
materials, services, and other expenses to R$6.6 billion from R$7.5
billion last year. As such, leverage is improving faster than S&P
anticipated.
Even when adjusting debt for about R$23 billion of guarantees
provided to unconsolidated companies, R$5.6 billion of pension
liabilities, and approximately R$33 billion of financial
contributions to the energy development (CDE) account that the
company committed to upon its privatization, debt to EBITDA has
already fallen to 5.3x and FFO to debt has increased to 10.8% in
the 12 months ended June 2024.
When it privatized, Eletrobras paid a grant fee of approximately
R$25 billion to gradually migrate to the free market the 7.5
gigawatts of assured energy that its hydro plants previously
generated under the quota regime, which was remunerated based on
their operations and management costs.
Since then, the company has developed its own commercialization
business, targeting new large industrial and commercial clients.
This year, Eletrobras won 551 clients in the liberalized market,
which increased its contracted levels for the coming years. In our
view, this should raise the company's average contracted prices and
generation margins, which were held back by the low remuneration of
the hydro plants under the quota system.
Despite its expected growth in the free electricity market,
Eletrobras' cash flow remains very stable and predictable because
transmission and regulated generation contracts account for more
than 50% of consolidated revenue.
S&P expects regulated activities to remain the bulk of the group's
cash generation, as the transmission assets acquired in recent
auctions start their operations in the coming years and Eletrobras
improves some of its existing transmission lines that are currently
fully depreciated and therefore are not generating revenue.
Although the government has 47% stake of the voting shares of the
company, the privatization law limits its voting rights to 10%, and
the government currently hasn't appointed any of the company's
board members.
The government filed a suit, which is being negotiated in the
Conciliation and Arbitration Chamber of the Federal Administration.
As part of the negotiation, Eletrobras is requesting the full
divestment of its noncontrolling stake of Eletronuclear--whose
1,405 megawatt Angra III nuclear plant project may require R$20
billion of investments to finish construction, in addition to
guarantees that the holding already provides. On the other side,
the government is asking for the company to partially prepay its
required contributions to the CDE account and for seats on the
board of directors.
S&P said, "We believe the ongoing negotiations are credit neutral
at this point, and we will monitor how the situation evolves.
Moreover, we continue to assess Eletrobras' likelihood of receiving
extraordinary support from the government as high, considering
Eletrobras' position as the largest electricity generation and
transmission utility in Brazil." This backs its critical role and
strong link to the government, which remains a major shareholder.
As of June 30, 2024, the company had built up its unencumbered cash
position to R$26.6 billion, which is enough to cover its short-term
maturities and could also be used to fund part of its significant
capex program for 2024-2026.
The company's comfortable liquidity reflects its positive cash flow
generation, asset sales, and debt refinancing. Eletrobras recently
sold a portion of its shares in Companhia de Transmissão de
Energia Eletrica Paulista (CTEEP; not rated) for close to R$2.2
billion and announced the sale of a portfolio of thermo plants for
R$4.7 billion that is expected to close in 2025.
S&P expects the company's robust liquidity to support management's
efforts to reduce contingencies, especially related to its
compulsory loan payments--which had already fallen to R$15.3
billion, from R$22.1 billion in the second quarter of 2024--and
should be enough to prepay part of its CDE contributions if
needed.
JSL SA: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg.
---------------------------------------------------------------
Fitch Ratings has affirmed JSL S.A.'s (JSL) Long-Term Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs)
at 'BB' and downgraded its Long-Term National Scale Rating to
'AA+(bra)' from 'AAA(bra)'. Fitch has also downgraded JSL senior
unsecured debentures to 'AA+(bra)' from 'AAA(bra)'. The Rating
Outlook has been revised to Negative from Stable.
Fitch equalizes the ratings of JSL and Simpar S.A. (Simpar, FC and
LC IDR BB/Negative). This reflects the holding company's medium
legal and strong operational and strategic incentives to support
JSL, if needed.
The Negative Outlook reflects that Simpar's consolidated financial
leverage has been consistently above Fitch's expectations and not
consistent with the current ratings. The higher-for-longer
leverage, a result of greater capex and lower return on invested
capital, has also restricted conversion of EBITDA to cash flow.
The National Scale Rating downgrade reflects Simpar's credit
profile deterioration within the 'BB' rating category. Simpar's
'BB' IDRs reflect its large scale, robust business profile and
strong competitive position within the Brazilian rental and
logistics industry. Simpar group benefits from a diversified
service portfolio and long-term contracts for a significant part of
its revenues, resulting in higher cash flow predictability.
On a standalone basis, JSL has a strong business profile due to its
robust scale, diversified portfolio of services, resilient
profitability. It also maintains a leadership position in the
Brazilian road logistics and dedicated services segments, where it
has experienced rapid growth (both organic and via acquisitions).
JSL consolidated financial leverage should remain moderate, despite
expected negative FCFs, as the company improves EBITDA generation.
The company has consistent access to funding and wealthy liquidity,
allowing it to properly manage its debt amortization schedule.
Key Rating Drivers
Parent and Subsidiary Linkage: JSL's ratings reflect Simpar's
medium legal and strong operational and strategic incentives to
support its subsidiary, which equalize the ratings of both
companies. In addition to the cross-default clauses on Simpar's
debt and the relevant shareholding control, JSL has strong growth
potential and important commercial synergies, which contributes to
the group's greater bargaining power with customers, suppliers and
in vehicle purchases. Additionally, Simpar's controlling
shareholders and its managers form the majority of JSL's board of
directors.
Strong Business Profile: JSL's strong business profile is a result
of its robust scale in the fragmented and competitive outbound
logistics market (FTL) in Brazil. FTL has relatively low capital
intensity and average business risk, which is strongly correlated
with the economic cycle. There are few barriers to entry. The
company also benefits from its broad service portfolio, its
diversified customer base and a relevant presence at inbound
logistics, a more capital-intensive segment, where the strategic
and operational nature of the services provided and the medium to
long-term contracts mitigate its exposure to more volatile economic
cycles. JSL's robust scale provides greater bargain purchase power
to buy assets for the inbound segment and in the routing of its
outbound activities.
Negative FCF: JSL's organic growth should gradually increase its
EBITDA generation. Fitch's rating case scenario considers EBITDA at
BRL1.7 billion in 2024 and BRL1.9 billion in 2025, versus BRL1.6
billion in 2023. EBITDA margins should average 18% on rating
horizon, slightly better than the 17% average between 2019 and
2022. Fitch projects increasing cash flow from operations (CFFO),
reaching BRL520 million in 2024 and BRL760 million in 2025, and
total annual capex of BRL1,6 billion, on average, in the same
period. As a result, FCF should be negative BRL1,2 billion in 2024
and BRL1 billion in 2025.
Moderate Leverage: Fitch's base case scenario considers that the
net adjusted debt/EBITDA should average 3.5x up to 2026. Several
acquisitions and substantial capex pressured JSL's leverage in a
scenario of still high interest rates and spreads. JSL's total
adjusted debt/EBITDA and net adjusted debt/EBITDA were 5.5x and
3.9x in the LTM ended on June 2024.
Derivation Summary
Simpar's business profile is superior to that of Localiza Rent a
Car S.A. (Localiza, Foreign and Local Currency IDRs 'BB+' and
National Long-Term Rating 'AAA(bra)', all with Stable Outlook).
Simpar's scale is similar to Localiza, which has a more diversified
service portfolio but a weaker financial profile. Its higher
leverage and more pressured FCF pressure the rating.
Compared with Unidas Locações e Serviços S.A. (Unidas, Foreign
and Local Currency IDRs 'BB-' and National Long-Term Rating
'AA(bra)', all with a Stable Outlook), Simpar has a much stronger
business profile, greater liquidity, and better access to the
credit market. These advantages are partially offset by slightly
higher leverage compared to Unidas.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue growth of 21% in 2024, 15% in 2025 and 10% in 2026;
- EBITDA margin averaging 18% in 2024-2026;
- Total capex of BRL1.6 billion, on average, in 2024-2026;
- Dividends payout at 30%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of Simpar's ratings.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Simpar's ratings;
- Deterioration of Simpar's legal, strategic and operational
incentives to provide support.
Liquidity and Debt Structure
Adequate Liquidity: JSL's adequate liquidity and access to capital
markets help the company to manage its well spread debt
amortization schedule. Fitch expects JSL to maintain robust
liquidity and relatively stable gross debt levels, despite expected
negative FCF.
As of June 2024, JSL had BRL2.4 billion of cash and equivalents and
BRL8.4 billion of total debt (17% secured), with BRL1.6 billion due
in the short term and an additional BRL549 million in the second
half of 2025 and BRL1 billion in 2026. The company's debt profile
is mainly comprised of CRAs and CRIs (37%), local debentures (19%)
and bank loans (44%).
Issuer Profile
JSL is the largest integrated road logistics company in Brazil,
operating outbound and inbound logistics, serving corporate clients
in Brazil, Mercosul and South Africa. JSL is publicly traded on B3
S.A. - Brasil, Bolsa, Balcão - with a free float of 22.1%, having
Simpar (71.9%) as its main shareholder.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
JSL S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Downgrade AAA(bra)
senior
unsecured Natl LT AA+(bra)Downgrade AAA(bra)
MINERVA SA: Buys 48-MW Solar Project in Brazil
----------------------------------------------
renewablesnow.com reports that Brazilian beef exporter Minerva SA
said it will acquire the special purpose entity behind a 48-MW
solar project in the state of Minas Gerais.
Under the terms of the deal, Minerva will pay BRL 20 million (USD
3.6 million/EUR 3.3 million) to buy 98% of the common shares of
Irapuru II Energia SA from energy company Elera Energia SA,
according to renewablesnow.com.
To be located in the city of Janauba, the photovoltaic (PV) project
will be implemented under a self-production model, the report
notes. Through this move, Minerva estimates it will have enough
clean energy to meet a portion of the consumption of nine of its
plants in the country, the report relays.
Minerva noted that the operation had already been approved by the
Brazilian antitrust regulator CADE on February 23, 2024, the report
discloses. The closing is still subject to other precedent
conditions established in the sales agreement, the report relays.
As reported in the Troubled Company Reporter-Latin America on Aug.
29, 2024, Fitch Ratings has affirmed Minerva S.A.'s (Minerva)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB' and its senior unsecured notes rating, issued by Minerva
Luxembourg S.A., at 'BB'. Fitch has also affirmed Minerva's
Long-Term National Scale rating at 'AA+(bra)'. The Rating Outlook
is Stable.
MOVIDA PARTICIPACOES: Fitch Affirms 'BB' IDR, Alters Outlook to Neg
-------------------------------------------------------------------
Fitch Ratings has affirmed Movida Participacoes S.A.'s (Movida)
Long-Term Foreign Currency (FC) and Local Currency (LC) Issuer
Default Ratings (IDRs) at 'BB' and downgraded Movida Locacao de
Veiculos S.A. (Movida Locacao) and Movida Long-Term National Scale
Ratings to 'AA+(bra)' from 'AAA(bra)'. Fitch has also affirmed the
senior unsecured bond issuance of Movida Europe S.A. at 'BB'. The
Rating Outlook has been revised to Negative from Stable.
Fitch equalizes the ratings of Movida and Simpar S.A. (Simpar; FC
and LC IDR BB/Stable), reflecting the medium legal and strong
operational and strategic incentives that the holding has to
support Movida, if needed. Movida and Movida Locacao's ratings are
also equalized due to Movida's strong incentives to support its
subsidiary.
The Negative Outlook reflects that Simpar's consolidated financial
leverage has been consistently above Fitch's expectations and not
consistent with the current ratings. The higher for longer
leverage, a result of greater capex and lower return on invested
capital, has also hurt the company's ability to convert EBITDA to
cash flow.
The National Scale Rating downgrade reflects Simpar's credit
profile deterioration within the 'BB' rating category. Simpar's
'BB' IDRs reflect its large scale, robust business profile and
strong competitive position within the Brazilian rental and
logistics industry. Simpar group continue to benefit from a
diversified service portfolio and long-term contracts for a
significant part of its revenues, resulting in higher cash flow
predictability.
On a standalone basis, Movida has a solid position in the
competitive Brazilian car and fleet rental business, with relevant
scale and positive operating performance. Movida's consolidated
financial leverage should remain moderate, despite of expected
negative FCFs. The company has consistent access to funding and
significant liquidity, allowing it to properly manage its debt
amortization schedule.
Key Rating Drivers
Parent and Subsidiary Linkage: Movida's ratings reflect Simpar's
medium legal and strong operational and strategic incentives to
support its subsidiary, which equalize the ratings of both
companies. In addition to the cross-default clauses on Simpar's
debt and the relevant shareholding control, Movida has strong
growth potential and important commercial synergies, which
contributes to the group's greater bargaining power with customers,
suppliers and in vehicle purchases. Simpar's controlling
shareholders and its managers form the majority of Movida's board
of directors.
Solid Business Position: As the second largest player in the car
and fleet rental industry in Brazil, Movida has a strong business
position, supported by its relevant scale, positive operating
performance, a national footprint and an adequate used car sale
operation. As of June 2024, Movida's total fleet of 247 thousand
vehicles, consisting of 109 thousand in rent-a-car (RaC) and 138
thousand in fleet management (GTF), secured meaningful market
shares both in RaC and GTF. As a result, the company has proven
bargaining power with automobile manufacturers and is able to
capture economies of scale. At YE 2024 and 2025, Fitch forecasts
Movida's own total fleet at around 256 thousand and 267 thousand
vehicles, respectively.
Resilient Operating Performance: Movida's rental EBITDA should grow
gradually based on organic growth and resilient margins, as the
company scale increases. Balanced demand and supply dynamics,
declining interest rates and adequate rental rates, should enable a
gradual return on invested capital (ROIC) spread recovery, closer
to historic levels. The rating scenario considers Movida's net
rental revenues around BRL6.2 billion in 2024 and BRL6.7 billion in
2025, comparing with BRL5.1 billion in 2023. Rental EBITDA margin
should be adequate at 61%-63%.
Pressured FCFs: The rating scenario considers that Movida's cash
flow from operations (CFFO) should evolve along with rental EBITDA
and benefit from the expected interest rates decline in Brazil.
Fitch forecasts EBITDA of BRL3.8 billion and CFFO reaching BRL1.6
billion in 2024, with BRL4.2 and BRL2.0 billion, respectively, in
2025. Movida operates in a capital-intensive industry, with FCF
expected to remain negative, around BRL7.4 billion, after average
annual capex of BRL9 billion in 2024 and 2025, and dividend payout
ratio of 30%. Movida's used car sale proceeds, forecasted at BRL6
billion, on average, over the two-year period, will fund part of
its expected capex.
Deleverage May Take Longer: Net leverage (IFRS-16 adjusted),
measured by adjusted net debt/rental EBITDA, should remain around
4.0x, on average, over the rating horizon, compared to an average
of 4.2x in the last four years. The expected negative FCFs and weak
used car sale prices pose a challenge for Movida's intended
financial deleverage. Movida recent liability management, which, at
some point, reduced total adjusted debt to BRL16 billion (YE 2023)
from BRL19.5 billion in 2022 is positive as the company may benefit
from lower cost of capital.
Derivation Summary
Simpar's business profile is superior to that of Localiza Rent a
Car S.A. (Localiza; FC and LC IDRs BB+ and National Long-Term
Rating AAA(bra), all with a Stable Outlook). Simpar has a scale
similar to that of Localiza, a more diversified service portfolio,
but a weaker financial profile - with higher leverage and more
pressured FCF, which pressure the rating.
Compared with Unidas Locações e Serviços S.A. (Unidas; Foreign
and Local Currency IDRs BB- and National Long-Term Rating AA(bra),
all with a Stable Outlook), Simpar has a much stronger business
profile, greater liquidity, and better access to the credit market.
These advantages are partially offset by slightly higher leverage
compared to Unidas.
Key Assumptions
- Total fleet increasing 5% in 2024 and 3% on average on the next
three years;
- Average ticket for RaC increasing 4% in 2024 and 2.5% on average
on the next three years;
- Average ticket for GTF increasing 9% in 2024 and 3% on average on
the next three years;
- Capex of BRL9 billion in 2024, BRL8.8 billion in 2025 and BRL8.6
billion in 2026;
- Dividend payout around 30% throughout the rating horizon.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade on Simpar's ratings.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Simpar's ratings;
- Deterioration of Simpar's legal, strategic and operational
incentives to provide support.
Liquidity and Debt Structure
Robust Liquidity: Movida presents a robust liquidity profile and
proven access to capital markets. The issuer's cash to short-term
debt ratio has been strong, higher than 2.0x on average during the
last four years. As of June 2024, Movida had BRL3.7 billion of cash
and equivalents and BRL19 billion of total adjusted debt (95%+
unsecured), with BRL2.8 billion due in the short term, BRL803
million on the second half of 2025, BRL2.8 billion in 2026 and
BRL3.6 billion in 2027.
Movida's debt profile is mainly comprised of local debentures
(55%), bank loans (25%) and the fully hedged U.S. dollar
denominated bonds due 2031 (20%). The company's ability to postpone
growth capex to adjust to the economic cycle and the considerable
number of the group's unencumbered assets, with a book value of
fleet over net debt at around 1.3x, add to its financial
flexibility
Issuer Profile
Movida is the second largest vehicle and fleet rental company in
Brazil, both in terms of fleet size and revenue, and also operates
in the sale of used vehicles. The company is publicly traded, with
shares traded on B3 S.A. -- Brasil, Bolsa, Balcão and a free float
of 34.24%, with Simpar (65,02%) being the main shareholder.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
Movida Europe S.A.
senior unsecured LT BB Affirmed BB
Movida Locacao de
Veiculos S.A. Natl LT AA+(bra)Downgrade AAA(bra)
senior unsecured Natl LT AA+(bra)Downgrade AAA(bra)
senior secured Natl LT AA+(bra)Downgrade AAA(bra)
Movida
Participacoes S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Downgrade AAA(bra)
senior unsecured Natl LT AA+(bra)Downgrade AAA(bra)
SIMPAR SA: Fitch Affirms 'BB' LongTerm IDR, Alters Outlook to Neg.
------------------------------------------------------------------
Fitch Ratings has affirmed Simpar S.A.'s (Simpar) Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) at 'BB' and
downgraded its Long-Term National Scale Rating to 'AA+(bra)' from
'AAA(bra)'. Fitch has also affirmed the senior unsecured bond
issuances of Simpar and its financial vehicles at 'BB'. The Rating
Outlook has been revised to Negative from Stable.
The Negative Outlook reflects that Simpar's consolidated financial
leverage has been consistently above Fitch's expectations and not
consistent with the current ratings. The higher for longer
leverage, a result of greater capex and lower return on invested
capital, has also hurt the company´s ability to convert EBITDA to
cash flow.
The National Scale Rating downgrade reflects Simpar's credit
profile deterioration within the 'BB' rating category. Simpar's
'BB' IDRs reflect its large scale, robust business profile and
strong competitive position within the Brazilian rental and
logistics industry. Simpar group continue to benefit from a
diversified service portfolio and long-term contracts for a
significant part of its revenues, resulting in higher cash flow
predictability.
Key Rating Drivers
Pressured Capital Structure: Fitch expects Simpar to keep its
consolidated financial leverage at levels inconsistent with a 'BB'
rating. Fitch expects consolidated net adjusted debt/adjusted
EBITDA to remain on the 4.5x-5.0x range until 2026. Consolidated
net adjusted leverage was 5.0x in 2023 and 5.1x the last twelve
months (LTM) ended on June 2024, comparing with an average of 4.6x
from 2019 to 2022, a result of Simpar historically aggressive
growth strategy. Positively, total adjusted debt/adjusted EBITDA
has come down after it peaked at 8.6x in 2021 to 6.5x in the LTM
ended on June 2024, mainly as a result of EBITDA expansion.
Strong Business Profile: Simpar's large scale and leading position
in the Brazilian rental and logistics industry allow for
competitive advantage on assets purchase and operating costs
relative to peers. The group's credit profile also benefits from
its diversified service portfolio and presence in multiple sectors
of the economy. Simpar' strategic and operational nature of the
service it provides, its competitive cost structure and a revenue
stream based on long-term contracts for most of its rental and
logistic businesses minimize its exposure to more volatile economic
cycles in Brazil.
Movida (32% of net revenue and 45% of EBITDA, the second largest
player) focuses on light vehicles and fleet rental; JSL (23% of net
revenue and 20% of EBITDA, the market leader) concentrates on
supply chain management and transportation; and Vamos (18% of net
revenue and 33% of EBITDA, the market leader) focuses on heavy
vehicles and equipment rentals.
Solid and Growing EBITDA: Fitch's rating case scenario presents
consistent and gradually improving consolidated EBITDA mainly based
on organic growth. Balanced demand and supply dynamics should
continue to allow adequate rental and service rates, resulting in a
gradual recovery of Simpar's return on invested capital (ROIC) to
historical levels. Simpar should reach consolidated adjusted net
revenue of BRL32.6 billion (+27% over 2023) and adjusted EBITDA of
BRL9.2 billion (28% margin and +22% over 2023) in 2024 and BRL39
billion and BRL11 billion (28% margin) in 2025, from BRL26 billion
and BRL7.5 billion (29% margin), respectively, in 2023.
Negative FCF: The capital-intensive nature of the rental industry
(75% of Simpar's EBITDA), which demands sizable and regular
investments to grow and renew the fleet, pressures the group's cash
flow. FCF should remain negative, on average, at BRL12 billion from
2024 to 2026, after annual average total capex of BRL15 billion,
partially funded by the sale of used vehicles from rentals. Cash
flow from operations (CFFO) should reach BRL1.5 billion in 2024,
BRL2.8 billion in 2025 and BRL4.3 billion in 2026, benefitting from
stronger EBITDA and decreasing interest expenses and working
capital needs.
Derivation Summary
Simpar's business profile is superior to that of Localiza
Rent-a-Car S.A. (Localiza; Foreign and Local Currency IDRs BB+ and
National Long-Term Rating AAA(bra), all with a Stable Outlook).
Simpar has a scale similar to that of Localiza, a more diversified
service portfolio, but a weaker financial profile -- with higher
leverage and more pressured FCF, which pressure the rating.
Compared with Unidas Locações e Serviços S.A. (Unidas; Foreign
and Local Currency IDRs BB- and National Long-Term Rating AA(bra),
all with a Stable Outlook), Simpar has a much stronger business
profile, greater liquidity, and better access to the credit market.
These advantages are partially offset by slightly higher leverage
compared to Unidas.
Key Assumptions
- Average consolidated annual revenue growth at 20% from 2024 to
2026;
- Consolidated EBITDA margin at 28%, on average, from 2024 to
2026;
- Average annual capex at around BRL15 billion from 2024 to 2026;
- Cash balance remains strong compared with short-term debt;
- Dividends at 25% net income.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Consolidated net adjusted debt/EBITDA below 3.5x on a sustainable
basis;
- Strengthening of the group's scale and profitability, without
further deterioration of its capital structure.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Limits to Simpar's unrestricted ability to access the operating
companies' cash;
- Failure to preserve liquidity and inability to access adequate
funding;
- Prolonged decline in demand coupled with company inability to
adjust operations;
- Consolidated net adjusted leverage above 4.5x on a sustainable
basis;
- Material deterioration on the group's fleet rental and logistics
businesses.
Liquidity and Debt Structure
Strong Liquidity: Simpar's robust consolidated liquidity position
is a key credit consideration, with cash covering short-term debt
by an average of 3.2x during the last four years. The group's
expected negative FCF, a result of its growth strategy, will be
financed by debt in the rating scenario as the group benefits from
ample access to different sources of funding. Simpar had BRL11.7
billion of cash and equivalents and BRL55 billion of total adjusted
consolidated debt (approximately 2% secured), with final maturity
at 2037. Around BRL9.4 billion is due in the short term (1.3x cash
coverage ratio), an additional BRL3.5 billion at the second half of
2025 and BRL8.9 billion in 2026 as of June 2024.
At the holding level, Simpar had BRL3.4 billion of cash and
equivalents and BRL7.9 billion of total adjusted debt, BRL600
million due in the short term, an additional BRL2.9 billion
maturing up to 2030 and BRL4.4 billion in 2031. Simpar's board
control and relevant ownership stakes in its operating companies
mitigate the structural subordination of its debt, with no upstream
dividends or intercompany loans restrictions that a majority board
vote cannot overcome.
The group's consolidated debt profile is mainly comprised of local
debentures (40%), bank loans (35%) and fully hedged U.S.
denominated bonds (13%). Simpar's financial flexibility is also
supported by the group's ability to postpone growth capex to adjust
to the economic cycle and the groups considerable number of
unencumbered assets, with the market value of the fleet over net
debt at around 1.2x.
Issuer Profile
Simpar is a non-operational holding company that controls and
manages seven independent companies that provide mainly rental,
logistics and mobility services, focused on long-term contracts.
The company is listed on the Brazilian stock exchange and its main
shareholder is JSP Holding S.A. (59.04%), the Simoes family holding
company.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
Simpar S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Downgrade AAA(bra)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT AA+(bra)Downgrade AAA(bra)
Simpar Europe
senior
unsecured LT BB Affirmed BB
Simpar Finance
S.a.r.l.
senior
unsecured LT BB Affirmed BB
===================================
D O M I N I C A N R E P U B L I C
===================================
[*] DOMINICAN REPUBLIC: Economic Growth Up 8% Thru Hotel Sector
---------------------------------------------------------------
Dominican Today reports that the Central Bank of the Dominican
Republic (BCRD) has released preliminary economic activity results
for July 2024. The monthly indicator of economic activity (IMAE)
showed a 4.8% expansion for the month, with an average year-on-year
growth of 5.0% over the first seven months of the year.
Hotels, bars, and restaurants saw an 8.0% increase during this
period, largely driven by the arrival of 5,286,325 tourists by air
in the first seven months. While the sector had a 9.3% growth in
July 2023, the 3.8% increase in July 2024 compared to the same
month last year reflects a base effect from the previous year,
according to Dominican Today.
The report relays that July 2024 set a record for the highest
number of non-resident air passengers for that month, with 811,192
arrivals. The year is expected to end with approximately 8.6
million tourists entering the country through various airports, the
report relays. This performance occurs in a context of price
stability, supported by effective monetary and fiscal policies that
have mitigated risks to the Dominican economy, 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.
===============
H O N D U R A S
===============
TEGUCIGALPA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign and Local Currency
Issuer Default Ratings (IDRs) of Honduras's Alcaldia Municipal del
Distrito Central, Tegucigalpa (AMDC) at 'B'. The Rating Outlook is
Stable. Fitch has also affirmed AMDC's Short-Term IDR at 'B'.
The affirmation reflects Fitch's unchanged view that AMDC's
operating performance and debt ratios will remain in line with 'B'
rated peers over the medium term. The assessment also takes into
account AMDC's capex trend that, if maintained, will need to be
financed with new debt in the rating case scenario. The 'b+'
Standalone Credit Profile (SCP) reflects AMDC's adequate operating
balance, liquidity shortfalls, and necessary capex for the
development of basic infrastructure and public services.
Key Rating Drivers
Risk Profile: 'Weaker'
AMDC's risk profile is assessed at 'Weaker' due to a combination of
three 'Midrange' (revenue robustness and expenditure sustainability
and adjustability) and three 'Weaker' key rating factors (revenue
adjustability, liabilities and liquidity robustness and
flexibility) and a 'b' implied operating environment category
score. The score is based on Hondura's economic environment,
financial market development, bankruptcy regime, reporting policies
for borrowing, and control and monitoring.
The 'Weaker' risk profile reflects Fitch's view that there is a
high risk of the issuer's ability to cover debt service with the
operating balance weakening unexpectedly over the scenario horizon
(2024-2028) due to lower revenue, higher expenditure, or an
unexpected rise in liabilities or debt-service requirements. It
also reflects the weak institutional framework in which local and
regional governments (LRGs) operate in Honduras.
Revenue Robustness: 'Midrange'
For 2019-2023, tax collection has remained fairly stable growing by
7.5% while nominal GDP grew by 8.5%. In 2023, tax collection grew
by 5.8% in nominal terms, while operating revenue increased 8.0%
versus 2022. AMDC's own revenues are correlated to political cycles
and the implementation of tax relief programs; nonetheless, the
city benefits from a stable and diversified tax and non-tax revenue
structure that shows low correlation with the economic cycle. Own
revenues represent 97.5% of its operating revenue at YE 2023. AMDC
is not reliant on government transfers, which account for a
negligible 2.5% of total revenue.
Revenue Adjustability: 'Weaker'
AMDC's ability to generate additional revenue in response to
possible economic downturns is limited. The city has formal
tax-setting authority over several local taxes and fees that
accounted for about 94.1% of total revenue in 2023. However, its
affordability to raise revenue is constrained by the lower-middle
income of residents by international standards and social-political
sensitivity to tax increases.
Expenditure Sustainability: 'Midrange'
AMDC's main responsibilities are centered on providing public
services (water services, waste collection, sewage, among other
services) but not on providing health or education services, adding
fiscal space. The city's control over operating expenditure has
been adequate, allowing for a stable operating margin of around
53.6% on average in 2019-2023. Over the last five years, the ratio
of opex to total expenditure was at 40.3%. In 2023, opex increased
23.8% annually while operating revenue grew 8.0% resulting in an
operating margin at 50.8%. As of June 2024, opex is been contained;
therefore, operating balance could hover around 50% at YE 2024.
Expenditure Adjustability: 'Midrange'
Over the last three years, on average 39.2% of expenditure before
debt service is capital outlays, keeping the share of inflexible
expenditure below 70%, in line with the Midrange threshold for this
factor. This represents a moderate flexibility to control and cut
expenses in a scenario of lower revenues.
AMDC's high investment program, with capex averaging 40.9% of total
in 2019-2023, increased in 2023 reaching 39.2% of total expenditure
from 33.1% in 2022; as of July 2024, capex is growing 17% y-o-y.
Over the medium to longer term, high level of capex is necessary to
maintain local attractiveness amid demographic pressures calling
for more spending on infrastructure such as water distribution and
roads.
Liabilities and Liquidity Robustness: 'Weaker'
Fitch's assessment reflects the weak national framework for debt
and liquidity management. Besides bank loans, there is no track
record of capital market access for financing. The central
government sets a public debt ceiling for LRGs. However, this can
be waived if Honduras' Congress allows subnational governments to
acquire new debt. Their direct long-term debt has fixed interest
rates, and the maturity profile of this debt has no concentration
risk; however, there is a weak national framework for debt and
liquidity management.
At YE 2023, direct debt totaled HNL6,100 million with HNL350
million of short-term bank loans. Average cost of debt is around
11.8%. Long- and short-term debt is paid through a trust mechanism
that ensures timely debt service payments. All of AMDC's debt is
with local commercial banks. As of July 2024, direct debt stood at
HNL6,350 million, with HNL600 million of short-term bank loans.
Liabilities and Liquidity Flexibility: 'Weaker'
AMDC's available liquidity is weaker with respect to payables
(end-2023: 0.18x; average 2019-2023: 0.12x). In addition, the city
has exhibited high concentration of counterparty risk on bank
credit lines (bank ratings) below 'BBB' category, triggering a
'Weaker' assessment for this factor. Historically, local
governments in Honduras prefer to tap bank loans rather than other
funding options due to shallow capital markets. As of July 2023,
AMDC has HNL600 million outstanding in a short-term bank loan.
Financial Profile: 'a' category, unchanged
AMDC's benefit from a stable fiscal performance with a sound
operating margin above 50% supported by a low volatile own-revenue
structure and an opex growth rate that has remained subdue. Fitch's
rating case envisages a progressive reduction of the operating
margin towards 38%-48%, incorporating a larger increase in opex,
underpinned by the need to strengthen the provision of public
services, in comparison to operating revenue.
Under Fitch's rating case scenario, AMDC's payback ratio (net
adjusted debt to operating balance) is forecast at 5.4x in Fitch's
2024-2028 projections; this is the primary metric of debt
sustainability, and is assessed in the 'aa' category. Fitch
overrides the primary metric by one rating category, to incorporate
an actual debt service coverage ratio (operating balance to debt
service) below 1.0x in Fitch's rating case. The overall final score
for the financial profile is 'a'.
AMDC's net Fitch-adjusted debt is expected to reach HNL9,484
million by 2028, or 206% of revenue. Fitch estimates capex outlays
of HNL1,709 million along the rating case scenario, largely funded
by the city's own revenues and long-term debt. This assumption is
underpinned in AMDC's large infrastructure needs.
Derivation Summary
AMDC's SCP is assessed at 'b+', reflecting a combination of weaker
risk profile and a financial profile in the 'a' category. The
notch-specific rating positioning factors in comparison with
international peers, including Turkish and Nigerian peers. Fitch
factors in the credit quality of the sovereign but does not apply
any asymmetric risk or extraordinary support from upper-tier
government, which results in an IDR of 'B'. The Short-Term IDR of
'B' is derived from AMDC's Long-Term IDR.
Key Assumptions
Qualitative assumptions:
Risk Profile: 'Weaker'
Revenue Robustness: 'Midrange'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Midrange'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Financial Profile: 'a' category
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign credit quality: 'Yes'
Sovereign Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a 'through-the-cycle' scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2019-2023 figures and 2024-2028 projected
ratios. The key assumptions for the scenario include:
- Operating revenue growth 2023-2028: 8.0%, in tandem with nominal
GDP growth;
- Opex growth 2023-2028: 13.1%, considering the historical trend of
operating margins and assuming higher growth in opex in comparison
to that of operating revenue, underpinned by the need to strengthen
the provision of public services;
- Operating balance: Underpinned by Fitch's assumptions in
operating revenue and opex, Fitch estimates a progressive reduction
of the operating margin towards 38% in 2028;
- Net capital expenditure (average per year): HNL1,675 million.
Capex is expected to grow at least in line with inflation in the
rating case, which is to be financed with operating margins and new
debt. The starting amount for 2024 is the five-year average for
2019-2023. The city's large infrastructure needs and requirements
underpinned this assumption.
- Cost of debt for 2024-2028 at 9.3%; long-term debt has a fixed
interest rate.
- Short-term debt: HNL600 million from 2024-2028.
- Long-term debt: Fitch assumes additional HNL5,540 million from
2024-2028; therefore, net adjusted debt is expected to increase
towards HNL9,484 million by end-2028 underpinned by large
infrastructure needs in sectors such as public transport, roads,
public services and water. Fitch assumes that the city's investment
program will be maintained.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Improvement in Fitch's internal assessment on the sovereign's
credit quality, provided that AMDC maintains its financial profile
assessment at 'a' category.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A sustained deterioration of the payback ratio above 9x due to a
weakened operating balance;
- An actual coverage ratio consistently below 1.0x;
- If AMDC compares unfavorably with peers;
- A lowering of Fitch's credit quality of the sovereign.
Liquidity and Debt Structure
Fitch-adjusted debt stood at HNL6,100 million with HNL350 million
of short-term bank loans at YE 2023. Liquidity includes a HNL473.9
million of total cash, which Fitch deems as earmarked to offset
payables.
Issuer Profile
Tegucigalpa, AMDC is Honduras's capital city. With 1.2 million
citizens, as of 2023, its GDP per capita is estimated at USD8,300,
above Honduras USD3,512 but it is low by international standards.
AMDC's economic structure is well diversified, fueled by public and
private investment, which supports robust internally generated
revenues. Fitch classifies Benue as a type B LRG that covers debt
service with its operating balance.
Summary of Financial Adjustments
Fitch's net-adjusted debt corresponds to the difference between
Fitch's adjusted debt and AMDC YE cash that Fitch views as
unrestricted. Unrestricted cash is calculated as cash net of
earmarked items or payables.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
Tegucigalpa, Alcaldia
Municipal del Distrito
Central LT IDR B Affirmed B
ST IDR B Affirmed B
LC LT IDR B Affirmed B
===========
M E X I C O
===========
ALSEA, SAB: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed the Foreign and Local Currency Long-Term
Issuer Default Ratings of Alsea, S.A.B. de C.V. (Alsea) at 'BB',
its senior unsecured notes at 'BB' and the senior unsecured notes
under its subsidiary Food Service Project, S.A. at 'BB'. Fitch has
also affirmed Alsea's National Long-Term rating at 'A+(mex)' and
its National Short-Term rating at 'F1(mex)'. The Rating Outlook is
Stable.
The affirmation reflects Fitch's expectation of continued organic
growth funded primarily with internal cash generation, which will
translate into positive FCF over the next two years. Fitch expects
continued leverage metrics improvement, mainly from increased
revenue and EBITDA, combined with a strong liquidity profile.
Alsea's ratings also reflect its solid business position as an
owner and franchise operator of quick service restaurants, coffee
shops and full-service restaurants in Mexico, Latin America and
Europe. Alsea possesses a diversified portfolio of recognized
brands, store formats and geographical footprint. An upgrade could
materialize if Alsea's business and financial profiles continue to
improve while it pursues its growth strategy.
Key Rating Drivers
Strong Operating Performance: Alsea has maintained steady revenue
and EBITDA growth, mainly driven by its Mexican division. This
operation contributes around 60% of the total EBITDA as of the LTM
ended June 30,2024. For the year-to-date (YTD) period ending in
2Q24, Alsea reported a 2.3% increase in sales, resulting in a 4%
rise in EBITDA to MXN 5.1 billion in 2Q24 YTD. The EBITDA margin
also improved, climbing to 14% from 13.5% over the same period.
This positive performance is attributed to higher demand and
increased customer traffic, driven by effective marketing
campaigns.
For the year ending 2023 (YE 2023), Alsea's revenue grew by 10.8%.
Total revenue breakdown was Mexico 52%, Europe 30%, and Latin
America (LATAM) 18%. Fitch anticipates continued sales growth,
albeit at a more moderate pace. The company plans to implement
several commercial and digital strategies to enhance sales,
alongside productivity initiatives and cost reductions to improve
overall results. Alsea's key brands have continued to gain market
share, thanks to their extensive product offerings and customer
experience.
Stable Leverage Trend: Fitch estimates Alsea's EBITDAR leverage
around 3.6x on average for 2024-2026, per Fitch's calculations,
compared to an average of 3.9x during 2021-23 and 4.1x for the LTM
ended June 30, 2024. Fitch expects small bolt-on acquisitions will
continue to occur but should not materially impact the company's
credit profile. Fitch projects ALSEA's total debt to remain at
around MXN 32.5 billion on average for 2024-2026, after the
increase in the debt balance in 2024 to complete the acquisition of
an additional stake in Food Service Project from minority
shareholders, which granted it full control of the subsidiary
(Alsea Europe).
Positive FCF Expectation: Alsea has generated strong positive FCF
over the past three years. For 2024, Fitch estimates the company
will generate close to MXN5.6billion of cash flow from operations
to cover around MXN5.5 billion in planned capex and around MXN1
billion in dividends, resulting in slightly negative FCF for the
year. Positive FCF should resume in 2025, as the company's growth
strategy continues to gain traction.
Solid Business Position: Alsea's ratings reflect its solid business
position, supported by a portfolio of leading international
franchise brands and recognized national and international own
brands that lead in the segments in which they participate. Fitch
believes that this portfolio of brands provides a significant
competitive advantage by covering different demographic segments
and consumer preferences. Some of the most relevant brands are
Starbucks, Domino's Pizza, Burger King, Vips, Foster Hollywood,
Chili's, Italianni's, and P.F. Changs, among others.
As of June 2024, the company operates 4,686 restaurants and 13
brands in 12 countries. About 77% of the restaurants are operated
directly by the company, and the remaining 23% are operated
indirectly as franchised restaurants.
Geographic Diversification: Alsea's credit profile benefits from
geographically diversified operations outside of Mexico that allow
it to mitigate business risk and cash flow volatility. During the
LTM ended June 30, 2024, Alsea's operations outside of Mexico
represented around 48% of consolidated revenues and 39% of
consolidated EBITDA. Fitch views Alsea's geographic diversification
of territories outside Mexico positively, as it allows the company
to have a balance between developed and emerging economies and
access to hard-currency revenue.
Derivation Summary
Alsea's long-term ratings are based on its business profile, which
benefits from the portfolio of recognized restaurant brands and
formats, positive operating performance, as well as the scale and
geographic diversification of its operations. Alsea's business
position and diversification compares in line with other
Fitch-rated issuers in the 'BB' category, such as Arcos Dorados
Holdings Inc. (BB+/Stable); however, Alsea's financial profile is
weaker than Arcos due to higher leverage and lower fixed charge
coverage.
The company's ratings are lower than its international peer Darden
Restaurants, Inc. (BBB/Stable) given its weaker business profile in
terms of size and scale and diversification. The company also has
lower profitability and higher leverage than Darden.
Key Assumptions
- Increase in revenues of around 4.5% in 2024 and 12% in average
for 2025-2026;
- EBITDA margin around 14.5% in 2024-2025;
- Capex around 7% of revenues in average for 2024-2025;
- Dividends of around MXN1 billion in average for 2024-2025;
- Stable debt levels for 2024-2026
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Consistent improvement in operational performance above Fitch's
expectations;
- Robust FCF generation on a sustained basis that strengthens
Alsea's financial profile;
- Total adjusted debt to EBITDAR below 3.5x on a sustained basis;
- Operating EBITDAR to gross interest expense, plus leases expense
above 2.0x on a sustained basis, combined with a strong liquidity
profile.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A sustained deterioration in the operational performance of its
main markets;
- Negative FCF generation on a sustained basis;
- A weakening in its liquidity profile;
- Total adjusted debt to EBITDAR above 4.5x on a sustained basis
Liquidity and Debt Structure
Sound Liquidity: Alsea's liquidity position was robust as of June
30, 2024, with available cash balance of MXN4 billion and debt
amortizations of MXN3.4 billion in 2024. It faces debt maturities
in 2025 of MXN3.1 billion, which Fitch expects the company will be
able to refinance at lower rates and spreads, considering market
forecast conditions. Alsea has access to different financing
alternatives.
Issuer Profile
Alsea is the leading restaurant operator in LATAM and Europe of
global brands in Quick Service Restaurants, Coffee Shops and
Full-Service Restaurants. Its brands include Domino's Pizza,
Starbucks, Burger King, Chili's Bar & Grill, P.F Chang's, and The
Cheesecake Factory.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
Alsea, S.A.B.
de C.V. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT A+(mex)Affirmed A+(mex)
Natl ST F1(mex)Affirmed F1(mex)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT A+(mex)Affirmed A+(mex)
Food Service
Project, SA
senior
unsecured LT BB Affirmed BB
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Cabinet Appoints Panel to Ease Food Prices
-------------------------------------------------------------
Trinidad and Tobago Newsday reports that Minister of Agriculture,
Land and Fisheries, Kazim Hosein presented letters of appointment
to 14 people on Monday, Aug. 26, making them members of the new
Food Security and Food Prices Committee.
In a ministry release, Hosein said the cabinet-appointed committee
will be chaired by Nirmalla Debysingh, CEO of the National
Agricultural Marketing and Development Corporation (Namdevco) and
include experts in agriculture, economics, nutrition, trade and
consumer advocacy, making up the membership, according to Trinidad
and Tobago Newsday.
Hosein said the committee was not merely a response to challenges
facing food security and food prices but a strategic initiative to
find sustainable solutions, the report notes.
"The challenges before us are daunting," Hosein said, notes the
report. "Food inflation, exacerbated by global disruptions such as
supply chain interruptions and geopolitical conflicts, has severely
impacted our food security. Our reliance on imported food items,
which costs us over $5 billion annually, further complicates this
issue. This is compounded by rising global food prices and adverse
weather conditions affecting agricultural productivity."
But Couva North MP Ravi Ratiram has decried the formation of the
committee, calling it a gimmick, the report discloses.
"The PNM Government is once again attempting to hoodwink the
population with this committee. It is nothing more than an election
gimmick meant to distract from their failures," Ratiram said in an
opposition media release, the report notes.
Mentioning the agricultural multi-disciplinary voluntary committee
that was formed in 2022 and two agri expos held to the tune of $20
million, Ratiram said the appointment of another committee was an
admission of the PNM's failure, the report relays.
"Under their mismanagement, it is doomed to fail from the start,"
Ratiram said, notes the report. "This latest move alongside the
grandiose appointment of a special adviser to the Prime Minister on
agriculture, exposes the Government's continual ineptitude and
their desperate attempt to cover up their own failures."
He compared food prices under the PNM Government and the UNC/PP
government, saying under the leadership of the opposition party, a
basic basket of grocery items costs $109, as compared to the same
basket today, which costs $189, the report notes.
"(That is) a staggering 73 per cent increase," Ratiram said. "The
PNM's relentless fuel-price hikes (and) imposition of VAT on food
items have not merely increased food prices, they have sent them
skyrocketing," he added.
The report relays that the committee's membership includes:
-- Chairperson: Nirmalla Debysingh, CEO, Namdevco
-- Vice-chairperson: Nigel Grimes, technical advisor, Ministry of
Agriculture, Land and Fisheries
Members:
-- Ava Mahabir-Dass, permanent secretary, Ministry of Trade and
Industry
-- Andy Mendez, acting supervisor, Customs and Excise Division,
Ministry of Finance
-- Hayden Hurdle, accountant, Port Authority of TT
-- Keisha Roberts, UTT
-- Dr Sharon D Hutchinson, faculty of agriculture, UWI
-- Rajiv Diptee, past president of Supermarket Association
-- Vernon Persad, Supermarket Association
-- Roger Roach, president, TTMA
-- Kavi Panday, CEO, Massy Stores (Trinidad)
-- Siti Jones-Gordon, head of corporate affairs, Nestle TT
-- Alpha Sennon, agricultural entrepreneur
-- Maxslon Roberts, agricultural entrepreneur (Tobago)
===========================
V I R G I N I S L A N D S
===========================
ELECT GLOBAL: Fitch Cuts Rating on USD Subordinated Notes to 'BB+'
------------------------------------------------------------------
Fitch Ratings has downgraded Hong Kong-based Hysan Development
Company Limited's Long-Term Foreign-Currency Issuer Default Rating
(IDR) to 'BBB' from 'BBB+'. The Outlook is Stable. Fitch has also
downgraded Hysan's senior unsecured rating, the rating on the USD4
billion medium-term note (MTN) programme issued by Hysan (MTN)
Limited and the outstanding bonds under the MTN programme to 'BBB'
from 'BBB+'. The US dollar subordinated perpetual capital
securities issued by Elect Global Investments Limited were
downgraded to 'BB+' from 'BBB-'.
The downgrade reflects Fitch's expectation that the company's
interest coverage will remain under pressure in 2024-2026 as a
result of persistent office rental challenges and a weakened retail
outlook. The pace of market interest rate declines had been slower
than Fitch expected. Fitch believes Hysan's ratings will continue
to be supported by its resilient property portfolio in the Causeway
Bay (CWB) area, which has outperformed the broader office and
retail rental market in Hong Kong.
Key Rating Drivers
Interest Coverage Pressure: Fitch forecasts Hysan's recurring
EBITDA gross interest coverage to stay at 2.0x-2.2x in 2024-2026
(1H24: 1.9x), below its previous negative rating threshold of 2.5x.
Fitch expects modest total rental growth amid continuous office
rental pressure. Hysan's near-term financial metrics are affected
by ongoing investment in the Lee Garden Eight (LG8) development,
which it expects to start operating by end-2026. Fitch expects
Hysan's coverage to improve incrementally with moderating funding
costs in 2025 and 2026, but its coverage will remain aligned with a
'BBB' rating.
Office Challenge to Persist: Fitch expects pressure on Hysan's
office segment to persist due to ongoing economic weakness and the
increase in grade A office supply in 2025 and 2026 in Hong Kong.
Hence, Fitch forecasts Hysan's Hong Kong office revenue to decline
by a low-to-mid single-digit percentage per year in 2024-2026,
while Fitch previously expected its office rental income to
stabilise from 2025. Hysan's office performance in 1H24 met Fitch's
expectations, with office rental revenue falling 3% yoy on an
occupancy rate of 89%.
Stabilising Retail Revenue: Fitch expects Hysan to maintain its
high retail occupancy of 95% in 1H24 (97% in 2023), as CWB remains
a popular tourist destination in Hong Kong. However, Fitch sees
limited upside in rental reversions in 2025 and 2026 as Hong Kong's
retail consumption is dampened by the strong currency and outbound
travel, which may persist in the near term.
Hysan's retail rental revenue improved 10.8% yoy in 1H24, supported
by the expansion and renovation of major luxury brands' flagship
stores. Fitch expects near-term revenue to be supported by the
brands' reopening of sizeable floor area following temporary
closures in 2023.
Higher Funding Cost: Fitch expects Hysan's average funding cost to
decline to 4.3% in 2024, 4.2% in 2025 and 3.9% in 2026. Hysan's
funding cost of 4.4% in 1H24 was higher than its expectation, as it
was bearing the capex for the construction of the LG8 project,
while the pace of market interest rate declines had been slower
than Fitch expected. The company obtained HKD12.9 billion in
committed secured bank financing for the project, of which HKD7.9
billion has been drawn. The construction schedule for the project
is on track for completion in 2H26.
Healthy Leverage; Strong Liquidity: Fitch expects Hysan's leverage,
based on net debt/investment properties, to be maintained at
30%-35% (1H24: 31%), a healthy level compared with the 45% leverage
midpoint for a 'BBB' rating. Hysan has sufficient liquidity, with
HKD10.9 billion in committed undrawn facilities at end-June 2024,
to cover debt maturities until 2026. The company also arranged a
HKD8 billion four-year syndicated loan in July 2024, which further
aids its financial flexibility.
LG8 to Contribute in 2027: Fitch expects Hysan's revenue scale and
granularity will improve with the scheduled completion of the LG8
project in 2H26. Fitch expects yearly improvement in EBITDA and
coverage in 2027 and beyond. However, the revenue contribution will
be dependent on the performance of the Hong Kong grade A office
rental market, which may continue to be under pressure due to the
increase in supply amid a gradual take-up rate.
Derivation Summary
Hysan has a larger scale than The Wharf (Holdings) Limited (WHL,
BBB+/Stable), with stronger portfolio asset quality, indicated by
its higher occupancy and sector-leading margin. Hysan's mix of
office and retail properties in CWB, where new supply is less than
other districts, has enabled the company to maintain a stable
occupancy rate.
WHL's higher rating is supported by its low leverage and higher
investment-property EBITDA interest coverage of around 4x. WHL also
has significant dividend income from its sizeable investment
portfolio, which further aids its coverage and financial
flexibility. Fitch expects Hysan's recurring EBITDA interest
coverage at around 2.0x-2.3x in 2024-2026.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Occupancy rate of around 85%-88% for office and 95% for retail in
2024-2026 (1H24: 89% and 95%, respectively);
- 2024-2026 average investment-property EBITDA margin of 75%-76%
(1H24: 76%);
- Office rental reversion of 10%-15% decline in 2024-2026;
- Retail rental reversion of 5% increase in 2024 and flat in
2025-2026;
- Capex, including development cost for LG8 on a proportionally
consolidated basis, of around HKD1.0 billion-2.0 billion per year
in 2024-2026.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Sustained improvement in the company's recurring EBITDA/gross
interest coverage to above 2.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Recurring EBITDA/gross interest coverage sustained below 2.0x.
Liquidity and Debt Structure
Robust Liquidity: The company had cash and bank balances (including
time deposits) of HK3.1 billion in 1H24, sufficient to cover all
debt maturing between 2024 and 2026. Hysan also maintained
committed undrawn facilities of HKD10.9 billion at end-1H24. The
company also secured a HKD8 billion four-year syndicated loan in
July 2024. It has large unencumbered investment properties,
providing additional liquidity sources and financial flexibility.
Issuer Profile
Hysan is a leading property investment, management and development
company in Hong Kong with an investment-property portfolio of over
4.5 million square feet of high-quality office, retail and
residential space. Hysan is one of the largest commercial landlords
in CWB, where it has been established since the 1920s.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
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
----------- ------ -----
Hysan Development
Company Limited LT IDR BBB Downgrade BBB+
senior unsecured LT BBB Downgrade BBB+
Hysan (MTN) Limited
senior unsecured LT BBB Downgrade BBB+
Elect Global
Investments Limited
subordinated LT BB+ Downgrade BBB-
===============
X X X X X X X X
===============
[*] BOND PRICING: For the Week Aug. 26 to Aug. 30, 2024
-------------------------------------------------------
Issuer Name Cpn Price Maturity
Cntry Curr
---------- --- ----- --------
----- ----
Alibaba Group Holding 3.2 65.4 2/9/2051 KY USD
Alibaba Group Holding 2.7 68.6 2/9/2041 KY USD
Alibaba Group Holding 3.3 62.9 2/9/2061 KY USD
AMTD IDEA Group 1.5 7.5 KY USD
AMTD IDEA Group 4.5 55.3 KY SGD
Amwaj 6.4 71.6 KY USD
Amwaj 4.5 50.9 KY USD
Argentina Bonar Bonds 1.0 43.7 7/9/2029 AR USD
Argentina Treasury Dual 3.3 45.8 4/30/2024 AR USD
Argentine Bonos del Tesoro 15.5 40.3 10/17/2026 AR ARS
Argentine Gov't Int'l Bond 1.0 47.5 7/9/2029 AR USD
Argentine Gov't Int'l Bond 0.5 41.9 7/9/2029 AR EUR
Argentine Gov't Int'l Bond 0.1 42.5 7/9/2030 AR EUR
Ascent Finance 1.2 61.0 7/12/2047 KY EUR
Ascent Finance 3.4 66.6 2/6/2043 KY AUD
Ascent Finance 3.8 67.9 6/28/2047 KY AUD
Astra Cumulative 2019 1.5 62.1 11/1/2029 KY USD
At Home Cayman 11.5 69.3 5/12/2028 KY USD
At Home Cayman 11.5 70.6 5/12/2028 KY USD
AYC Finance 3.9 63.2 KY USD
Banco Davivienda SA 6.7 65.8 CO USD
Banco Davivienda SA 6.7 70.3 CO USD
Banco de Chile 2.7 75.1 3/9/2035 CL AUD
Banco del Estado de Chile 3.1 71.2 2/21/2040 CL AUD
Banco del Estado de Chile 2.8 67.7 3/13/2040 CL AUD
Banco Nacional de Panama 2.5 75.4 8/11/2030 PA USD
Banco Nacional de Panama 2.5 75.2 8/11/2030 PA USD
Banco Santander Chile 3.1 71.2 2/28/2039 CL AUD
Banco Santander Chile 1.3 73.9 11/29/2034 CL EUR
Banda de Couro Energetica 8.0 55.1 1/15/2027 BR BRL
Baraunas II Energetica S/A 8.0 12.5 1/15/2027 BR BRL
Bishopsgate Asset Finance 4.8 66.9 8/14/2044 KY GBP
Bolivian Gov'tInt'l Bond 4.5 58.3 3/20/2028 BO USD
Bolivian Gov'tInt'l Bond 7.5 59.4 3/2/2030 BO USD
Bolivian Gov'tInt'l Bond 4.5 58.5 3/20/2028 BO USD
Bolivian Gov'tInt'l Bond 7.5 59.5 3/2/2030 BO USD
Bonos Para La Reconstruccion 5.0 63.6 10/31/2027 AR USD
Bonos Para La Reconstruccion 3.0 60.5 5/31/2026 AR USD
Bonos Para La Reconstruccion 5.0 51.9 10/31/2027 AR USD
Brazilian Gov't Int'l Bond 4.8 74.1 1/14/2050 BR USD
BRF SA 5.8 78.1 9/21/2050 BR USD
BRF SA 5.8 78.1 9/21/2050 BR USD
Caja de Compensacion 2.4 49.6 4/5/2025 CL CLP
Camposol SA 6.0 72.3 2/3/2027 PE USD
Camposol SA 6.0 72.6 2/3/2027 PE USD
CFLD Cayman Investment 2.5 3.4 1/31/2031 KY USD
CFLD Cayman Investment 2.5 3.4 1/31/2031 KY USD
CFLD Cayman Investment 2.5 2.9 1/31/2031 KY USD
CFLD Cayman Investment 2.5 3.8 1/31/2031 KY USD
CFLD Cayman Investment 2.5 2.2 1/31/2031 KY USD
CFLD Cayman Investment 2.5 3.5 1/31/2031 KY USD
CFLD Cayman Investment 2.5 2.9 1/31/2031 KY USD
CFLD Cayman Investment 2.5 3.5 1/31/2031 KY USD
CFLD Cayman Investment 2.5 2.2 1/31/2031 KY USD
Chile Gov'tInt'l Bond 3.5 72.7 1/25/2050 CL USD
Chile Gov'tInt'l Bond 3.1 73.6 5/7/2041 CL USD
Chile Gov'tInt'l Bond 3.1 62.8 1/22/2061 CL USD
Chile Gov'tInt'l Bond 3.5 72.3 4/15/2053 CL USD
Chile Gov'tInt'l Bond 1.3 67.4 1/29/2040 CL EUR
Chile Gov'tInt'l Bond 1.3 54.0 1/22/2051 CL EUR
Chile Gov'tInt'l Bond 3.3 62.9 9/21/2071 CL USD
Chile Gov'tInt'l Bond 1.3 74.4 7/26/2036 CL EUR
China Yuhua Education Corp 0.9 65.1 12/27/2024 KY HKD
CK HutchisonInt'l 19 II 3.4 74.4 9/6/2049 KY USD
CK HutchisonInt'l 19 II 3.4 74.4 9/6/2049 KY USD
CK HutchisonInt'l 20 3.4 74.1 5/8/2050 KY USD
CK HutchisonInt'l 20 3.4 74.1 5/8/2050 KY USD
Colombia Gov't Int'l Bond 4.1 61.2 5/15/2051 CO USD
Colombia Gov't Int'l Bond 3.9 57.2 2/15/2061 CO USD
Colombia Gov't Int'l Bond 5.2 72.4 5/15/2049 CO USD
Colombia Gov't Int'l Bond 4.1 66.7 2/22/2042 CO USD
Colombia Gov't Int'l Bond 7.3 71.1 10/26/2050 CO COP
Colombia Gov't Int'l Bond 6.3 73.3 7/9/2036 CO COP
Colombia Gov't Int'l Bond 7.3 71.1 10/26/2050 CO COP
Colombia Gov't Int'l Bond 5.0 71.6 6/15/2045 CO USD
Colombia Gov't Int'l Bond 6.3 73.3 7/9/2036 CO COP
Colombia Telecomunicaciones 5.0 67.5 7/17/2030 CO USD
Colombia Telecomunicaciones 5.0 67.5 7/17/2030 CO USD
Colombian TES 7.3 70.9 10/26/2050 CO COP
Colombian TES 6.3 73.1 7/9/2036 CO COP
Coopeucha 4.6 38.3 6/1/2029 CL CLP
CODELCO 3.7 67.4 1/30/2050 CL USD
CODELCO 3.2 61.0 1/15/2051 CL USD
CODELCO 3.7 67.3 1/30/2050 CL USD
CODELCO 3.2 61.0 1/15/2051 CL USD
CODELCO 3.6 74.7 7/22/2039 CL AUD
Earls Eight 0.1 64.5 12/20/2031 KY AUD
Earls Eight 1.7 72.4 6/20/2032 KY AUD
Ecopetrol SA 5.9 73.6 5/28/2045 CO USD
Ecopetrol SA 5.9 70.5 11/2/2051 CO USD
El Salvador Gov'tInt'l Bond 7.1 68.3 1/20/2050 SV USD
El Salvador Gov'tInt'l Bond 7.6 72.0 9/21/2034 SV USD
El Salvador Gov'tInt'l Bond 7.6 72.8 2/1/2041 SV USD
El Salvador Gov'tInt'l Bond 5.9 65.1 1/30/2025 SV USD
El Salvador Gov'tInt'l Bond 7.6 72.6 9/21/2034 SV USD
El Salvador Gov'tInt'l Bond 7.1 68.4 1/20/2050 SV USD
El Salvador Gov'tInt'l Bond 7.6 72.9 2/1/2041 SV USD
Embotelladora Andina SA 6.5 23.2 6/1/2026 CL CLP
EFE 3.8 65.7 9/14/2061 CL USD
EFE 3.1 59.8 8/18/2050 CL USD
EFE 3.1 59.8 8/18/2050 CL USD
EFE 3.8 65.8 9/14/2061 CL USD
EFE 6.5 11.1 1/1/2026 CL CLP
ETESA 5.1 71.5 5/2/2049 PA USD
ETESA 5.1 72.2 5/2/2049 PA USD
Metro SA 3.7 65.1 9/13/2061 CL USD
Metro SA 3.7 65.0 9/13/2061 CL USD
Metro SA 5.5 50.1 7/15/2027 CL CLP
Metro SA 5.0 63.8 5/11/2025 AR USD
ENAP 4.5 73.2 9/14/2047 CL USD
ENAP 4.5 73.2 9/14/2047 CL USD
ENA Master Trust 4.0 70.5 5/19/2048 PA USD
ENA Master Trust 4.0 70.9 5/19/2048 PA USD
Enel Generacion Chile SA 6.2 29.2 10/15/2028 CL CLP
Equatorial Energia 10.9 1.1 10/15/2029 BR BRL
Equatorial Energia 10.8 1.0 5/15/2028 BR BRL
Esval SA 3.5 13.1 2/15/2026 CL CLP
Farfetch 3.8 4.3 5/1/2027 KY USD
Fospar S/A 6.5 1.4 5/15/2026 BR BRL
GDM Argentina SA 2.5 0.0 9/8/2024 AR USD
GDS Holdings 4.5 67.7 1/31/2030 KY USD
Generacion Mediterranea SA 4.6 0.0 11/12/2024 AR ARS
General Shopping Finance 10.0 66.2 KY USD
General Shopping Finance 10.0 65.0 KY USD
Genneia SA 2.0 56.9 7/14/2028 AR USD
Greenland Hong Kong 10.2 13.4 KY USD
Guacolda Energia SA 4.6 70.5 4/30/2025 CL USD
Guacolda Energia SA 10.0 70.1 12/30/2030 CL USD
Guacolda Energia SA 4.6 71.8 4/30/2025 CL USD
Guacolda Energia SA 10.0 70.1 12/30/2030 CL USD
Hector A Bertone SA 1.9 0.0 4/7/2024 AR USD
Hilong Holding 9.8 68.7 11/18/2024 KY USD
Hilong Holding 9.8 69.7 11/18/2024 KY USD
Hilong Holding 9.8 69.4 11/18/2024 KY USD
Multiplo SA 3.3 59.5 BR USD
Itau Unibanco SA/Nassau 5.8 20.2 5/20/2027 BR BRL
Jamaica Gov't Bond 6.3 67.8 7/11/2048 JM JMD
Jamaica Gov't Bond 8.5 73.0 12/21/2061 JM JMD
Lani Finance 1.7 63.5 3/14/2049 KY EUR
Lani Finance 1.9 66.9 10/19/2048 KY EUR
Lani Finance 3.1 66.1 10/19/2048 KY AUD
Lani Finance 1.9 65.8 9/20/2048 KY EUR
Link Finance Cayman 2009 2.2 70.0 10/27/2038 KY HKD
LIPSA Srl 1.0 0.0 8/23/2024 AR USD
Logan Group Co 7.0 5.1 KY USD
Longfor Group Holdings 4.0 43.3 9/16/2029 KY USD
Longfor Group Holdings 3.4 56.1 4/13/2027 KY USD
Longfor Group Holdings 3.9 38.4 1/13/2032 KY USD
Longfor Group Holdings 4.5 53.1 1/16/2028 KY USD
Luminis III 2.3 41.8 9/22/2048 KY USD
Luminis III 2.4 55.3 9/22/2048 KY AUD
Luminis IV 3.2 70.4 1/22/2042 KY AUD
Luminis 2.3 54.8 9/22/2048 KY AUD
Lunar Funding I 1.7 8/11/2056 KY GBP
MTR Corp CI 2.8 73.3 9/6/2047 KY HKD
MTR Corp CI 3.0 73.1 3/11/2051 KY HKD
MTR Corp CI 3.0 75.4 4/26/2047 KY HKD
MTR Corp CI 3.2 73.7 2/5/2055 KY HKD
MTR Corp CI 3.0 73.1 3/11/2051 KY HKD
NIO Inc 4.6 73.1 10/15/2030 KY USD
Panama Gov'tInt'l Bond 4.5 63.1 4/1/2056 PA USD
Panama Gov'tInt'l Bond 2.3 70.2 9/29/2032 PA USD
Panama Gov'tInt'l Bond 3.9 55.8 7/23/2060 PA USD
Panama Gov'tInt'l Bond 4.5 64.9 4/16/2050 PA USD
Panama Gov'tInt'l Bond 4.5 62.0 1/19/2063 PA USD
Panama Gov'tInt'l Bond 4.5 66.6 5/15/2047 PA USD
Panama Gov'tInt'l Bond 4.3 62.6 4/29/2053 PA USD
Peruvian Gov'tInt'l Bond 3.6 71.8 3/10/2051 PE USD
Peruvian Gov'tInt'l Bond 2.8 57.3 12/1/2060 PE USD
Peruvian Gov'tInt'l Bond 3.2 57.3 7/28/2121 PE USD
Peruvian Gov'tInt'l Bond 3.6 65.7 1/15/2072 PE USD
Peruvian Gov'tInt'l Bond 3.3 74.3 3/11/2041 PE USD
Petroleos del Peru SA 5.6 68.3 6/19/2047 PE USD
Petroleos del Peru SA 5.6 68.3 6/19/2047 PE USD
Powerlong Real Estate 6.3 10.3 8/10/2024 KY USD
Provincia de Cordoba 7.1 39.6 10/27/2026 AR USD
Provincia de la Rioja 7.5 45.9 7/20/2032 AR USD
Provincia de la Rioja 4.5 51.8 1/20/2027 AR USD
Chaco Argentina 4.0 0.0 12/4/2026 AR USD
QNB Finance 13.5 63.1 10/6/2025 KY TRY
QNB Finance 11.5 71.7 1/30/2025 KY TRY
QNB Finance 2.9 74.2 9/16/2035 KY AUD
QNB Finance 2.9 72.9 12/4/2035 KY AUD
QNB Finance 3.0 75.4 2/14/2035 KY AUD
QNB Finance 3.4 72.0 10/21/2039 KY AUD
Radiance Holdings Group 7.8 49.6 3/20/2024 KY USD
Rio Alto Energias Renovaveis 7.0 29.1 7/15/2027 BR BRL
Santander Consumer Chile SA 2.9 72.7 11/27/2034 CL AUD
Seazen Group 6.0 75.2 8/12/2024 KY USD
Seazen Group 4.5 34.1 7/13/2025 KY USD
Shui On Development Holding 5.5 61.2 6/29/2026 KY USD
Shui On Development Holding 5.5 73.0 3/3/2025 KY USD
Silk Road Investments 2.9 66.8 1/23/2042 KY AUD
Skylark 1.8 59.0 4/4/2039 KY GBP
Autopista Central 5.3 37.2 12/15/2026 CL CLP
Autopista Central 5.3 50.6 12/15/2028 CL CLP
SQM 3.5 65.5 9/10/2051 CL USD
SQM 3.5 65.5 9/10/2051 CL USD
Southern Water Service 3.0 70.8 5/28/2037 KY GBP
SPE Saneamento RIO 1 7.2 10.8 1/15/2042 BR BRL
SPE Saneamento RIO 1 SA 6.9 10.5 1/15/2034 BR BRL
SPE Saneamento Rio 4 SA 7.2 10.2 1/15/2042 BR BRL
SPE Saneamento Rio 4 SA 6.9 10.2 1/15/2034 BR BRL
Spica 2.0 74.9 3/24/2033 KY AUD
Spirit Loyalty Cayman 8.0 72.2 9/20/2025 KY USD
Spirit Loyalty Cayman 8.0 73.0 9/20/2025 KY USD
Spirit Loyalty Cayman 8.0 70.3 9/20/2025 KY USD
Spirit Loyalty Cayman 8.0 72.5 9/20/2025 KY USD
Sylph 2.7 68.5 3/25/2036 KY USD
Sylph 3.1 74.7 9/25/2035 KY USD
Sylph 2.4 64.2 9/25/2036 KY USD
Sylph 2.9 74.5 6/24/2036 KY AUD
Telecom Argentina SA 1.0 74.0 3/9/2027 AR USD
Telecom Argentina SA 1.0 66.1 2/10/2028 AR USD
Telefonica Moviles Chile SA 3.5 74.4 11/18/2031 CL USD
Telefonica Moviles Chile SA 3.5 74.4 11/18/2031 CL USD
Tencent Holdings 3.2 67.9 6/3/2050 KY USD
Tencent Holdings 3.3 64.0 6/3/2060 KY USD
Tencent Holdings 3.9 73.9 4/22/2061 KY USD
Tencent Holdings 3.8 75.4 4/22/2051 KY USD
Tencent Holdings 3.2 67.6 6/3/2050 KY USD
Tencent Holdings 3.9 73.9 4/22/2061 KY USD
Tencent Holdings 3.3 64.1 6/3/2060 KY USD
Three Gorges Finance 3.2 71.6 10/16/2049 KY USD
Grupo Travessia 9.0 1.6 1/20/2032 BR BRL
Volcan Cia Minera SAA 4.4 62.2 2/11/2026 PE USD
Volcan Cia Minera SAA 4.4 62.0 2/11/2026 PE USD
VTR Comunicaciones SpA 5.1 61.6 1/15/2028 CL USD
VTR Comunicaciones SpA 4.4 60.8 4/15/2029 CL USD
VTR Comunicaciones SpA 5.1 61.9 1/15/2028 CL USD
VTR Comunicaciones SpA 4.4 60.6 4/15/2029 CL USD
YPF SA 7.0 72.6 12/15/2047 AR USD
YPF SA 1.0 66.8 4/25/2027 AR USD
*********
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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