/raid1/www/Hosts/bankrupt/TCRLA_Public/241003.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
Thursday, October 3, 2024, Vol. 25, No. 199
Headlines
A R G E N T I N A
AEROLINEAS ARGENTINAS: Milei to Declare 'Subject to Privatization'
BANCO DE GALICIA: Moody's Rates New Senior Unsecured Notes 'Caa3'
B R A Z I L
AMBIPAR PARTICIPACOES: Fitch Alters Outlook on BB- IDRs to Positive
AVON PRODUCTS: Judge Pauses Deal With Parent Firm
BRAZIL: B3's Market Dominance Faces Challenges Due to Competitors
BRAZIL: Inflation Slows Past All Forecasts as Interest Rate Rises
BRAZIL: Wave of Judicial Reorganization Hits Agribusiness
C O L O M B I A
BANCOLDEX: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
FINDETER: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
J A M A I C A
JAMAICA: Raw Materials Imports Fell 13.5% for January to May 2024
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A R G E N T I N A
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AEROLINEAS ARGENTINAS: Milei to Declare 'Subject to Privatization'
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Buenos Aires Times reports President Javier Milei will sign a
decree to facilitate the privatisation process of flagship state
carrier Aerolineas Argentinas.
The decision was announced by Presidential Spokesperson Manuel
Adorni, who said the decree will speed up the ongoing congressional
debate to declare the state-owned company "subject to
privatization," according to Buenos Aires Times.
The decision came after the Milei administration announced it had
opened negotiations with companies from neighboring countries with
the aim of operating Aerolineas Argentinas' domestic flights, the
report notes.
"The President of the Nation is going to sign a decree declaring
the company Aerolineas Argentinas subject to privatisation, as is
enabled by Article Nine of Law 23696, known as the State Reform
Law," said the official in his daily press conference at the Casa
Rosada, the report relays.
Once the decree is published in the Official Gazette, it will have
to go through Congress to be dealt with, the report notes. That
process is expected to begin as soon as procedures will allow, the
report discloses.
The announcement comes in the middle of a confrontation between
Milei's government and aviation unions, who have been staging
strikes to demand improved pay, the report says.
Union groups reject the proposed sell-off of the state carrier, the
report relates.
"Aerolineas Argentinas has a chronic deficit as a result of the
disastrous management of each and every one of the populist
governments, which causes the need for constant transfers of public
resources that put fiscal sustainability at risk," said Adorni, the
report notes.
"Since its nationalisation in 2008, the contributions of the
national state have exceeded US$8 billion," he added.
The national government is working on the transfer of the airline
to the private sector, a desire Milei announced soon after taking
office last December.
Adorni highlighted that the Argentine state owes more than US$340
million "corresponding to the sentence of the International Centre
for Settlement of Investment Disputes (ICSID), an arbitration
tribunal of the World Bank, due to the litigation initiated by the
Marsans group," the report relays.
The spokesman stated that Aerolineas Argentinas has "a staff of
1,204 pilots for 81 active planes, that is to say, there are almost
15 pilots for each operational plane, an absolutely excessive
number compared to the industry," the report notes.
"If we compare the number of employees per aircraft of Aerolineas
Argentinas with other companies in the region, we can verify its
oversizing. Aerolineas Argentinas SA has an average of 125
employees per aircraft, while [Brazilian low-cost airline] GOL has
97 per aircraft and [Panama airline] Copa has 70," he said, the
report says.
For the La Libertad Avanza administration, the measure "aims for
Aerolineas Argentinas to operate under criteria of commercial
efficiency and to generate an environment of competition on equal
terms, deepening the freedom of markets, without this implying the
loss of national sovereignty," continued Adorni, the report notes.
"The privatisation of the company and its operation under market
conditions will allow for better service provision, care for the
public coffers and, above all, for Argentines to stop financing the
deficit of an inefficient company," he concluded, the report
relays.
Milei initially attempted to include the firm in a long list of
state firms to be sold off in his sweeping 'Ley de Bases' mega
reform, the report notes.
Privatisation is now back on the table following the backing of a
new bill presented by PRO deputy Hernan Lombardi, the report
relays.
Court Blocks Decree
A labour court suspended a decree issued by President Milei on the
grounds that it limits the right of aeronautical workers to strike,
the report says.
The court granted the unions' request for an injunction to suspend
the Executive branch's decree against strikes that have disrupted
hundreds of flights and affected more than 30,000 passengers this
month, the report notes.
The decree declared aeronautical transport an "essential service,"
requiring that at least 50 percent of services be provided in the
event of a strike in the sector, the report discloses.
The labour court ruled that the move went against workers' rights,
which are protected by the Constitution, the report says.
"We will respond to every illegality with greater conviction about
the reasons for our claims," the APLA airline pilots union said in
a statement obtained by the news agency.
Earlier, the government authorised by decree the hiring of foreign
crew and aircraft for domestic flights to counteract trade union
measures, the report relays.
The authorisation will come into effect in 60 days and allows
foreign companies to cover flights within Argentina without
registering their aircraft in the country, the report notes.
The government also initiated talks with private airlines to
transfer operations, Adorni confirmed, the report discloses.
The conflict began months ago over demands to recover wages in the
face of inflation that reached 236 percent year-on-year in August,
the report relays.
Aerolineas' authorities have offered an increase of almost 11
percent, which has been rejected by the workers, the report notes.
The International Federation of Air Line Pilots (IFALPA) expressed
solidarity with the Argentinean aviation unions, the report says.
The state carrier's management "lies, threatens, provokes and
misrepresents data in order to discredit the demands of the
pilots,' it said in a statement," the report adds.
About Aerolineas Argentinas
Headquartered in the Torre Bouchard, located in San Nicolas, Buenos
Aires, Aerolineas Argentinas, formerly Aerolineas Argentinas S.A.,
is Argentina's largest domestic and international airline. It is
the national airline and carries around 70% of Argentina's domestic
traffic and 40% of international flights from Ministro Pistarini
International Airport, which is located in Ezeiza, Buenos Aires.
Aerolineas Argentinas is currently owned in its majority by the
Argentine government, which seized the airline from Spanish tourism
company Grupo Marsans in 2009.
In June 2001, the airline filed for protection from creditors and
went into administration. In 2002, a Buenos Aires judge accepted
its debt restructuring agreement with creditors.
BANCO DE GALICIA: Moody's Rates New Senior Unsecured Notes 'Caa3'
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Moody's Ratings has assigned a Caa3 long-term senior unsecured debt
rating to the proposed USD-denominated notes to be issued by Banco
de Galicia y Buenos Aires S.A.U. (Galicia). It is expected that the
notes will have a principal amount of up to $400 million and a
maturity of up to 4 years, which will be confirmed during the
placement of the securities. The notes will be denominated and
settled in US dollars. The rating outlook on the proposed notes is
stable.
The assigned rating is subject to receipt of final documents, the
terms and conditions of which are not expected to change in any
material way from the draft documents that Moody's have reviewed.
RATINGS RATIONALE
The assigned Caa3 rating is in line with Galicia's existing
foreign-currency long-term senior unsecured MTN program rating,
which is in turn at the same level as the bank's foreign-currency
long-term deposit rating, reflecting the structure of the issuance.
The notes will constitute unsubordinated and unsecured obligations
of Galicia, and will rank pari passu among themselves and with all
other present and future unsecured and unsubordinated obligations
of the bank. In turn, the Caa3 debt rating is at the same level as
Argentina's country ceiling for foreign currency obligations, and
consider the potential currency transfer and convertibility risks
in the country.
The bank's BCA, which is currently at ca, and ratings continue to
be affected by persistently challenging operating conditions for
banks in Argentina, which constrain business prospects and
challenge banks' financial strength. In this context, Galicia's
financial performance has continued to be strong, with sizeable
liquidity buffers, adequate capitalization, contained asset risks
and strong profitability, especially in the first half of 2024. The
bank's creditworthiness continues to be linked to that of the
Government of Argentina, which is currently rated Ca with stable
outlook, which is evidenced by the bank's high exposure to
sovereign fixed income securities, at 33% of total assets as of
June 2024.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Positive rating pressure for Galicia, including the rating of the
proposed debt issuance, would occur if the Argentinean sovereign
rating were upgraded, coupled with an improvement in operating
conditions and provided that the bank's fundamentals remained
stable or improve. In particular, positive rating pressure could
arise for foreign currency debt and deposit ratings if the country
ceiling for foreign currency obligations was increased, which could
arise from an assessment of a lower probability of currency
transfer and convertibility risks affecting the repayment capacity
of financial institutions and companies in Argentina.
A downgrade could be driven by a downgrade of Argentina's sovereign
rating, by further deterioration in the country's operating
environment, or a higher-than-expected deterioration of the bank's
asset quality -either in relation to its loan book or securities
portfolio- which could lead to a material decline in profitability
levels, and thus, capital ratios, reducing their loss-absorption
capacity.
The principal methodology used in this rating was Banks Methodology
published in March 2024.
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B R A Z I L
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AMBIPAR PARTICIPACOES: Fitch Alters Outlook on BB- IDRs to Positive
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Fitch Ratings has affirmed Ambipar Participações e
Empreendimentos S.A.'s (Ambipar) Long-Term Foreign Currency and
Local Currency Issuer Default Ratings (IDRs) at 'BB-'. Fitch has
also affirmed the National Long-Term Rating (NLTR) of Ambipar and
its subsidiaries Emergência Participações S.A. (Emergência) and
Environmental ESG Participações S.A. (Environmental) at
'AA-(bra)'.
Fitch has affirmed Ambipar Lux S.a.r.l.'s senior unsecured green
notes (guaranteed by Ambipar and its rated subsidiaries) at
'BB-'and the NLTR of the senior unsecured debenture issuances at
'AA-(bra)' of Ambipar and its rated subsidiaries. The Rating
Outlook for the corporate ratings was revised to Positive from
Stable.
The Positive Outlook reflects Fitch's expectation that Ambipar will
successfully implement its ongoing deleveraging strategy by
focusing on organic growth, reducing debt, and improving operating
efficiency. Strong performance during the first half of 2024
further supports the company's credit profile and deleveraging
capacity.
Ambipar's ratings reflects its solid position in the environmental
services industry, growth potential, and geographic revenue
diversification. The company benefits from a positive track record
of contract renewals and reasonable margin protection from
contractual cost pass-through mechanisms. The ratings are limited
by high consolidated gross leverage and significant cash flow
consumption by interest.
Key Rating Drivers
Positive Strategy Change: Ambipar has implemented a new strategy to
reduce capital intensiveness, improve its cash cycle, reduce
working capital needs and focus on organic growth. This should
allow the company to gradually achieve its deleveraging goals.
Fitch expects Ambipar to reduce indebtedness by around BRL1 billion
by the end of 2024 after concluding a sale lease back transaction
on part of its fleet and using treasury shares for debt reduction.
Fitch's base case also incorporates a prudent dividend policy with
minimum upstream during the rating horizon.
Strong Business Model: Ambipar's business model includes service
provisions in its two main operating segments: environment (mainly
waste management and recovery) and response (mitigation of
environmental damage from accidents). The environment segment
(where the subsidiary Environmental operates) represents around 50%
of the revenue and benefits from agreements with an average
duration of five years and low contractual exposure to volume
risk.
The response segment (where the subsidiary Emergência operates)
corresponds to around 50% of revenue and is supported by contracts
lasting around three years, which are renewable. Approximately 25%
of this revenue comes from subscriptions, and the remainder is
related to the number of occurrences. The company's current
strategy, focused on organic growth, reduces its exposure to
acquisition execution risks.
Geographic Diversification: Ambipar's international activities are
mainly concentrated in low-risk countries in Latin America, in
addition to North America and Europe, which represent,
respectively, around 15%, 25% and 5% of its revenues. The record of
contract renewals, at above 95%, reflects the reduced competition
with similar geographic coverage and service provision, which gives
the company a competitive advantage. The strategy is to work mainly
with private clients and expand its operations based on
complementary services, under an evolving industry, with low
penetration, high competitiveness and important growth potential.
Moderate Profitability: Fitch expects Ambipar's EBITDA margins to
improve to around 30% compared to 27% presented in 2021-2023, as
the company continues to benefit from gains of scale and capture
synergies from acquired companies in the past. The expenses
associated with the fleet rental should reduce the potential margin
expansion, despite some cost savings (e.g. fleet maintenance).
Approximately 70% of the cost and expense structure is variable and
mostly accounts for personnel, which allows greater flexibility to
adjust and protect margins in scenarios of weak business demand.
Service provision contracts incorporate the pass through of payroll
and other non-manageable costs variations.
Increasing EBITDA: The base scenario considers increases in
Ambipar's EBITDA to BRL1.7 billion in 2024 and BRL1.8 billion in
2025, from BRL1.3 billion in 2023, supported by business expansion
and higher efficiency. Cash flow from operations (CFFO) should
reach around BRL400 million and BRL500 million in the respective
years, still negatively impacted by high interest payments.
Estimated investments range from BRL450 million to BRL500 million
in the two-year period, resulting in negative FCF close to BRL50
million in 2024 and BRL80 million the following year.
High Gross Leverage to Decline: Fitch expects Ambipar to move its
gross debt/EBITDA ratio to more conservative levels. Fitch projects
that gross leverage will be 4.6x at the end of 2024, with around
4.0x or below in 2025 onwards, as the company expands its EBITDA
generation and uses part of its cash to repay debt. Net financial
leverage has been moderate, with Fitch's base case scenario
considering a reduction to less than 3.0x in 2024 with gradual
reduction thereafter. The high volume of debt should result on a
modest interest coverage by EBITDA, below 2.5x until 2027.
Consolidated Approach: Fitch assesses Ambipar and its two
subsidiaries on a consolidated basis due to the high legal ties
between them, such as substantial guarantees and cross-default
clauses in the group's financial obligations. This assessment is in
accordance with Fitch's 'Parent and Subsidiary Linkage Rating
Criteria'. Fitch also considers the strategic and operational
incentives to be high for the holding company to support the two
subsidiaries, if necessary. Both are important to the group's
revenue and EBITDA, with broad growth potential and capturing
synergies. Emergência and Environmental are managed in an
integrated manner.
Derivation Summary
Ambipar's credit profile is weaker than that of Aegea Saneamento e
Participações S.A. (Aegea; BB/Stable). Both operate under
long-term contracts, with relatively stable demand, although
Aegea's business is more resilient. Aegea's EBITDA margins in the
range of 50%-60% are higher than those of Ambipar (around 30%),
although the geographic diversification of Ambipar's operations is
superior, which strengthens its business model.
Ambipar's rating incorporates the expectation of a gradual increase
in its operating cash generation, while Aegea's considers the
important challenge of relevant investments and efficiency
improvements in important recently incorporated assets. Aegea's
financial profile presents moderate leverage due to the expectation
of the company's strong investment cycle and should remain
moderately higher to that of Ambipar throughout the rating horizon.
Aegea's further demonstrated access to the debt market favors its
financial flexibility.
The credit profile of Ambipar favorably compares to Waste Pro USA
Inc (Waste Pro; B+/Stable) given its improved business model with
more diverse geographical footprint and service provision, whereas
Waste Pro is geographically focused on municipal solid waste
collection in U.S. Southeast. Fitch expects both companies to
achieve similar leverage levels.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Include
- Average EBITDA margins close to 30% from 2024 to 2026;
- Average annual investments in the range of BRL460 million to
BRL540 million from 2024 to 2026;
- Dividends of 25% of net income;
- No acquisitions;
- Buyback of BRL47 million in shares and sale of assets of about
BRL700 million in 2024;
- Payment of acquisition obligations of BRL260 million in 2024
through the use of treasury shares (no cash disbursement).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Net Debt/EBITDA below 3.0x and Gross Debt/EBITDA below 4.0x,
sustainably;
- EBITDA margin sustained above 30%;
- Sustainably positive (CFFO-Capex)/Debt indicator.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The Outlook will be revised back to Stable if the sensitivities for
an upgrade are not achieved.
In addition, the following sensitivities would lead to a
downgrade:
- Net Debt/EBITDA above 4.0x and Gross Debt/EBITDA above 5.0x,
sustainably;
- EBITDA interest coverage ratio below 1.5x, sustainably;
- Weakening of liquidity profile with refinancing risks increase;
- Deterioration of profitability with EBITDA margins below 22%.
Liquidity and Debt Structure
Strong Liquidity: Fitch believes that Ambipar will maintain robust
liquidity, with a consolidated cash balance above BRL2.5 billion,
and diversified access to funding sources in the coming years. At
the end of June 2024, the group had a strong cash balance and
equivalents of BRL 3.9 billion, compared to short-term debt of
BRL766 million, and Fitch's expectation of slightly negative FCF in
2024. The agency assumed Ambipar to use part of its liquidity
position along with around BRL700 million in asset sales and BRL260
million in treasury shares to reduce indebtedness.
Ambipar's consolidated total debt, adjusted for acquisition
obligations, was BRL 9.1 billion at the end of June 2024, which
mainly consisted of notes (41%), debentures (30%) and working
capital (19%). The parent company's debt was BRL1.2 billion (mainly
debentures), guaranteed by its subsidiaries.
Issuer Profile
Ambipar primarily provides environmental services in Brazil but
also in the rest of Latin America, the U.S., Canada and the UK. It
operates in two main segments: response (mitigating and preventing
environmental damage from accidents) and environment (managing and
recovering industrial waste from private clients).
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
----------- ------ -----
Ambipar Lux S.a.r.l.
senior unsecured LT BB- Affirmed BB-
Environmental ESG
Participacoes S.A. Natl LT AA-(bra)Affirmed AA-(bra)
senior unsecured Natl LT AA-(bra)Affirmed AA-(bra)
Ambipar Participacoes
e Empreendimentos S.A. LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
Natl LT AA-(bra)Affirmed AA-(bra)
senior unsecured Natl LT AA-(bra)Affirmed AA-(bra)
Emergencia
Participacoes S.A. Natl LT AA-(bra)Affirmed AA-(bra)
senior unsecured Natl LT AA-(bra)Affirmed AA-(bra)
AVON PRODUCTS: Judge Pauses Deal With Parent Firm
-------------------------------------------------
Rick Archer of Law360 Bankruptcy Authority reports that a Delaware
bankruptcy judge told cosmetics giant Avon Products Inc. on
Thursday, September 26, 2024, that it needs to give creditors more
time to investigate its dealings with its Brazilian parent company
before he can approve a proposed settlement of claims against the
parent.
About AIO US and Avon Products
AIO US Inc., Avon Products Inc, and some of its affiliates are
manufacturers and marketers of beauty, fashion, and home products
with operations and customers across the globe.
AIO US sought relief under Chapter 11 of the U.S. Bankruptcy Code
(Bankr. D. Del. Lead Case No. 24-11836) on Aug. 12, 2024. In the
petition filed by Philip J. Gund as chief restructuring officer,
AIO US disclosed $1 billion to $10 billion in assets and debt.
Richards, Layton & Finger, P.A. and Weil, Gotshal & Manges LLP are
counsel to the Debtors. Ankura Consulting Group LLC serves as
restructuring advisor to the Debtors. Rothschild & Co US Inc is
the Debtors' investment banker and financial advisor. Epiq
Corporate Restructuring LLC acts as claims and noticing agent to
the Debtors.
BRAZIL: B3's Market Dominance Faces Challenges Due to Competitors
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Richard Mann at Rio Times Online reports that Goldman Sachs has
warned of potential challenges to B3's monopoly as the Brazilian
stock exchange faces increasing competition in the financial
market. The bank highlights the entry of new players as a
significant risk factor for B3's shares.
B3's stock has already felt the impact of this looming competition,
according to Rio Times Online. The company's shares have dropped
over 20% this year, the report notes.
Several companies are preparing to enter the Brazilian stock
exchange market, the report relays. ATG, a Mubadala subsidiary,
plans to launch an exchange in Rio de Janeiro by late 2025, the
report notes.
CSD BR, backed by Santander Corretora, BTG Pactual, and the Chicago
Stock Exchange, aims to operate as a central counterparty by 2027,
the report discloses.
The central counterparty role is crucial in a stock exchange, the
report says. It ensures liquidity and facilitates thousands of
simultaneous trades, the report notes. CSD BR's move could
significantly impact B3's monopoly structure in this area, the
report says.
B3 currently derives 35% of its revenue from stock operations, the
report relays. Up to 90% of this income relates to asset clearing,
a segment directly affected by a competing central counterparty,
the report notes. This vulnerability adds to the pressure on B3's
market position, the report says.
Goldman Sachs analysts note that B3's shares are already feeling
the pressure, the report discloses. They predict that the
expansion of other platforms may create market inefficiencies, the
report relays.
Different settlement and margin requirements could limit
competition but still pose a significant threat, the report notes.
CSD BR's growth in the fixed income market is particularly
noteworthy, the report relays. The volume of registered assets has
jumped from R$500 billion in 2022 to R$2.5 trillion in September
2023, the report recalls. This rapid expansion underscores CSD
BR's potential as a major challenger to B3, the report notes.
Edivar Queiroz, CSD BR's president, confirms the company's
readiness to compete by 2027, the report notes. He sees clear
opportunities in the Brazilian market for new participants, the
report relays. The exponential growth in trading volume registered
by CSD in recent years supports this view, the report says.
Despite these challenges, Goldman Sachs maintains a neutral
recommendation for B3's shares, the report notes. They acknowledge
that while new players are still years away from full operation,
the expectation of structural market changes is already impacting
B3's stock performance, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
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.
BRAZIL: Inflation Slows Past All Forecasts as Interest Rate Rises
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globalinsolvency.com, citing Bloomberg News, reports that Brazil's
annual inflation slowed much more than expected in early September
despite a hike to utility bills, giving some respite to the central
bank as it raises borrowing costs to tame prices.
Official data released showed prices rose 4.12% from a year
earlier, below all forecasts in a Bloomberg survey of economists
that had a 4.29% median estimate. On the month, they increased
0.13%, 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.
BRAZIL: Wave of Judicial Reorganization Hits Agribusiness
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Richard Mann at Rio Times Online reports that Brazil's agricultural
sector is grappling with a growing crisis as major input
distributors seek judicial reorganization.
AgroGalaxy and Portal Agro, two prominent players, have recently
filed for protection against creditors, signaling deeper issues
within the industry, according to Rio Times Online.
AgroGalaxy initiated the trend on September 18, 2024, disclosing a
liability of R$3.7 billion ($679 million) and US$160 million ($29
million), the report notes.
The company's financial woes stem from plummeting commodity prices,
adverse weather conditions, and restricted credit access, the
report relays.
Major creditors include
-- Vert Companhia Securitizadora, owed R$516.4 million ($94.8
million),
-- Banco do Brasil, owed R$391.2 million ($71.8 million), and
agricultural suppliers like FMC, owed R$163.6 million ($30
million), and
-- Mosaic Fertilizantes, owed R$119.5 million ($21.9 million).
Portal Agro followed suit, reporting debts of R$645 million ($118.3
million), with R$249 million ($45.7 million) in Agribusiness
Receivables Certificates, the report discloses.
The company cited increased input prices and falling commodity
prices, particularly soybeans, as key factors, the report says.
Farmers' inability to honor payments has strained Portal Agro's
finances, the report notes. These high-profile cases reflect a
broader trend in Brazil's agribusiness sector, the report relays.
The first quarter of 2024 saw an 83.9% increase in judicial
reorganization requests from rural landowners compared to 2023, the
report recalls. Mato Grosso led with 53 requests, followed by
Goiás with 16, the report notes.
The crisis stems from complex, interconnected factors, the report
relays. Commodity price volatility, adverse weather conditions,
and rising operational costs have squeezed profit margins, the
report says.
Credit restrictions have compounded these challenges, leaving many
firms vulnerable to market fluctuations, the report discloses.
This situation highlights the need for comprehensive debt
restructuring across the industry, the report notes. Financial
institutions may need to extend debt maturities significantly,
potentially to 5-15 years, the report relays.
Improved risk management strategies, using tools like Serasa
Experian's Agro Score, could help identify potential financial
distress early, the report discloses.
Government intervention may become necessary to support the sector,
the report relays. The crisis could also catalyze industry
consolidation, with stronger companies absorbing struggling ones,
the report notes.
As this situation unfolds, its impact will likely extend beyond
agriculture, the report relays. Brazil's economy relies heavily on
agribusiness, and the sector's health has far-reaching implications
for overall economic stability and growth prospects, the report
adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
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.
===============
C O L O M B I A
===============
BANCOLDEX: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed Banco de Comercio Exterior de Colombia
S.A.'s (Bancoldex) Foreign and Local Currency Long-Term Issuer
Default Ratings (IDRs) at 'BB+'. The Rating Outlook is Stable.
Fitch has also affirmed Bancoldex's National ratings at 'AAA(col)'
and its subsidiary Fiduciaria Colombiana de Comercio Exterior
S.A.'s (Fiducoldex) National Scale ratings at 'AAA(col)'. The
Rating Outlook is Stable.
Key Rating Drivers
Government Support Drives Ratings: Bancoldex's IDRs are driven by
its Government Support Rating (GSR), which is equalized with
Colombia's Long-Term IDR (BB+ /Stable). The ratings reflect Fitch's
assessment of the Colombian government's high propensity and
ability to provide timely support to Bancoldex, if needed. Fitch
also believes Bancoldex plays a prominent policy role, as it is an
integral arm of the state in implementing economic development
policies.
Fitch does not assign a Viability Rating to Bancoldex because its
operations are largely determined by its political role, which
supports its assessment of the likelihood of government support.
State Ownership: Fitch's support assessment considers with high
importance that Bancoldex is a policy bank fully owned by the state
through Grupo Bicentenario, a government holding of the Ministry of
Finance. Although the Colombian government does not explicitly
fully guarantee all of Bancoldex's liabilities, the entity has many
operational and financial synergies with the public administration
which is viewed by Fitch as a factor with high importance.
Policy Bank Role: Bancoldex's ratings consider its high strategic
importance within Colombia for promoting small and medium-sized
enterprises (SMEs) as well as large commercial and corporate
entities, improving competitiveness and fostering foreign trade.
Its primary activity as a development bank is the provision of
wholesale funds and guarantees to commercial banks and other
non-bank financial institutions, as well as direct credit lines to
SMEs and corporates to promote economic growth.
Aligned with the National Development Plan for 2022-2026, Bancoldex
will grant resources to promote the popular economy program,
specifically by offering credits with rediscount lines to the
microfinance segment and SMEs, as well as boost its countercyclical
role.
Development Role Explains Financial Performance: Bancoldex's
financial profile has no direct implications for its ratings. Its
asset quality is aligned with its development bank model. Past due
loans (PDLs) greater than 90 days increased to 3.6% as of June 2024
because of deterioration in the SME direct loan portfolio.
Meanwhile, the asset quality of the second-floor operations
remained relatively stable amid prepayments from financial
institutions. The ratio of operating profit to risk-weighted assets
(RWA) of 2.8% at June 2024 is close to the pre-pandemic level of
2.8% (2018-2019) amid a still higher interest rate environment,
alternative funding lines, cost control and lower impairment
charges.
Bancoldex's capital benefits from stable profit generation, high
reserve levels and low asset impairment which help to offset modest
levels of internal capital generation and a high payout ratio. As
of June 2024, its common equity Tier 1 ratio (CET1) was 25.8%.
Bancoldex has diversified its funding sources through bond
issuances, term deposits and credit lines with local and
international financial institutions. In terms of liquidity, the
bank maintains adequate liabilities coverage by maturity in both
local currency and U.S. dollars, benefitting from its liquid
investment portfolio.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Bancoldex's GSR and IDRs could be downgraded if the sovereign
rating is downgraded;
- Although not a baseline scenario, Bancoldex's ratings could
change if Fitch perceives a decrease in the company's strategic
importance to the government's public policies, such as a shift in
its countercyclical role or supporting commercial companies either
directly or through wholesale loans.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Bancoldex's GSR and IDRs could be upgraded in the event of a
similar action on Colombia's sovereign ratings, absent any change
in Fitch's view of the government's propensity to provide support
to the bank;
- National ratings have no upside potential because they are at the
highest level on the national rating scale.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Fiducoldex's National Ratings reflect the support they would
receive from Bancoldex in case of need, mainly based on Fitch's
opinion of the entity's high strategic role for Bancoldex's
business model and the reputational and franchise implications from
a subsidiary default. Fiducoldex's synergies with its parent and
respective role in executing the group's long-term strategy as well
as alignment with central government are also important factors.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Fiducoldex's ratings will reflect any negative rating action
taken on their main shareholder, Bancoldex, and any change in
Fitch's assessment on the propensity and/or ability of the parent
to provide support.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Fiducoldex's National Scale Ratings are at the highest level on
the national scale and therefore they cannot be upgraded.
Public Ratings with Credit Linkage to other ratings
Bancoldex's ratings are support-driven from the Colombian
government.
Fiducoldex's ratings are support-driven from Bancoldex.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco de Comercio
Exterior de
Colombia S.A. LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Natl LT AAA(col)Affirmed AAA(col)
Natl ST F1+(col)Affirmed F1+(col)
Government Support bb+ Affirmed bb+
Fiduciaria
Colombiana de
Comercio Exterior
S.A. – Fiducoldex Natl LT AAA(col)Affirmed AAA(col)
Natl ST F1+(col)Affirmed F1+(col)
FINDETER: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Financiera de Desarrollo Territorial
S.A.'s (Findeter) Long-Term Foreign and Local Currency Issuer
Default Ratings (IDRs) at 'BB+'. The Rating Outlook is Stable.
Fitch has also affirmed Findeter's National Long-Term Rating at
'AAA(col)'/Outlook Stable.
Key Rating Drivers
Government Support Drives Ratings: Findeter's IDRs are driven by
its Government Support Rating (GSR), which is equalized to
Colombia's Long-Term IDR (BB+/Stable). The ratings reflect Fitch's
assessment of the Colombian government's propensity and ability to
provide timely support to Findeter if needed. Colombia's ability to
support the development bank is reflected in its sovereign rating,
and its propensity to support is reflected in its state ownership
and policy bank role.
The GSR indicates the minimum level to which the entity's Long-Term
IDRs could fall if Fitch does not change its view on potential
sovereign support. Findeter's National Ratings, which are at the
highest level in the ratings scale, are relative rankings of
creditworthiness within Colombia. The ratings are based on
potential sovereign support, if needed.
State Ownership: Fitch's support assessment considers with high
importance that Findeter is fully owned by the state through Grupo
Bicentenario, a government holding of the Ministry of Finance.
Although the Colombian government does not explicitly guarantee all
of Findeter's liabilities, Fitch views its ownership as long term
and strategic.
Policy Bank Role: Findeter's ratings reflect its policy role of
high importance, as the entity is an integral arm of the state,
implementing the economic development policies of the National
Development Plan and financing regional and urban infrastructure.
As a development bank, Findeter primarily structures general
obligation loans to supervised financial institutions and, to a
lesser extent, direct lines generally backed by promissory notes
from infrastructure projects. Aligned with the National Development
Plan for 2022-2026, Findeter will grant direct loans to
community-based organizations and special purpose vehicles
structured for investment projects in eligible sectors. This
further supports Fitch's opinion on Findeter's relevant policy
role.
Development Role Explains Financial Performance: Due to its
wholesale nature and exposure to large, primarily regulated
financial institutions, Findeter has historically sustained low
delinquency rates in its loan portfolio. At June 2024, past due
loans (PDLs) over 30 days totaled 0.1%, consistent with the average
of the past four years. By the same date, the operating profit to
Risk Weighted Assets decreased to 2.7% from 4.5% in December 2023.
Despite a less restrictive monetary policy and subsequent interest
rates cuts in 2024, Findeter defended its net interest margin.
However, losses in foreign currency exchange and a 134.6% increase
in loan impairment charges pressured operating profit.
Strong Capital Ratios and Improved Loan-to-Deposit Metrics: As of
June 2024, the common equity tier 1 (CET1) ratio was 21.1%,
slightly below 22.1% in December 2023, due a 13.3% increase in
RWAs. However, it still compares favorably with local and
international peers. The loans to customer deposits ratio improved
to 131.1%, below the four year average of 151.4%, though it still
exceeds the banking sector average. The bank utilizes longer-tenor
funding to better match its asset and liability structure.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Findeter's GSR and IDRs could be downgraded if the sovereign
rating is downgraded;
- Findeter's GSR, IDRs and National Scale ratings could also be
downgraded if Fitch perceives a decline in the bank's policy role
for the government, such as a shift in its role of transforming the
regions by financing different sectors of the economy. However,
this scenario is unlikely over the medium term.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Findeter's GSR and IDRs could be upgraded in the event of a
similar action on Colombia's sovereign ratings, absent any change
in Fitch's view of the government's propensity to provide support
to this bank;
- National ratings have no upside potential because they are at the
highest level in the national rating scale.
Public Ratings with Credit Linkage to other ratings
The ratings are support-driven. This entity's ratings are linked to
those of the Colombian Sovereign.
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
----------- ------ -----
Financiera de
Desarrollo
Territorial
S.A. – Findeter LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Natl LT AAA(col)Affirmed AAA(col)
Natl ST F1+(col)Affirmed F1+(col)
Government Support bb+ Affirmed bb+
=============
J A M A I C A
=============
JAMAICA: Raw Materials Imports Fell 13.5% for January to May 2024
-----------------------------------------------------------------
Javaughn Keyes at RJR News reports that Jamaica spent 13.5 per cent
less on imports in the "Raw Materials/Intermediate Goods" category
for January to May 2024 compared with the similar period last
year.
The Statistical Institute of Jamaica (STATIN) said these imports
amounted to US$856.6 million, as against the US$990.3 million
recorded for January to May 2023, according to RJR News.
The value of 'Industrial Supplies' imported decreased by 15.8 per
cent to US$441.1 million, the report notes.
The national statistics agency says this was due mainly to lower
imports of "feeding stuff for animals" (not including unmilled
cereals) and electrical machinery, apparatus and appliances, the
report relays.
There was a 20 per cent decline in the value of 'Construction
Materials', coming in at US$207.8 million, the report notes.
For the corresponding period last year, those imports were valued
at US$260 million, the report says.
This was largely a result of reduced imports of iron and steel for
construction, along with non-metallic mineral items, the report
adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea. Jamaica
is an upper-middle income country with an economy heavily dependent
on tourism. Other major sectors of the Jamaican economy include
agriculture, mining, manufacturing, petroleum refining, financial
and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. In September 2023, S&P
Global Ratings raised its long-term foreign and local currency
sovereign credit ratings on Jamaica to 'BB-' from 'B+', and
affirmed its short-term foreign and local currency sovereign credit
ratings at 'B', with a stable outlook. In September 2024, S&P
affirmed 'BB-/B' sovereign ratings on Jamaica and revised outlook
to positive. In March 2022, Fitch Ratings affirmed Jamaica's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'.
The Rating Outlook is Stable.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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