/raid1/www/Hosts/bankrupt/TCRLA_Public/240925.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, September 25, 2024, Vol. 25, No. 193
Headlines
A R G E N T I N A
ARGENTINA: Activity Slumped 3.4% in 1st Half of 2024, INDEC Reports
ARGENTINA: Recession Deepened as Milei Shock Therapy Stung
RIO NEGRO: S&P Affirms 'CCC' LongTerm ICRs, Outlook Stable
B E R M U D A
HIGHLANDS HOLDINGS: Fitch Affirms 'BB' on PIK Toggle Notes Due 2025
B O L I V I A
BOLIVIA: President Luis Arce Charts Exit From Financial Crisis
B R A Z I L
BRAZIL: Real Jumps After Central Bank Delivers Hawkish Hike
PETROBRAS: Raises $1-Billion in Bond Offering
P E R U
PETROPERU SA: S&P Affirms 'B' ICR, Off CreditWatch Negative
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A R G E N T I N A
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ARGENTINA: Activity Slumped 3.4% in 1st Half of 2024, INDEC Reports
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Buenos Aires Times relays that Argentina's economy contracted by
1.7 percent in the second quarter of 2024, the INDEC national
statistics bureau reported, confirming the depth of the ongoing
recession.
That marked the third consecutive quarter with gross domestic
product (GDP) in the red, as President Javier Milei's government
strives to reduce the country's budget deficit to zero, according
to Buenos Aires Times.
Overall, economic activity declined 3.4 percent in the first half
of the year compared to data from 2023, the report notes.
The most notable year-on-year contractions were in the construction
sector (down 22.2 percent), manufacturing (down 17.4 percent) and
wholesale, retail and repair activities (down 15.7 percent) stand
out, the report relays.
The largest year-on-year increases were seen in agriculture,
hunting and forestry (81.2 percent), fishing (41.3 percent), mining
and quarrying (6.6 percent) and electricity, gas and water (2.8
percent), the report notes.
Since taking office in December, Milei has applied a drastic
austerity programme in a bid to rein in chronic inflation and
government overspending, the report discloses.
He has halted public works, eliminated state agencies, suspended
financing to the provinces, fired tens of thousands of public
employees and eliminated fuel and transport subsidies, the report
says.
Monthly inflation has plummeted to the single digits, but analysts
have warned this is a result of a massive economic slump as
shoppers tighten purse strings, the report relays. Public
consumption was down six percent year-on-year while private
consumption plummeted almost 10 percent, the report notes.
Annual inflation still stands at 236.7 percent, though consumer
prices increased only 4.2 percent – down from the 25 percent
recorded at the start of Milei's term, the report says.
More than half the population currently lives in poverty, according
to private reports acknowledged by the government to be accurate,
the report notes.
The International Monetary Fund (IMF) has worsened its outlook for
Argentina's economy, which it now expects to contract by 3.5
percent this year, after a 1.6-percent decline in 2023, the report
discloses.
In a recent Budget proposal, Milei's administration forecast that
economic activity would fall by 3.8 percent in 2024, the report
says. It predicts growth of five percent next year, as well as an
inflation rate of 18.3 percent, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
In March 2022, the International Monetary Fund (IMF) approved a new
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota). The IMF Executive Board's decision
allowed the authories an immediate disbursement of an equivalent of
US$9.65 billion in March 2022.
Argentina's IMF-supported program seeks to improve public finances
and start to reduce persistent high inflation through a
multi-pronged strategy, involving a gradual elimination of monetary
financing of the fiscal deficit and enhancements in the monetary
policy framework.
In June 2024, the IMF Board completed an eighth review of the
Extended Arrangement under the Extended Fund Facility for
Argentina. The IMF Board's decision enabled a disbursement of
around US$800 million to support the authorities' efforts to
entrench the disinflation process, rebuild fiscal and external
buffers, and underpin the recovery.
S&P, in March 2024, raised its local currency sovereign credit
ratings on Argentina to 'CCC/C' from 'SD/SD' and its national scale
rating to 'raB+' from 'SD'. S&P also raised its long-term foreign
currency sovereign credit rating to 'CCC' from 'CCC-' and affirmed
its 'C' short-term foreign currency rating. The S&P ratings have
been affirmed as of August 2024. S&P said the stable outlook on
the long-term ratings balances the risks posed by pronounced
economic imbalances and other uncertainties with recent progress in
making fiscal adjustments, reducing inflation, and undertaking
structural reforms to address long-standing microeconomic
weaknesses that have contributed to poor economic performance for
many years that it would likely consider to be distressed.
In June 2023, Fitch ratings also upgraded Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March 2023. The new 'CC' rating signals a
default event of some sort appears probable in the coming years,
regardless of the outcome of upcoming elections. The affirmation of
the LC IDR at 'CCC-' follows the peso debt swap in June that Fitch
did not deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: Recession Deepened as Milei Shock Therapy Stung
----------------------------------------------------------
Patrick Gillespie at Bloomberg News reports that Argentina's
economy sunk deeper into recession in the second quarter as ripple
effects from President Javier Milei's currency devaluation and
austerity exacerbated a downturn.
Gross domestic product declined 1.7 percent in the three months
through June compared to the previous quarter, in line with
analysts' expectations, according to Bloomberg News. From a year
ago, the economy also shrank 1.7 percent, according to government
data published, Bloomberg News relays. It marks the third straight
quarterly contraction in Argentina, Bloomberg News notes.
Capital investment, consumer spending and government expenditure
all contracted on a quarterly basis while rising exports during
Argentina's harvest season helped offset some of the decline,
Bloomberg News says.
Argentines are enduring their sixth contraction in the past 10
years, Bloomberg News discloses. Besides the pandemic, this year's
sharp decline stands out after Milei took office in December,
devalued the peso 54 percent and slashed government spending across
the board, paralysing several industries like construction and
manufacturing, Bloomberg News says. Milei hasn't paid a political
cost yet after he bluntly warned citizens during his inauguration
address that his so-called "shock therapy" would indeed be painful,
Bloomberg News notes.
Milei's ability to continue lowering inflation while rebooting the
economy in the second half of the year will prove key to
maintaining his approval ratings around 50 percent despite the dire
state of South America's second-biggest economy, Bloomberg News
relays. He acknowledged in a speech that half of Argentina's 46
million citizens live in poverty, Bloomberg News relates.
His administration projects GDP declining 3.8 percent this year
before posting five percent growth in 2025, according to its annual
budget released, Bloomberg News discloses. Economists surveyed by
Argentina's Central Bank see more modest growth next year at 3.5
percent, Bloomberg News adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
In March 2022, the International Monetary Fund (IMF) approved a new
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota). The IMF Executive Board's decision
allowed the authories an immediate disbursement of an equivalent of
US$9.65 billion in March 2022.
Argentina's IMF-supported program seeks to improve public finances
and start to reduce persistent high inflation through a
multi-pronged strategy, involving a gradual elimination of monetary
financing of the fiscal deficit and enhancements in the monetary
policy framework.
In June 2024, the IMF Board completed an eighth review of the
Extended Arrangement under the Extended Fund Facility for
Argentina. The IMF Board's decision enabled a disbursement of
around US$800 million to support the authorities' efforts to
entrench the disinflation process, rebuild fiscal and external
buffers, and underpin the recovery.
S&P, in March 2024, raised its local currency sovereign credit
ratings on Argentina to 'CCC/C' from 'SD/SD' and its national scale
rating to 'raB+' from 'SD'. S&P also raised its long-term foreign
currency sovereign credit rating to 'CCC' from 'CCC-' and affirmed
its 'C' short-term foreign currency rating. The S&P ratings have
been affirmed as of August 2024. S&P said the stable outlook on
the long-term ratings balances the risks posed by pronounced
economic imbalances and other uncertainties with recent progress in
making fiscal adjustments, reducing inflation, and undertaking
structural reforms to address long-standing microeconomic
weaknesses that have contributed to poor economic performance for
many years that it would likely consider to be distressed.
In June 2023, Fitch ratings also upgraded Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March 2023. The new 'CC' rating signals a
default event of some sort appears probable in the coming years,
regardless of the outcome of upcoming elections. The affirmation of
the LC IDR at 'CCC-' follows the peso debt swap in June that Fitch
did not deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
RIO NEGRO: S&P Affirms 'CCC' LongTerm ICRs, Outlook Stable
----------------------------------------------------------
S&P Global Ratings, on Sept. 20, 2024, affirmed its 'CCC' foreign
and local currency long-term issuer credit ratings on the Province
of Rio Negro and its issue ratings on its senior unsecured debt.
The outlooks on the long-term issuer credit ratings remain stable.
Outlook
The stable outlook reflects low liquidity and a lack of global
market access, with efforts by the administration to create fiscal
space to repay relatively low or favorable debt amortizations from
the 2020 restructuring. At the same time, despite a modest recovery
in Argentina's external liquidity, macroeconomic vulnerabilities
remain, including a weak international reserves position.
Downside scenario
S&P said, "We could lower the long-term ratings on the Province of
Rio Negro in the next 12 months if constrained fiscal space--along
with limited market access--suggest the administration would
undertake a debt restructuring, which we would likely consider
distressed and tantamount to a default. We could also lower the
ratings if the central government tightens access to foreign
exchange (FX), impairing Argentine local and regional governments'
(LRGs') ability to service foreign currency debt."
Upside scenario
S&P said, "We could raise the ratings on Rio Negro if the Argentine
sovereign is able to effectively lower macroeconomic imbalances and
vulnerabilites, including by lessening FX controls and improving
its international reserves, while regaining access to international
markets. This could help provinces to widen their funding sources.
In addition, we would need to see a clearly articulated strategy
from Rio Negro to service its debt, such as through accumulated
liquidity from improved fiscal performance or alternative funding
sources."
Rationale
The 'CCC' rating on the Province of Rio Negro reflects the
interplay of the stand-alone credit profile (SACP) of 'ccc+' and
the cap on all provincial ratings by its 'CCC' Transfer and
Convertibility (T&C) assessment on Argentina.
President Milei's administration has undertaken comprehensive
reforms designed to stabilize Argentina's economy, reduce
inflation, address fiscal imbalances, and set the stage for
economic growth. However, economic conditions remain fragile, and
the sovereign--as well as LRGs--lacks access to external capital
markets.
At the same time, S&P affirmed the province´s stand-alone credit
profile (sacp) at 'ccc+'. Rio Negro's financial management has
taken steps to balance fiscal accounts, reduce its indebtedness,
attract investment, and diversify the local economy. That said,
decisions on how to manage forthcoming debt service don't appear to
reflect longer-term planning. Capacity to build robust liquidity
buffers remains limited and is key to service debt in the context
of constrained market access.
Rio Negro recently announced investment that will boost provincial
economic activity, but materialization will take time
S&P said, "We expect Argentina's GDP to contract 3.5% in 2024,
followed by potential growth of 3.5% in 2025-2026, depending on the
effectiveness of macroeconomic reforms and their sustainability.
Rio Negro's economy generally performs in line with the sovereign.
We expect GDP per capita to decline to US$7,500 in 2024, given a
contraction in real GDP and depreciation of the Argentine peso, and
remain below the national average of US$11,900."
However, the province's economic prospects should improve in the
coming years following the announcement of the YPF-Petronas
liquefied natural gas (LNG) project on the southern part of Rio
Negro's coast. The plan aims to facilitate the export of gas from
Vaca Muerta and entails an estimated investment of US$30 billion
over the next 10 years. In addition, mining is gaining traction,
mainly for silver and gold, as the government focuses on restarting
development in the sector to diversify the economy. However, these
projects will take time to be completed, especially the LNG project
given it involves the building of a gas pipeline across the
province.
The Rio Negro administration has taken active measures this year to
manage the economic contraction and sovereign fiscal adjustment.
Given declining revenue, the administration's strategy has been
centered on spending controls, mainly by delinking salary
adjustments from inflation and cutting capital expenditure (capex),
along with revenue-enhancing measures.
The administration has remained current on its financial
obligations this year, notwithstanding low liquidity. The failure
to build more robust fiscal and liquidity buffers over the past few
years, unlike some other provinces, means management has relied on
short-term solutions, especially given the decline in discretionary
transfers from the sovereign. Notably, the first principal payment
on its international bond of US$46 million, due in March 2024, was
completed by taking a short-term loan with Banco Patagonia, the
province's financial agent. Subsequently, it relied on a partial
advance on co-participation revenue from the national government to
cover almost half of the September 2024 payment. The next payment
on the international bond is in March 2025.
In 2020, amid increasingly strained financial conditions including
very limited access to financing, the province decided to
prioritize operating and capital spending over timely debt payment
obligations, which still limits S&P's financial management
assessment.
Economic recovery and access to financing will be key for debt
service payment capacity
S&P expects somewhat balanced operating accounts for 2024-2026,
based on partial revenue recovery and continued expenditure
control. The administration has shown pragmatism to avoid fiscal
slippages, increasing the revenue base while cutting spending. It
increased tax rates on gross receipts for financial services in
2024, in conjunction with a revaluation of properties, indexation
of real state and auto taxes, strengthening controls over tax
evasion, and the revision of some tax exemptions in the
agricultural sector. At the same time, the government negotiated
the delinking of public worker salaries from inflation to fixed
adjustments, has launched a voluntary retirement program, and
improved control over worker absenteeism.
S&P said, "We expect an uptick in capex to an average of 6% of
total spending in 2026 after a sharp decline to only 2.2% as of
July 2024. This is given existing infrastructure needs and our
expectation of improving macroeconomic conditions, which should
strengthen revenue. In our base case, we assume deficits after
capex averaging 1.4% of revenue for 2024-2026 based on potential
operating spending pressure and capex resumption.
"We expect liquidity will remain weak. Amid high inflation in
2021-2022, unlike other provinces." In 2023, the province posted an
operating deficit, which forced the administration to rely on
short-term financing to pay its debt service.
In the coming years, the government plans to finance capex by
borrowing from multilateral creditors. The bulk of its debt is
denominated in foreign currency, and therefore subject to FX
volatility as well as inflation dynamics. S&P said, "We expect debt
to operating revenue to stabilize at 21% by 2026, from 61% in 2023,
explained by macroeconomic variables and limited market access.
Following the administration's decision to stop the rollover of its
short-term domestic notes, which currently have the equivalent of
US$4 million outstanding, we estimate the interest burden will be
about 3.5% for 2024-2026."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
PROVINCE OF RIO NEGRO
Issuer Credit Rating CCC/Stable/--
PROVINCE OF RIO NEGRO
Senior Unsecured CCC
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B E R M U D A
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HIGHLANDS HOLDINGS: Fitch Affirms 'BB' on PIK Toggle Notes Due 2025
-------------------------------------------------------------------
Fitch Ratings has affirmed the rating on the $521 million 7.625%
cash interest/8.375% payment-in-kind (PIK) interest senior secured
PIK toggle notes due 2025 issued by Highlands Holdings Bond Issuer,
Ltd. (HHBI) at 'BB'.
Key Rating Drivers
Apollo Ownership: HHBI is a Bermuda-exempted company formed by
Apollo Global Management, Inc. to issue the notes in October 2020
($500 million original issue amount). HHBI is a sister company of
Highlands Bermuda Holdco, Ltd. (HBH), with both companies owned by
AP Highlands Holdings, L.P. (61.9% ownership of HBH and HHBI)/AP
Highlands Co-Invest, L.P. (37.9% ownership of HBH and HHBI)
(collectively APH).
APH are the Apollo investment funds that own Aspen Insurance
Holdings Limited (AIHL) through HBH. HHBI on-lent the net proceeds
from the offering to APH, with $313 million contributed to HBH to
provide additional capital to the AIHL operating group.
Elevated Default Risk: The 'BB' rating is set at the implied HBH
Issuer Default Rating (IDR), which reflects an Average recovery
assumption. Fitch considers the default risk for HHBI and HBH to be
the same given the security interest collateral that HHBI has in
APH's shareholdings in HBH. The 'BB' rating is three notches below
an implied AIHL IDR to reflect elevated default risk due to the
remoteness from AIHL's operating company cash flows and the
relatively short-term tenor of the notes (due 2025) that creates
refinancing risk.
Structural Subordination: The notes are general senior secured
obligations of HHBI and rank structurally subordinated to all
existing and future obligations of HBH and AIHL (and its
subsidiaries), including AIHL's $300 million term loan due 2026 and
its $775 million of perpetual preferred equity. The notes are
structured to be isolated from AIHL's regulated group, with cross
defaults not applicable to AIHL and its subsidiaries.
In addition, a breach of the covenants by HBH and AIHL (and its
subsidiaries) will not constitute a default of HHBI to the extent
doing so would materially and substantially negatively affect the
management and business of AIHL and its subsidiaries or if it is
necessary in order for AIHL and its subsidiaries to comply with
applicable laws or a request from a relevant regulator.
Interest is Cash or PIK: As a PIK toggle, HHBI has discretion to
pay interest entirely in cash, entirely through issuing additional
notes or a split of cash and additional notes. The PIK feature adds
risk with interest deferrals that increase HHBI's indebtedness.
HHBI paid the first April 2021 interest payment in cash, with PIK
interest in October 2021. Each subsequent semi-annual interest
payment has been in cash from dividends paid by AIHL ($40 million
annual). Future payments could be either cash or PIK.
Dividends from Aspen: HHBI is a holding company with no
revenue-generating operations and no independent operations. Thus,
in order to satisfy the cash payment obligations under the notes,
HHBI primarily relies on dividends provided by the AIHL operating
subsidiaries to AIHL that flow through HBH and then APH. The AIHL
operating subsidiaries have no obligation to make such funds
available and they may be prohibited from doing so by regulators
under certain circumstances. Aspen Bermuda Limited serves as the
main source of dividend capacity, with $303.9 million available at
Dec. 31, 2023.
Security Interest in Aspen: The notes' security interests include
APH's shares in HHBI and HBH. However, AIHL maintains the first
claim on its operating companies and HHBI has no recourse to AIHL
or its subsidiaries. Enforcement of the share pledges and charges
that make up the substantial portion of the collateral will require
prior approval from regulatory bodies and may not result in any
recovery. The notes are not guaranteed by HBH or its subsidiaries.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A lowering of the underlying implied ratings of AIHL and/or its
subsidiaries;
- Breaching the terms of the indenture governing the notes;
- Heighted concerns regarding HHBI's ability and/or willingness to
execute on a refinancing or repayment of the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An increase in the underlying implied ratings of AIHL and/or its
subsidiaries.
Criteria Variation
HHBI's rating reflects an adjustment of the application of criteria
where the default risk and the methodology applied to it are both
included within the scope of the criteria, but where the analysis
described in the criteria requires modification to address factors
specific to HHBI.
Under Fitch's Insurance Rating Criteria, higher default risk
results in additional IDR notching. Specific to HHBI, the implied
HBH IDR is set 1 rating category (3 notches) below an implied AIHL
IDR to reflect elevated default risk at HBH due to the remoteness
from AIHL's cash flows and the relatively short-term five-year
tenor (due 2025) of the notes that creates refinancing risk.
ESG Considerations
HHBI has an ESG Relevance Score of '4' for Group Structure due to a
more complex structure than market norms given its relationship and
related party transactions with HBH and AIHL (and its
subsidiaries). This has a negative impact on the credit profile and
is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Highlands Holdings
Bond Issuer, Ltd.
senior secured LT BB Affirmed BB
=============
B O L I V I A
=============
BOLIVIA: President Luis Arce Charts Exit From Financial Crisis
--------------------------------------------------------------
Peter Millard & Sergio Mendoza at Bloomberg News report that
Bolivian President Luis Arce vowed to prioritize fuel imports and
debt payments as he navigates the dollar shortage that has taken
the Andean nation to the brink of chaos.
In an interview in La Paz, the socialist leader described Bolivia's
economic woes as a temporary shortage of foreign currency which
will ease as new investments come online to offset the slump in
natural gas exports, according to Bloomberg News.
The nation of 12 million has been in crisis since the central bank
almost ran out of foreign currency reserves last year, causing its
currency peg to the dollar to effectively collapse, Bloomberg News
relays. Amid shortages and accelerating inflation, Arce in June
faced down a short-lived military rebellion in which a group of
soldiers stormed the presidential palace, Bloomberg News notes.
"Bolivia's problem is a temporary crisis of dollars. That is what
we are short of," said Arce, sitting beneath a giant portrait of 15
revolutionaries including Emiliano Zapata, Fidel Castro and Hugo
Chavez, Bloomberg News discloses.
New projects will help the economy turn the corner, including a
state-owned steel mill set to start production this month, while
rising agricultural production will cut reliance on imports, he
said, Bloomberg News says. Incentives for foreign oil and gas
majors will boost drilling, while the national gas company will
start producing at a recently-discovered "mega field" as early as
2026, he added.
Amid the dollar shortage, Arce is advising Bolivians sending money
abroad to use crypto currencies rather than scarce greenbacks,
Bloomberg News notes. He also accused opponents in congress of
"sabotage" for blocking the approval of about US$1 billion in
foreign loans which he says could have prevented the current
situation, Bloomberg News relays.
If Arce fails to navigate the financial crisis, it will further
destabilise a region suffering political instability, social unrest
and growing insecurity, Bloomberg News notes. Elsewhere in the
Andes, drug gangs have plunged Ecuador into violent chaos, Peru is
suffering soaring crime, while illegal armed groups capture more
territory in Colombia, Bloomberg News discloses.
'Complicated Situation'
Arce, 60, a UK-educated economist, said the slump in natural gas
output is the root of the economy's current difficulties, Bloomberg
News relays. At the same time, domestic consumption of motor fuels
and natural gas has surged and, in 2022, the country became a net
importer of energy for the first time in decades, Bloomberg News
notes.
"We are in a truly complicated situation because we are seeing the
need to import larger and larger volumes, and at higher prices,"
Arce added.
As a result, Bolivia's foreign reserves shrank to US$1.9 in billion
in August, down 90% from a decade earlier, Bloomberg News relays.
And of that, just US$153 million was in cash and most of the rest
in gold which cannot legally be sold, Bloomberg News notes.
Bolivia's dollar bonds due 2028 currently yield 24 percent, a
distressed level which indicates that traders see a high risk of
default, Bloomberg News discloses. Despite this, Arce said that
bondholders have nothing to fear, Bloomberg News says. He touted
his own track record of consistently paying debt since he became
finance minister in 2006, Bloomberg News recalls.
"We've prioritised the payment of foreign debt," Arce said. "We
continue paying. There are no complaints," he added.
Political Rivalry
Arce's difficulties have been aggravated by his split with his
former mentor, ex-President Evo Morales, who become Bolivia's first
indigenous president in 2006, Bloomberg News notes. That's also
caused the ruling socialist party to fracture, depriving the
government of its majority in Congress, Bloomberg News says.
Morales is now Arce's main rival ahead of next year's presidential
vote, although it's still unclear whether he'll legally be able to
run, Bloomberg News notes.
Arce shows little sign of wanting to depart from the state-led
economic model Bolivia has pursued since Morales first won the
presidency and nationalised the natural gas industry, Bloomberg
News discloses. The state is taking the lead in the lithium,
biofuels and steel industries in which he wants the economy to
diversify, Bloomberg News relays.
With a fiscal deficit the government forecasts will be nearly eight
percent of gross domestic product this year, it cannot easily
afford diesel subsidies, which cost about US$1.7 billion last year,
Bloomberg News notes. Yet eliminating them is politically
difficult, especially in the year before an election, Bloomberg
News relays. Arce said biofuels can help fix the problem,
Bloomberg News relays.
The government brought its first soybean-fed biodiesel plant online
this year and another will start operating in December, Bloomberg
News notes. In 2026, it will start operations at a larger facility
that can turn cooking oil and a variety of feedstocks into motor
fuel, Bloomberg News recalls.
Arce said these three plants can replace 60 percent of diesel
imports in 2026, Bloomberg News says.
In the meantime, Arce said he will turn to allies to seek
favourable terms for diesel imports, Bloomberg News notes. He
mentioned Russia as a strategic partner of Bolivia that is also a
major oil power, Bloomberg News discloses.
He attributed shortages at filling stations in recent months to
rough seas on the Pacific coast that made it difficult to unload
tankers at Chilean ports, and said supplies will return to normal,
Bloomberg News relays.
Oil and Gas Rebound
Arce says the oil and gas sector is about to rebound due to
investments by state-owned YPFB, Bloomberg News relays.
The 1.7 trillion cubic feet of gas discovered at the Mayaya field
is isolated from the nation's pipeline network, Bloomberg News
notes. But Arce said YPFB could cut costs by shipping the fuel
directly to Brazil, a historic consumer of Bolivian gas that is
hunting for more supplies, Bloomberg News relates.
Bolivia's natural gas production will soon head into a new period
of growth, he said, Bloomberg News says. The country has one of
the highest government takes, the combination of taxes and
royalties, of any oil and gas producer, Bloomberg News notes. As a
result, foreign companies have been reluctant to invest, Bloomberg
News discloses.
Arce said he is trying to change this by encouraging secondary
recovery, or techniques to extract additional oil and gas from
older fields where output has gone into decline, Bloomberg News
relays.
Lithium, Steel
Lithium is another focus. While Bolivia has the world's biggest
resources of the battery metal, they have yet to be exploited in
significant quantities due to problems with purity, poor
infrastructure, and a history of political and social unrest,
Bloomberg News relays.
Arce is betting on a new technique that involves extracting lithium
directly from brine rather than letting it evaporate in giant
ponds, Bloomberg News notes. The government is turning to Russian
and Chinese companies in a bid to achieve large-scale commercial
production at the new plants, Bloomberg News relays. The first
contract was agreed with the Russian Uranium One Group, Bloomberg
News relays. Other deals will be signed "very soon" with China's
CATL Brunp & CMOC, or CBC, and Citic Guoan, he said.
The government also plans to inaugurate this month a steel factory
in Mutun, in the Santa Cruz department, using iron ore from what
has been touted as one of the world's biggest deposits, Bloomberg
News notes. Bolivia hired China's Sinosteel Equipment &
Engineering Co. to build it for more than US$500 million, Bloomberg
News says.
As reported in the Troubled Company Reporter-Latin America in April
2024, Moody's Ratings has downgraded the Government of Bolivia's
long-term local and foreign currency issuer and senior unsecured
debt ratings to Caa3 from Caa1 and changed the ratings outlook to
stable from negative.
===========
B R A Z I L
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BRAZIL: Real Jumps After Central Bank Delivers Hawkish Hike
-----------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Brazilian
markets rallied as the central bank's unanimous decision to raise
interest rates -- and a statement viewed as hawkish -- signaled its
commitment to getting inflation back to target.
The real trimmed gains after climbing as much as 1.2% versus the
dollar, and swap rates jumped, after central bank officials raised
the benchmark rate by 25 basis points, just hours after the Federal
Reserve delivered its first cut in four years, according to
globalinsolvency.com.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
Moody's credit rating for Brazil was last set at Ba2 with positive
outlook as of May 2024. S&P Global Ratings raised on Dec. 19,
2023, its long-term global scale ratings on Brazil to 'BB' from
'BB-'. Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. DBRS' credit rating for Brazil was last reported at BB
with stable outlook at July 2023.
PETROBRAS: Raises $1-Billion in Bond Offering
---------------------------------------------
Rio Times Online reports that Petroleo Brasileiro S.A. or Petrobras
has returned to the global market by successfully raising $1
billion through a bond offering.
This move marks a significant milestone in Petrobras' financial
strategy, according to Rio Times Online. Furthermore, it
demonstrates renewed investor confidence in the state-owned
company, the report notes.
Fernando Melgarejo, Petrobras' Chief Financial Officer, spoke
enthusiastically about the bond offering. In an interview with
local media, he highlighted the strong demand for the bonds, the
report relays.
Impressively, the offering was oversubscribed by more than three
times, Rio Times Online discloses. Additionally, it attracted over
180 orders from investors across various regions, the report says.
The bonds were issued through Petrobras Global Finance B.V., a
wholly-owned subsidiary, the report notes. They carry a 6.00%
annual coupon rate and are priced at 98.128%, the report relays.
The bonds, maturing on January 13, 2035, offer a 6.25% annual yield
with semi-annual interest payments starting January 13, 2025, the
report relays.
Notably, this issuance achieved remarkable pricing milestones, the
report discloses. It secured the lowest spread over U.S. Treasury
securities since 2011, the report recalls.
Also, it boasted the smallest differential over Brazilian sovereign
bonds since 2006, the report relates. These favorable terms
reflect an improved market perception of Petrobras'
creditworthiness, the report notes.
Melgarejo elaborated on the purpose of this bond offering, the
report relays. He explained that the proceeds would be used to
prepay higher-cost debt, the report notes.
Importantly, he emphasized the cost-effectiveness of this issuance,
the report relays. It was 0.38 percentage points lower than a
similar offering in July last year, the report says.
César Rosa, Petrobras' financial manager, addressed concerns about
potential oil price declines, the report discloses.
Rosa reassured investors about the company's resilience in various
market scenarios, the report notes. Rosa emphasized that
Petrobras' projects are designed to remain viable even in low oil
price environments, the report relays.
To provide context, Petrobras' average extraction cost is $25 per
barrel, the report notes. This is significantly lower than the
current Brent crude price of $72 per barrel, the report relays.
Such a margin provides a substantial buffer against market
fluctuations, the report discloses.
This successful bond offering underscores Petrobras' robust
financial position, Rio Times Online says. It demonstrates the
company's ability to access international capital markets on
favorable terms, the report notes.
Despite ongoing challenges in the global energy sector, Petrobras
continues to show financial strength, the report relays.
The strong investor response indicates growing confidence in
Petrobras' future prospects, the report discloses. It also
suggests a positive outlook for Brazil's energy sector as a whole,
the report says.
About Petrobras
Petroleo Brasileiro S.A. or Petrobras (in English,
BrazilianPetroleum Corporation - Petrobras) is a semi-public
Brazilianmultinational corporation in the petroleum industry
headquarteredin Rio de Janeiro, Brazil. Petrobras control
significant oil andenergy assets in 16 countries in Africa, the
Americas, Europe andAsia. But, Brazil represents majority of its
production.
The Brazilian government directly owns 54% of Petrobras'
commonshares with voting rights, while the Brazilian Development
Bankand Brazil's Sovereign Wealth Fund (Fundo Soberano) each
control5%, bringing the State's direct and indirect ownership to
64%.
A corruption scandal was uncovered in 2014 that involvedPetrobras.
The scandal related to money laundering that involved Petrobras
executives. The executives were alleged to get received kickbacks
from overpriced contracts, to the tune of about $3 billion in
total. Over a thousand warrants were issued against politicians
and businessmen in relation to the scandal. In 2016, Marcelo
Odebrecht, CEO of Odebrecht, was sentenced to 19 years in prison
after being convicted of paying more than $30 million in bribes to
Petrobras executives. In January 2018, Petrobras agreed to pay
$2.95 billion to settle a U.S. class action corruption lawsuit. In
September 2018, Petrobras agreed to pay $853.2 million to settle
with Brazilian and U.S. authorities.
As reported in the Troubled Company Reporter-Latin America on June
7, 2024, Moody's Ratings affirmed the Ba1 corporate family rating
of Petrobras.
In January 2024, S&P Global Ratings assigned a new management &
governance (M&G) assessment of moderately negative to Petrobras. At
the same time, S&P affirmed its issuer credit ratings on Petrobras
at 'BB' on the global scale and 'brAAA' on the Brazilian national
scale. S&P also affirmed its issue-level ratings on the company,
and removed all its ratings from under criteria observation (UCO).
In July 2022, Fitch Ratings affirmed Petrobras' BB- Long-Term
Issuer Default Rating. In addition, Fitch has revised the Rating
Outlook to Stable from Negative following a similar revision to
Brazil's Sovereign Rating Outlook. Also in July 2022, Egan-Jones
Ratings Company upgraded the foreign currency and local currency
senior unsecured ratings on debt issued by Petrobras to BB+ from
BB.
=======
P E R U
=======
PETROPERU SA: S&P Affirms 'B' ICR, Off CreditWatch Negative
-----------------------------------------------------------
S&P Global Ratings, on Sept. 20, 2024, removed its 'B' ratings on
Petroleos del Peru (Petroperu) S.A. from CreditWatch negative and
affirmed the ratings.
S&P assigned a stable outlook, which mainly captures the favorable
impacts of the new decree. The outlook also incorporates the
resumption of operations at the Talara refinery's flexi-coking
unit.
On Sept. 13, 2024, the Peruvian government published Decree
013-2024, which involves a new package of support measures to
Petroperu. This decree includes -- among other measures --
capitalizing already existing support instruments, the government
taking over Petroperu's financial obligations during the second
half of 2024 related to its international bonds and loan with the
Spanish Export Credit Agency (Cesce) and implementing a new $1
billion guarantee in support of a new short-term loan from Banco de
la Nacion.
Despite delays and a volatile political situation, the Peruvian
government's recently published decree provides a new financial aid
package to Petroperu involving about $3.5 billion, including
extension of maturities into 2025, as well as a new short term loan
and capitalizations. The decree is more comprehensive than we
initially expected because it capitalizes two facilities from the
government ($1.5 billion instead of the $750 million originally
anticipated, plus interest), it sets up a new $1 billion short-term
loan from Banco de la Nacion (secured by a guarantee from the
government) to provide liquidity for the rest of 2024, and it
extends maturities of other existing facilities ($1.1 billion) into
2025. The government will also assume the interest payments related
to the international bonds and the amortization of the Cesce loan
for the rest of 2024 (about $168 million). Although Petroperu will
have to reimburse the government for the interest payments in 2025,
S&P thinks this package improves the company's liquidity in the
very short term and pushes back a potential default due to a
liquidity crunch in the next six to 12 months, leading us to assign
the stable outlook.
S&P said, "However, we don't think the decree measures are enough
to consider an upgrade at this point. This is because the decree
includes both capitalization and new debt, so it doesn't materially
reduce Petroperu's total debt burden. Also, in our view, there are
still several events that need to materialize for a more meaningful
and sustainable improvement of liquidity and to restore the
company's reputation and standing in the market."
These events include, for example, the approval of the Budget Law
(instrumental to extend government-related support of debt
maturities further into 2028 from 2025), the hiring of a
specialized third party to restructure the company as mandated by
the decree, the materialization of steady and profitable production
from Talara in 2025, the appointment of board members, and the
stabilization of the company's management and governance bodies
that have proven volatile in recent years. S&P will reassess its
base case when it has a clearer view on these events.
Petroperu has addressed the two events that led S&P to place the
ratings on CreditWatch negative. Petroperu presented unqualified
audited statements for 2023 on June 28, 2024 (within the cure
period). In addition, the company managed to negotiate an amendment
from lenders, including a redefinition of financial covenants with
Cesce. These include net debt to equity below 4x (versus 3.75x),
while the debt service coverage ratio was simply waived for 2025
and required to be above 0x in 2026 and 2027 and above 1.25x from
2028 onward, pushing this requirement back by two years. This
waiver avoided a potential mandatory prepayment scenario.
In addition, after the operational setbacks announced at the Talara
refinery in February 2024, and the shutdown of the flexi-coking (a
refining process) unit until July 2024, operations at the refinery
have resumed. The company confirmed that the gradual ramp-up in
volumes processed is on track, and it expects normalized volumes of
about 86,000 barrels of oil equivalent per day by year-end 2024 and
in 2025. This should allow the company to start generating EBITDA
again next year.
S&P said, "We continue to view the likelihood of extraordinary
government support as high. We consider that the recent decree has
had a positive impact on Petroperu's very short-term liquidity,
helping to bridge its needs for 2024. However, this support is
already embedded in our assessment of extraordinary support, and in
line with our expectation that the government will step in to avoid
business disruption and a payment default."
The stable outlook on the company mainly captures the impact of the
new decree, which removes and extends short-term maturities related
to government support, provides new working capital financing, and
involves the government taking over the December 2024 Cesce loan
amortization and interest payments on the international bonds for
the rest of 2024.
The outlook also reflects that the company presented its audited
statements, avoiding a potential event of default. It also
considers that after the setbacks at Talara during the first half
of 2024, the refinery has resumed operating and Petroperu has
confirmed that operations should normalize in the fourth quarter
and stabilize in 2025.
S&P said, "Finally, the outlook also reflects our view that
Petroperu will continue playing an important role in Peru's energy
and infrastructure policy while its link to the government remains
strong. The outlook captures our expectation of a high likelihood
of extraordinary government support, which we expect will remain
instrumental for bridging Petroperu's liquidity needs.
"We could lower the ratings if we were to revise downward our
assessment of the likelihood of government support again, if we
perceive uncertainties about the government's ability to implement
sustainable corrective measures amid persistent vulnerabilities, or
if our uncertainty about Petroperu's effective governance
increases, particularly if there are new setbacks with Talara or
new delays in the timely presentation of audited 2024 accounts.
"We could also downgrade Petroperu if the company were to face an
imminent default in payments, absent any indication of ongoing or
extraordinary support from the government. We currently view this
risk as less immediate based on the support received from the
government decree."
At the current rating level, an upgrade of the sovereign would not
result in a similar action on Petroperu, although an upgrade of
Peru is unlikely given the stable outlook.
S&P said, "However, we could upgrade Petroperu if our view of the
likelihood of extraordinary support increases, for example, if the
company's role to the government -- or link to it -- strengthens,
which we don't envision in the next 12 months.
"Finally, we could revise the stand-alone credit profile (SACP)
upward, and consequently raise the ratings (all else being equal),
if we revise our view of the company's unsustainable capital
structure. This could occur once Talara is fully operational and
the company is able to generate consistent EBITDA, restoring its
normal access to credit and liquidity. Petroperu would also need to
implement a more meaningful and comprehensive solution to its total
debt burden (including government-related debt), resulting in more
manageable debt to EBITDA of 5x-7x, consistently. We think an
upward revision of the SACP in the next 12 months is unlikely."
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
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Information contained herein is obtained from sources believed to
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The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
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