/raid1/www/Hosts/bankrupt/TCRLA_Public/241009.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, October 9, 2024, Vol. 25, No. 203
Headlines
A R G E N T I N A
ARGENTINA: Nearly 1MM Are Poor or Destitute in Buenos Aires City
CICCONE CALCOGRAFICA: Government Shutters Company
B R A Z I L
BRAZIL: Rate Hikes & Currency Woes Force a Corporate Reckoning
FS INDUSTRIA: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
OI SA: Fitch Hikes Foreign & Local Currency LongTerm IDRs to 'CCC-'
PRIO SA: Fitch Alters Outlook on 'BB' LongTerm IDRs to Positive
C A Y M A N I S L A N D S
AIRNET TECH: Reports $19.9-Mil. Net Income in H1 2024
OTEL SUKUK: Fitch Affirms 'BB+' Rating on USD500MM Certs Due 2031
C O L O M B I A
COLOMBIA: Cuts Key Interest Rate to a Two-Year Low of 10.25%
J A M A I C A
JAMAICA: Agriculture Industry Earned Less From Exports for Jan-May
JAMAICA: Promises Major Improvements to Tax Offices
M E X I C O
BANORTE: S&P Withdraws 'BB-' Rating on $600MM Hybrid Notes
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Continued Deficits Could Crash Economy
- - - - -
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A R G E N T I N A
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ARGENTINA: Nearly 1MM Are Poor or Destitute in Buenos Aires City
----------------------------------------------------------------
Buenos Aires Times reports that the IDECBA Buenos Aires City
Statistics and Census Institute has revealed that there are 989,000
poor people in the nation's capital, out of which 417,000 are
destitute.
The data can be found in a report entitled "Living Conditions in
Buenos Aires City" and it applies to the second quarter of 2024,
according to Buenos Aires Times. The findings imply there are
159,000 new poor people compared to the same period last year, the
report notes.
Nevertheless, that figure has decreased with respect to the first
quarter of the year, with 54,000 people improving their condition,
the report relays.
Poverty affected 26.4 percent of households (358,000) and 32.1
percent of people (989,000) in the capital, the report discloses.
"The impact on the population is the second highest in the
historical series started in 2015 for a second quarter, only
exceeded by the 2020 data, during lockdown," reads the report,
Buenos Aires Times says.
Destitution, in turn, reached 9.2 percent of homes (125,000) and
13.5 percent of people (417,000), "also one of the highest
incidences together with those at the start of the pandemic," the
study disclosed, Buenos Aires Times notes.
In this context, it indicated that "within the entirety of
households and people and people living in poverty, the weight of
those in an extreme condition (destitution) has increased, now
accounting for 34.8 percent of underprivileged homes and 42.1
percent of people in that condition," the report discloses.
As for the impact of this scourge on minors, the assessment by the
City body showed that "45.4 percent of children and teenagers (aged
0-17) live in poor homes (304,000 people in that age group)", which
entails a rise from the data one year ago, when it reached 39.6
percent, the report notes.
Among the sectors most affected by poverty are households headed by
women (where the incidence of poverty is 31.0 percent, as against
21.5 percent in homes with a male head), those with an unemployed
person (2.6 times higher than the incidence of the total), or by
one working in domestic service (61.1 percent), the report relays.
It also affects homes located in the South of the City (42.4
percent) and those with children under 14 (39.9 percent), the
latter with growing incidences of poverty and destitution with the
number of children in the household. Homes with an adult living in
poverty account for 26.4 percent, a value similar to that of the
entire population, the report says.
In relation to the economic sustenance of Buenos Aires City
families, the report specified that "the family income per capita
of homes in a destitution condition is 76,510 pesos and in poor
homes is 203,506 pesos", and thus it calculated that "on average,
it may be required to transfer 283,071 pesos to every poor home for
them to leave that condition", specifying that "that income gap
accounts, on average, for 39.5 percent of the total food basket,"
the report relays.
At the same time, the analysis revealed that "in opposition to the
increase in the weight of strata living in poverty, the weight of
non-poor strata is reduced, always year-to-year", while "within
this set, the participation of the middle sector and affluent
sectors is reduced," the report notes.
In this respect, it added that "middle sectors associated with 'the
middle class' account for the highest category: 44.2 percent of
households in Buenos Aires City and 39.6 percent of the population
(some 598,000 homes and 1,221,000 people respectively) and its
participation dropped by 5.2 percentage points in homes and 5.5
points in the population over the last year", noting that "these
incidences, together with those of the previous quarter, are the
lowest in the historical series started in 2015," the report
notes.
Affluent sectors, in turn, have also fallen, since "the percentage
of households is 6.1 percent and that of people 5.3 percent and
reaches 82,000 homes and 163,000 people", dropping from 8.3 percent
and 5.7 percent respectively. On this point, the work indicates
that "the year-to-year decrease also makes current figures the
lowest in the series," 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.
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.
CICCONE CALCOGRAFICA: Government Shutters Company
-------------------------------------------------
Buenos Aires Times reports that Argentina's government disclosed
the dissolution of the former Ciccone Calcografica printing company
and the restructuring of the National Mint.
The announcement was made by Presidential Spokesperson Manuel
Adorni, who defined the Mint as "a state printing press with severe
inefficiencies, which is entrusted with printing banknotes,
passports, car licences and stamps," according to Buenos Aires
Times.
"The national government will advance with the dissolution of the
Compañía de Valores Sudamericana [print and publishing house, or
ex-Ciccone Calcografica, as it is popularly known], remembered for
surely one of the biggest corruption cases in recent decades,"
communicated the spokesman at his daily press conference, the
report notes.
According to Adorni, "the previous bad administration implied funds
being squandered with debts today reaching US$371 million, negative
assets of US$78 million and gross negative annual earnings of
US$20.5 million," the report relays.
"It should be highlighted that due to the refusal of Kirchnerism to
print banknotes of higher value from the year 2020 onward, US$4.7
billion were spent importing banknotes when it is the Mint which
should have been supplying Argentina with those banknotes," he
rounded out, the report notes.
The ex-Ciccone was lined up to print paper money and other official
state documents. For his manoeuvre in acquiring it via The Old
Firm, former Kirchnerite vice-president Amado Boudou was sentenced
to 70 months imprisonment in 2018 for fraud and negotiations
incompatible with public office, the report discloses.
In the spokesman's view, the company is "a delirium which
faithfully represents the administration of [Sergio] Massa,
[Alberto] Fernandez and Instituto Patria president Cristina
Kirchner," further detailing that during the Union por la Patria
administration 211 employees were contracted, bringing the total up
to 1,300 employees, the report relays.
He also questioned the 'La Monedita' kindergarten as spending an
average of 1.2 million pesos per child, the report notes.
"They employed 31 people for 60 children, practically one person
contracted for every two kids. Furthermore, they had a medical
service with eight employees when there had been only two four
years previously, spending US$370,000 annually," he expounded, the
report says.
Adorni maintained: "In an Argentina which no longer prints
banknotes to finance its politics there is little point in
continuing with this absolute squandering to maintain a structure
at the service of fiscal degenerates," concluding: "The
restructuring of the Mint is the last nail in the coffin of
inflation," 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.
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.
===========
B R A Z I L
===========
BRAZIL: Rate Hikes & Currency Woes Force a Corporate Reckoning
--------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that
executives in Latin America's largest economy are redrawing plans,
reprofiling debt and holding back investment as interest rates
climb and the currency remains under pressure.
While companies the world over have been contending with higher
borrowing costs, Brazilian firms have had an especially tough
burden, hit with some of the steepest rates in the world after
surviving the pandemic with little government aid, according to
globalinsolvency.com.
Now rates are going up again after a respite of just over a year,
the report notes.
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.
FS INDUSTRIA: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed FS Industria de Biocombustiveis Ltda's
(FS) Long-Term Local and Foreign Currency Issuer Default Ratings
(IDR) at 'BB-', and Long-Term National Scale rating at 'AA-(bra)'.
The Rating Outlook for the corporate ratings is Stable. Fitch has
also affirmed at 'BB-' the 2025 senior secured notes and 2031
senior unsecured notes issued by fully-owned FS Luxembourg S.a r.l
guaranteed by FS.
The ratings incorporate FS' large scale production in the volatile
Brazilian ethanol industry. The high volatility of Brazil's corn
and ethanol prices and the lack of meaningful short-term price
correlation between them are key considerations. FS is exposed to
Petrobras' commercial strategy for fuels in Brazil, which may curb
ethanol prices.
The ratings incorporate an expected operating margin recovery in
fiscal year 2025, following a sharp drop in fiscal year 2024 due to
high fixed corn prices and weak ethanol prices. The analysis also
considers FS's ability to maintain satisfactory financial
flexibility and the expectation that net leverage will decrease to
around 3.0x in fiscal year 2025, down from a peak of around 9.5x in
fiscal 2024 due to weak EBITDA generation and investments in the
third industrial plant. This improvement is crucial to prevent
negative rating actions, as there is no headroom for its leverage
sensitivity.
Key Rating Drivers
High Price Volatility: FS faces price volatility for both corn, its
main raw material, and ethanol, its main output. Corn prices adjust
rapidly to global supply and demand imbalances and generally align
with Chicago Board of Trade (CBOT) corn prices over time. Brazilian
ethanol prices largely depend on local gasoline prices set by
Petrobras, which fluctuate with Brent crude prices, the Brazilian
FX rate, and other factors. Additionally, ethanol prices are
indirectly influenced by sugar prices, as approximately 80% of
local ethanol production comes from sugar. Sugar cane processors
typically shift portion between sugar and ethanol based on current
price parity.
Weaker Corn and Ethanol Prices Correlation: Corn prices in Brazil
declined in 2023, following trends and a record-high Brazilian
winter crop. However, corn ethanol players will benefit from this
cheaper corn in fiscal 2025, as they are still processing high-cost
corn inventory in fiscal 2024 due to previously fixed prices. Fitch
projects international corn prices at USD4.50 per bushel in 2024
and USD4.25 per bushel in 2025.
Hydrous ethanol is currently trading around BRL2.44/liter
(CEPEA/ESALQ as of September 2024), which is 11% higher than one
year ago. Fitch's base case estimates average hydrous ethanol
prices at BRL2.40/liter for FYE 2025. Additionally, Fitch projects
average Brent prices at USD80/bbl in 2024 and USD70/bbl in 2025.
Large Ethanol Producer: FS benefits from a sizable production
capacity of approximately 2.3 billion liters of ethanol and a
robust corn supply from neighboring areas, allowing for price
discounts relative to CBOT. Additionally, animal nutrition products
provide a partial hedge, as their prices strongly correlate with
regional corn and soybeans prices. Fitch expects revenues from
these products to cover 44% of feedstock costs in the long term,
compared to 34% in fiscal 2024.
The company's industrial plants are in Mato Grosso, Brazil's
largest corn producing state, which mitigates corn origination
risks. Fitch projects that FS will procure corn at an average of
BRL40/bag in the current and next crop seasons, supporting
healthier margins.
Operating Cash Flow to Recover: Fitch expects EBITDA of BRL2.7
billion and cash flow from operations (CFFO) of BRL960 million in
FYE 2025. This marks a significant recovery from the weak EBITDA of
BRL846 million and negative CFFO of BRL128 million in FYE 2024.
Higher ethanol prices and lower corn prices should quickly restore
the EBITDA margin to 29%, after it dropped to 10% in FYE 2024,
aligning more closely with previous years. Fitch projects projected
positive FCF from FYE 2025 onward, as expansionary investments
conclude. The base case assumes no dividends in FYE 2025 and
dividends of BRL141 million in FYE 2026.
Net Leverage Around 3.0x in FYE 2025: Fitch projects that net
leverage will significantly decrease to about 3.0x in fiscal 2025,
driven by higher volumes from the new plant in Primavera do Leste
and increased EBITDA margins due to lower corn costs. This
improvement is crucial to prevent negative rating actions, as there
is no headroom for leverage sensitivity after the peak 9.5x in
fiscal 2024. During fiscal 2024, net debt increased by BRL1.8
billion, reaching BRL8.0 billion in March 2024. The expectation is
to reduce this to about BRL7.3 billion by March 2026.
Derivation Summary
FS's IDR's are four notches lower than Raizen S.A. and Raizen
Energia S.A. (collectively referred to as Raizen; BBB/Stable). This
gap reflects FS's smaller scale, higher exposure to commodity price
risk compared with sugar cane processors, and weaker liquidity and
more leveraged capital structure. Unlike FS, sugar cane processors
benefit from a market pricing mechanism that links sugar cane costs
to commodity prices.
FS's BB-/Stable IDR matches that of Ingenio Magdalena (IMSA,
BB-/Stable). While IMSA enjoys a more stable cash flow profile, FS
faces greater exposure to commodity price fluctuations in both raw
materials and product prices. However, IMSA has tight liquidity,
smaller scale in terms of revenues and EBITDA, and less financial
flexibility.
FS's National Scale Rating AA-(bra)/Stable Outlook is one notch
below LD Celulose S.A, (LDC; AA(bra)/Stable). LDC benefits from
strong operating performance, stable EBITDA margins, and a
competitive cost structure, which supports its capacity to generate
positive FCF within the rating horizon. However, LDC's ratings also
consider its limited scale and diversification, with only one
dissolving wood pulp mill in Brazil and exposure to a single
counterparty risk, as Lenzing AG is the sole off-taker.
Key Assumptions
- Ethanol production capacity of 2.3 billion liters in fiscal 2025
and 2026;
- Sales of animal nutrition products of over 2.0 million tons in
fiscal 2025 and 2026;
- Ethanol prices to vary in tandem with a combination of oil prices
and the FX rate. Brent crude prices have been forecast to average
USD80bbl in fiscal 2025 and USD70/bbl in fiscal 2026;
- Average FX rate at BRL5.40/USD in fiscal 2024 and BRL5.30/USD in
2025;
- Corn prices at BRL40/bag in fiscal 2025 and 2026;
- Animal nutrition products providing around 44% coverage for total
corn costs;
- Total investments of BRL512 million in fiscal 2025 and BRL342
million in fiscal 2026;
- No dividends in fiscal 2025 and BRL141 million in fiscal 2026.
RATING SENSITIVITIES
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
- Longer track record in different cycles of ethanol and corn
prices;
- FCF consistently positive, with the maintenance of net
debt/EBITDA below 1.5x through the cycle.
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
- Deterioration in liquidity and/or difficulties refinancing
short-term debt;
- EBITDA margins below 20% on a sustained basis;
- Net debt/EBITDA above 3.0x on a sustained basis.
Liquidity and Debt Structure
Satisfactory Liquidity: FS has satisfactory liquidity and financial
flexibility. As of June 30, 2024, the company reported cash and
marketable securities of BRL3.8 billion and total debt of BRL11.5
billion, including reverse factoring transactions and net FX and
IRS derivatives. Excluding reverse factoring and derivatives, the
company has BRL1.3 billion of debt maturing until June 2025 and
BRL1.5 billion from July 2025 to June 2026.
FS has satisfactory financial flexibility to address upcoming
maturities and diversified access to funding, banks and capital
markets. Readily marketable inventories (around BRL 1.1 billion in
corn) and offtake contracts with large fuel distributors improve
financial flexibility; inventories can be easily monetized and
accounts receivables can be used as collateral under new credit
facilities, if required.
Issuer Profile
FS produces corn-based hydrous and anhydrous ethanol, dried
distillers' grains with Solubles for animal nutrition, corn oil and
energy from cogeneration. The company runs three plants in the
State of Mato Grosso with total capacity to crush 5.1 million tons
of corn and produce 2.3 billion liters of ethanol annually.
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
----------- ------ -----
FS Industria de
Biocombustiveis Ltda. LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
Natl LT AA-(bra)Affirmed AA-(bra)
FS Luxembourg
S.a r.l.
senior unsecured LT BB- Affirmed BB-
senior secured LT BB- Affirmed BB-
OI SA: Fitch Hikes Foreign & Local Currency LongTerm IDRs to 'CCC-'
-------------------------------------------------------------------
Fitch Ratings has upgraded Oi S.A.'s Foreign and Local Currency
Long-Term Issuer Default Rating (IDR) to 'CCC-' from 'D' and its
correspondent National Long-Term rating to 'CCC-(bra)' from
'D(bra)', following the completion of a debt exchange under the
company's bankruptcy protection. Fitch has also assigned ratings of
'CCC-'/'RR4' for the new super senior secured notes (New Money) of
USD600 million due June 2027 and 'CCC-'/'RR4' for the secured debt
notes (roll up debt that is subordinated in lien to the June 2027)
of USD1.3 billion due December 2028.
Oi's ratings were upgraded following the Aug. 8 debt restructuring,
which extended maturities, secured new credit lines, and agreed on
the use of divestment proceeds. The pro forma face value debt is
estimated at BRL34.3 billion, with BRL50 million expiring in 2026,
BRL4.2 billion in 2027, and BRL5 billion in 2028. The non-cash sale
of Oi's ClientCo to V.tal - Rede Neutra de Telecomunicacoes S.A.
(V.tal) on Sept. 25 for BRL5.68 billion (USD1 billion) is deemed
positive by Fitch, likely to be approved by year end.
Oi's ratings reflect operational challenges in achieving positive
EBITDA and reducing cash burn amid intense IT and Telecom Solutions
competition for B2B clients. They also consider difficulties in
asset sales at expected prices and using proceeds to reduce debt
and take-or-pay obligations.
Oi's ratings reflect weak financial flexibility, an unsustainable
capital structure, and expected negative free cash flow for the
next three years. The mid-2025 shift to authorization should
provide cash relief by exempting the carrier from onerous
fixed-line obligations. A favorable outcome from arbitration with
the Brazilian telecom regulator Agencia Nacional de
Telecomunicacoes (ANATEL) could further accelerate deleveraging.
The agency has withdrawn the ratings of the senior unsecured notes
due July 2025 as they were fully converted into new debt and the
senior secured notes due July 2026 as they are no longer considered
relevant for Fitch given their net outstanding amount of USD9
million.
Key Rating Drivers
Debt Restructured: Fitch views Oi's recent debt restructuring as
positive. On Aug. 8, Oi completed the debt restructuring process
under bankruptcy protection, significantly reducing its short-term
debt from BRL4.6 billion in December 2023 to nearly zero in August
2024. The next significant debt maturities are of BRL4.2 billion in
June 2027, BRL5 billion in 2028 and BRL2.5 billion in 2030,
guaranteed by proceeds from the ongoing sale of ClientCo and the
expected sale of the stake in V.tal in 2026. The remaining BRL22
billion debt (or 64%) is unsecured and expires as of 2038, with PIK
coupons on most of the local currency debt and zero interest in the
BRL12 billion U.S. dollar obligations, reducing refinancing risks.
Oi issued a new debenture of BRL903 million (BRL760 million net of
costs), acquired by V.tal. This debenture is pari passu with the
DIP loan of approximately USD600 million that was converted in the
2027 bond. Oi reduced the fair value of its debt to BRL10 billion
in August from BRL25 billion in December 2023. After Oi redeems all
secured debt in December 2028, the company will be able to prepay
approximately BRL16.3 billion debt with discounts of 85%-90%. On
Aug. 21, BRL1.4 billion of debt was converted into equity.
Cash Burn Continues: Fitch expects Oi to continue burning cash from
2024 until 2026, primarily due to negative EBITDA caused by the
legacy fixed-line business. Fitch projects annual negative EBITDAs
and CFOs of approximately BRL1 billion in 2024 and 2025. Coupled
with an annual BRL400 million capex, this will result in negative
FCFs of BRL1.4 billion per year.
These cash losses are expected to be covered by Oi's current
liquidity position, estimated at BRL2.7 billion, and to a lesser
extent by proceeds from its asset sale program. Oi is expected to
experience a cash relief once it transitions to the authorization
regime as of mid-2025.
Divestments Crucial for Debt Reduction: Oi's asset sale program is
crucial for overall debt reduction. The carrier is in the process
of selling the ClientCo, which has 4 million connected homes, and
has agreed with creditors to sell its stake in V.tal, estimated at
BRL13.5 billion, in early 2026. Proceeds will be used to reduce
debt according to the waterfall seniority.
The sale of 7,900 properties, estimated at BRL5 billion, will be
primarily used to pay down take-or-pay commitments with suppliers.
Any remaining funds can be used to amortize debt. Oi failed to sell
the ClientCo in the first round for the minimum BRL7.3 billion, but
received an offer in the second round from V.tal. This offer
includes BRL5 billion in V.tal shares, BRL308 million in debt
forgiveness and BRL375 million canceling by V.tal's credits.
Positive Shift to Authorization: Fitch views Oi's transition to
authorization from concession in mid-2025 as very positive for its
credit profile. Oi has agreed with the regulator ANATEL on the
terms to exit the onerous fixed-line copper-based concession
regime. By operating under the less stringent regulation of an
authorization, the company will substantially reduce fixed costs
and accelerate real estate sales.
V.tal has agreed to fund BRL5 billion of Oi's capex obligations
signed with the regulator. The Brazilian Court of Accounts (TCU)
has also approved the terms, and the Federal Attorney's Office
(AGU) has scheduled the appraisal for Sept. 30.
Arbitrage with ANATEL: Oi has initiated an arbitrage process with
ANATEL, seeking BRL60 billion in compensation on the obligations to
invest and maintain unprofitable and obsolete services throughout
the concession's lifetime. According to the waterfall of
obligations, any proceeds from the arbitration would first be used
to pay down BRL8.4 billion in fines with ANATEL. Second, V.tal
would be reimbursed for the capex obligations advanced to Oi and,
last, any remaining funds would be equally split between Oi and
V.tal.
Next Steps: Fitch sees the upcoming assets sale and transition to
authorization as critical for Oi's turnaround. The transition to
authorization from the concession regime in mid-2025 is expected to
reduce the fixed-line obligations and provide cash relief. This
change will also allow Oi to accelerate the sale of real estate
assets currently considered reversible to the concession. The sale
of Oi's stake in V.tal, anticipated for early 2026, will be key to
reducing secured debt.
Oi's Post Restructuring: Fitch believes Oi will exit the
restructuring process as a much smaller entity with annual revenue
between BRL1.5 billion and BRL2 billion, concentrated in IT and
telecom solutions for corporate and governmental clients (B2B).
Margins for these services range from 15% to 20%, leading to EBITDA
of BRL225 million to BRL400 million per year.
Assuming Oi successfully sells its stake in V.tal and its real
estate at the asking prices, total debt could decline to BRL7
billion-8 billion, maturing as of 2038. This debt would have PIK
coupons for local currency obligation and zero interests for
foreign currency obligations.
Derivation Summary
Oi's 'CCC-' IDR reflects the company's very low margin of safety
due to significant challenges in recovering operations, improving
EBITDA generation, and reducing leverage to more sustainable
levels. Meanwhile, the substantial reduction of total debt is
contingent on the success of the asset sale program.
Key Assumptions
- Net revenue of BRL8.4 billion in 2024 and BRL3.4 billion in
2025;
- Negative EBITDA of BRL1.7 billion in 2024 and BRL625 million in
2025;
- Change to authorization from concession in mid-2025;
- Sale of ClientCo in early 2025;
- Sale of V.tal in 2026 and use of proceeds to reduce debt;
- BRL1.4 billion capital increase in August 2024;
- Oi Solutions, as the surviving entity, with BRL1.7 billion in
revenue and 18% EBITDA margins as of 2026;
- Capex of BRL500 million in 2024 and BRL264 million in 2025;
- No dividends in the foreseeable future.
Recovery Analysis
Fitch is using the liquidation value approach to estimate the
Recovery Ratings (RR) of Oi's 2027 and 2028 senior and subordinated
secured bonds, respectively. The company has sold its mobile
operations, towers, data centers and its fiber network in recent
years to reduce the debt burden.
The divestment program continues with ClientCo in the process of
being sold for approximately BRL5.7 billion in late 2024 or early
2025, and the stake in V.tal valued at BRL13.5 billion in early
2026. Despite good recovery value, assuming Oi manages to sell
shares of V.tal at asked prices, the recovery ratings are capped at
'RR4' as most of the revenue is generated in Brazil.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Sustainable improvement in cash flow generation and overall debt
reduction ahead of Fitch's expectations.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Failure to reduce the cash burn;
- Failure to sell assets at expected prices and reduce debt;
- The beginning of a default or default-like process, such as
entering into a cure period or standstill.
Liquidity and Debt Structure
Weak Financial Flexibility: Oi's financial flexibility is expected
to remain weak over the next two to three years, despite the
conclusion of the debt restructuring that has pushed maturities to
2027, 2028 and beyond. Access to new long-term credit lines is
restricted and will depend on the company's ability to divest its
assets at the expected prices, use proceeds to reduce debt and turn
around operations.
Oi's pro forma debt of BRL34.3 billion mainly consists of BRL4.2
billion super senior secured debt and BRL7.5 billion of
subordinated secured notes. The remaining BRL22.5 billion is senior
unsecured debt that has either PIK components in local currency or
zero interest on U.S. dollar obligations. Approximately BRL16.3
billion in unsecured debt can be prepaid at discounts of 85%-90%
after all secured debt has been redeemed.
Issuer Profile
Oi provides broadband to more than 4 million households and other
digital solutions to corporate customers, using its own copper
telecommunications infrastructure and an affiliate fiber-optic
network. The company is in the process of selling its broadband
ClientCo and will focus on IT and telecom service for B2B 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
Fitch has improved Oi's ESG Relevance Score for Financial
Transparency to '3' from '4'. The complexity of the financial and
operational restructuring that weighed on the overall assessment of
transparency has materially declined with the debt restructuring.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Oi S.A. LT IDR CCC- Upgrade D
LC LT IDR CCC- Upgrade D
Natl T CCC-(bra)Upgrade D(bra)
senior
unsecured LT WD Withdrawn C
senior
secured LT WD Withdrawn C
senior
secured LT CCC- New Rating RR4
PRIO SA: Fitch Alters Outlook on 'BB' LongTerm IDRs to Positive
---------------------------------------------------------------
Fitch Ratings has affirmed PRIO S.A.'s (PRIO) Long-Term Local and
Foreign Currency Issuer Default Ratings (IDRs) as well as PRIO
Luxembourg Holding S.a.r.l.'s (PRIO Lux) Foreign Currency IDR and
its USD600 million secured notes at 'BB'. The Rating Outlook for
the corporate ratings was revised to Positive from Stable. Fitch
has also placed the Long-Term National Scale ratings of PRIO, Petro
Rio Jaguar Petroleo S.A. (Petro Rio Jaguar) and Petro Rio Jaguar's
second and third debenture issues on Rating Watch Positive.
The Positive Outlook for the IDRs reflects the expectation that
PRIO will scale up its operations in the short term while
preserving its strong financial profile, robust reserve base and
high efficiency. The expansion should come from the acquisition of
Sinochem Petroleum Netherlands Coöperatief U.A. (Sinochem) and the
execution of its development plans in Wahoo and Albacora Leste.
The Positive Watch for the National Scale ratings reflects Fitch's
view that the acquisition alone would strengthen PRIO's operational
profile to levels compatible with 'AAA(bra)'. The upgrade of the
National Scale ratings should occur after the company concludes the
acquisition.
Key Rating Drivers
Acquisition is Positive: If successful, the Sinochem acquisition,
which brings Peregrino field to the portfolio, will increase PRIO's
proven reserves (1P) to 740 million boe (+18%) and 1P production to
120 kboe/d (+42%). In Fitch's view, the higher scale and the
maintenance of a strong balance sheet more than compensate for the
marginal negative impact on efficiency. PRIO's overall discount to
Brent should increase to USD5.4/boe, from USD3.0/boe, reflecting
Peregrino's lower quality oil, while its lifting cost should
slightly increase.
Nevertheless, PRIO should remain among the world's most efficient
independent producers, generating FFO close to USD37/boe produced.
Sinochem holds a 40% interest in the Peregrino field, located in
the Campos Basin. Equinor, which holds the remaining 60%, will
continue to operate the asset. The acquisition reduces operating
risks through greater asset diversification and better positions
PRIO to develop growth opportunities.
Uncertainties in Production Growth: Production levels considered in
Fitch's base-case scenario depend on PRIO obtaining licenses for
drilling in Wahoo and launching the pipelines to connect its
production to Frade's FPSO and environmental approvals for
workovers in Frade and Tubarao Martelo fields. Fitch projects
PRIO's production to reach 86 kboe/d in 2024 and 163 kboe/d in
2025, peaking at 175 kboe/d in 2026. All four wells of Wahoo should
be operational by the end of 2025, adding around 27 kboe/d in 2025
and 40 kboe/d in 2026.
The Wahoo startup in 2025 and the strong growth from Albacora Leste
should more than offset the depletion of the other fields. PRIO's
track record mitigates the increasing execution risks as the
company advances on ultradeep waters in Albacora Leste, which
contributes more than 30% of the output estimated through 2028.
Nearly 40% of the production should come from the Frade-Wahoo
cluster.
Strong Financial Profile: Fitch projects EBITDA of BRL9.4 billion
in 2024 (or BRL12.1 billion on a pro forma basis) and BRL14.9
billion in 2025, based on average Brent prices of USD80/bbl and
USD70/bbl, respectively. Assuming the payment of USD1.7 billion
before the end of 2024 for the acquisition, net leverage should
increase to 1.6x this year (or 1.1x on a pro forma basis) and
decline to 0.6x in 2025. Gross leverage is estimated at 1.7x in
2024 and 0.9x in 2025, incorporating debt derivatives and M&A
payables due to Petrobras.
Peregrino is well developed and should add marginal incremental
capex, although it offers lower growth potential compared to
previous acquisitions. Projections consider both investments and
dividends averaging BRL3.1 billion per year in 2024-2026 with
positive free cash flow (FCF) from 2025 on. Fitch expects that
around 70% of EBITDA will translate into cash flow from operations
(CFFO) over 2024-2026, on average.
High Efficiency: PRIO's competitive cost structure makes it
resilient to price volatility, while the robust reserve base and
ownership of core equipment add flexibility to adjust capex
according to market cycles. Despite a small increase after the
acquisition, PRIO's lifting cost should continue to stand out among
its peers in Latin America and the U.S., reflecting its expertise
as an operator and its asset concentration in the Campos Basin.
Fitch projects lifting costs of USD8.8/boe in 2024, up from
USD7.4/boe in 2023, then declining to USD7.9/boe in 2025 and
USD6.9/boe in 2026.
The higher cost in 2024 reflects production interruptions caused by
delays in environmental approvals, especially the shutdown of one
well in Frade and the stoppage of three wells in the Polvo and
Tubarao Martelo cluster, and also incorporates a negative impact
from Peregrino. The Wahoo-Frade tieback and Albacora Leste's
ramp-up should increase efficiency in the coming years. PRIO's
strategy of selling directly to final customers reduces the overall
discounts but may add some price volatility arising from logistic
risks.
Equalized Ratings: Fitch equalizes the ratings of Petro Rio Jaguar
and PRIO Lux's with that of PRIO, given the guarantees provided by
the parent company to all or most of the debts issued by these
subsidiaries, according to Fitch's "Parent and Subsidiary Linkage
Rating Criteria." Petro Rio Jaguar is also the main subsidiary,
accounting for almost 90% of total production estimated through
2028. It concentrates the working interests in Albacora Leste,
Frade and Wahoo, the group's largest concessions.
Derivation Summary
PRIO's high profitability is a key differentiation factor relative
to its Brazilian peer 3R Petroleum Oleo e Gas S.A. (Brava, IDR
BB-/Outlook Stable) and to North American oil-weighted producers in
the onshore Permian basin (Texas/New Mexico), such as Matador
Resources Company (Matador; IDR BB-/Outlook Positive), SM Energy
Company, L.P. (SM; IDR BB-/Watch Positive) and Vermilion Energy
Inc. (Vermillion; IDR BB-/Outlook Stable).
Brava and Vermillion have similar production scales, with 1P
production averaging close to 95 kboe/d and 85 kboe/d,
respectively, over 2024-2026. Brava has a broader asset base,
operating several assets across six different basins onshore and
offshore, but its lower profitability makes it less resilient than
PRIO to market downturns. Fitch projects PRIO's half-cycle costs
around USD13/boe over 2024-2026, which is well below the estimates
for Brava (USD28/boe) and Vermillion (USD23/boe) over the same
period.
If successful, the acquisition will place PRIO close to the 'bbb'
range of production (175 to 700 kboe/d), although not on a
sustaining basis. Matador and SM Energy operate onshore fields
within that range, from 170 kboe/d to 190 kboe/d, but their cost
structure is slightly higher than PRIO's, with average half-cycle
costs estimated between USD13/boe and USD15/boe over the 2024-2026
period.
Considering royalties, cash tax, debt interest and other costs,
PRIO should generate operating cash flow of around USD37/boe
produced, as measured by funds from operations (FFO), which is
beyond the estimates for the other two peers (SM Energy: USD26/boe
over 2024-2026, on average; Matador: USD34/boe). The estimates for
PRIO incorporate a negative impact from the Sinochem acquisition.
PRIO also compares favorably with its American peers in terms of 1P
reserve life. Fitch estimates a seven- to nine-year range over
2024-2026, on average, for Matador, SM Energy and Vermillion, and
12 years for PRIO for 2025-2026 (and the same level for Brava).
In terms of its financial profile, PRIO compares favorably with
Brava, Matador and SM Energy. Fitch projects EBITDA leverage ratios
close to 1.5x for these peers over 2024-2026, on average, above the
1.1x ratio estimated for PRIO (the same level for Vermillion),
assuming the Sinochem acquisition closes.
Key Assumptions
- The Sinochem acquisition closing in 2024 with payment of USD1.7
billion, mostly financed with debt;
- Average Brent prices from 2024 to 2027 (USD/bbl): 80, 70, 65 and
60;
- Wahoo first oil in first half of 2025;
- Average daily production from 2024 to 2027 (kboe/d): 86, 163, 175
and 171;
- Oil sales consider discount to Brent around USD5.5/bbl;
- Lifting cost from 2024 to 2027 (USD/boe): 8.8, 7.9, 6.9 and 7.0;
- Annual capex around BRL3.1 billion over 2024-2026;
- Dividend payout ratio of 50% of net income.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Net production approaching 150 kboe/d on a sustained basis while
maintaining 1P reserve life of at least 15 years and/or sustained
1P reserves close to 800 million boe;
- National Scale ratings will be upgraded to 'AAA(bra)' when the
Sinochem acquisition proceeds.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Weak liquidity profile;
- Debt/EBITDA consistently above 3.0x;
- Major operational disruptions to key productive assets that
result in a material decrease in production;
- The Positive Outlook and the Positive Watch will be removed if
the Sinochem acquisition does not proceed.
Liquidity and Debt Structure
Comfortable Liquidity: Under Fitch's base case scenario, PRIO is
fully funded to pay the acquisition cost of USD1.7 billion in 2024
(after price adjustments). The company has secured USD1.0 billion
from bank lines and ended June 2024 with BRL6.4 billion in cash and
equivalents. Fitch believes PRIO will continue to benefit from
strong access to domestic and international funding to roll over
the secured notes due in 2026, with an outstanding balance of
BRL3.3 billion at June 2024.
The base case scenario projects a cash balance of USD1.2 billion at
the end of 2024, with short-term debt of USD1.4 billion. Total debt
is estimated at BRL16.2 billion, including the USD1.0 billion
acquisition financing and M&A payables close to BRL1.0 billion.
Issuer Profile
PRIO is an independent Brazilian oil and gas company that operates
and develops offshore mature fields. Petro Rio Jaguar is PRIO's
most relevant subsidiary, responsible for more than 85% of the
group's production. Petrorio Lux is a funding vehicle that
incorporates the trading activity. PRIO is a corporation with no
controlling shareholder, with shares publicly traded in B3.
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
----------- ------ -----
Petro Rio Jaguar
Petroleo S.A. Natl LT AA+(bra)Rating Watch On AA+(bra)
senior
unsecured Natl LT AA+(bra)Rating Watch On AA+(bra)
PRIO Luxembourg
Holding S.A.R.L LT IDR BB Affirmed BB
senior secured LT BB Affirmed BB
PRIO S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Rating Watch On AA+(bra)
===========================
C A Y M A N I S L A N D S
===========================
AIRNET TECH: Reports $19.9-Mil. Net Income in H1 2024
-----------------------------------------------------
AirNet Technology Inc. filed with the U.S. Securities and Exchange
Commission its unaudited interim consolidated financial statements
for the first half of 2024, reporting a net income of $19.9 million
on $193,000 in revenue for the six months ended June 30, 2024,
compared to a net loss of $3.7 million on $538,000 in revenue for
the same period in 2023.
The company said, "We incurred loss from continuing operations of
$2.2 million and $2.3 million for the six months ended June 30,
2023 and 2024, respectively. As of June 30, 2024, we had an
accumulated deficit of $298.9 million and a working capital
deficiency of $26.9 million. These conditions raise substantial
doubt about our ability to continue as a going concern.
"We intend to meet the cash requirements for the next 12 months
from the date of this report through business restructuring plan
and private placement. In February 2024, we entered into share
transfer agreement with Hainan Oriental Meitong Technology
Partnership to sell the 33.67% equity interest we held in Unicom
AirNet (Beijing) Network Co., Ltd for a consideration of RMB197
million. On April 15, 2024, we completed a private placement of
US$5.7 million with certain investors. As a result, our management
prepared the unaudited condensed consolidated financial statements
assuming our company will continue as a going concern. As described
above, we had a working capital deficiency and generated negative
cash flows from operations. These conditions raise substantial
doubt about our ability to continue as a going concern.
Management's plans in regard to these matters are also described
above. We may need to raise additional funds to meet our
obligations and sustain our operations. However, there is no
assurance that the measures above can be achieved as planned. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
"We generally deposit our excess cash in interest-bearing bank
accounts. Although we consolidate the results of the VIEs in our
consolidated financial statements, we can only receive cash
payments from them pursuant to our contractual arrangements with
them and their shareholders. Our principal uses of cash primarily
include contractual concession fees and other investments and, to a
lesser extent, salaries and benefits for our employees and other
operating expenses. We expect that these will remain our principal
uses of cash in the foreseeable future. We may also use additional
cash to fund strategic acquisitions."
As of June 30, 2024, the Company had $96.4 million in total assets,
$85.1 million in total liabilities, and $11.3 million in total
equity.
A full-text copy of the Company's reports attached on Form 6-K with
the Securities and Exchange Commission are available at:
https://tinyurl.com/2hzp4mc7
About AirNet Technology
AirNet Technology Inc. was incorporated in the Cayman Islands on
April 12, 2007. AirNet, its subsidiaries, through its variable
interest entities and the VIEs' subsidiaries, operate its
out-of-home advertising network, primarily air travel advertising
network, in the People's Republic of China. The Company also
conducts cryptocurrencies mining business operations by its Hong
Kong subsidiary, Blockchain Dynamics Limited.
As of December 31, 2023, the Company had $115.1 million in total
assets, $101.8 million in total liabilities, and $13.4 million in
total equity.
Singapore-based Audit Alliance LLP, the Company's auditor since
2021, issued a "going concern" qualification in its report dated
April 26, 2024, citing that the Company has a history of operating
losses and negative operating cash flows and has negative working
capital of approximately $56 million as of December 31, 2023. These
conditions indicate that a material uncertainty exists that raise
substantial doubt on the Company's ability to continue as a going
concern, the auditor said.
OTEL SUKUK: Fitch Affirms 'BB+' Rating on USD500MM Certs Due 2031
-----------------------------------------------------------------
Fitch Ratings has affirmed Oman Telecommunications Company
S.A.O.G.'s (Omantel) Long-Term Issuer Default Rating (IDR) at
'BB+'. The Outlook is Stable. Fitch has also affirmed the 'BB+'
ratings on Oztel Holdings SPC Limited's senior unsecured USD900
million notes maturing in 2028 and Otel Sukuk Limited's USD500
million of Sukuk trust certificates maturing in 2031. The Recovery
Rating is 'RR4'.
Omantel's rating is constrained by Oman's sovereign rating
(BB+/Stable), due to its strong ties with the Omani state, which
owns 51% of the company, in line with Fitch's Government-Related
Entities (GRE) Rating Criteria and Parent and Subsidiary Linkage
(PSL) Rating Criteria.
Fitch has revised Omantel's Standalone Credit Profile (SCP) to
'bbb' from 'bbb-', reflecting sustained improvements in EBITDA net
leverage, strong free cash flow (FCF) generation and its
expectations that the peak impact on cash flows from the entry of
Oman Futures Telecommunications Company (Vodafone Oman) in 2022 has
likely been absorbed.
Omantel's SCP reflects the company's leading market position in the
domestic market, which is complemented by some cash flow
diversification through its minority economic interest in Zain.
These factors are tempered by long-term, gradual increasing scale
of competitor Vodafone Oman and increasing mix of fibre service
provided through wholesale agreements.
Key Rating Drivers
Rating Capped by Sovereign's: Omantel's rating is constrained by
Oman's sovereign rating, given the close links between the two, in
accordance with Fitch's GRE Criteria and Parent and Subsidiary
Linkage (PSL) Rating Criteria. The cap is driven by the influence
the state exerts on the company through strategic direction, with
the track record of support underpinned by Omantel's regional
expansion.
Strong Support Responsibility, Weaker Incentive: Fitch assesses the
responsibility-to-support factors under its GRE Criteria as
'Strong'. This reflects Omantel's 51% ownership by the state and
the government's ability to appoint the majority of Omantel's board
members. Fitch assesses one incentive-to-support factor as
'Strong'. Omantel is a high-profile issuer in Oman and Fitch views
its telecom assets as nationally and strategically important.
However, Fitch would expect only limited operational disruption to
national telecom networks in case of the company's default.
Strong Incumbent Position: Omantel retains its leading position in
the Oman telecoms market, supported by its ability to deploy
convergent products and services. Its mobile and broadband
subscriber market shares are around 37% and 55%, respectively, as
of end-1H24. It is strategically positioned to capitalise on the
advantages of fibre and 5G economics and to complement core
activities with emerging technology opportunities like cloud
computing, AI and security infrastructure services in the
enterprise segment.
EBITDA Margin to Stabilise: Omantel's Fitch-defined EBITDA margin
declined to 25.2% in 2023 from 28.5% in 2022, in line with its
expectation, due to additional costs to lease its towers and head
office following the disposal of both assets. Fitch expects the
Fitch-defined EBITDA margin to stabilise at around 25% in the next
two years, reflecting cost rationalisation and savings programmes,
with a further slight decline to 24.2% by 2027, due to the growth
of additional lower margin services share in the revenue mix. This
assumes no further changes to royalty fees.
Competitive Mobile Market: Fitch views the Omani mobile telecoms
market as mature with strong competition among providers, following
the recent expansion of third operator Vodafone Oman,
pre-dominantly in the prepaid market. In this competitive
environment, Omantel made good progress in 2023 by transitioning
prepaid customers onto postpaid contracts, where average revenue
per user (ARPU) is higher. Fitch expects Omantel to retain its
strong market position and project modest 1% growth in mobile
revenues in 2024.
Fitch expects Vodafone Oman will continue to build scale and gain
some market share in the medium to long term. However, the
incremental cash flow impact of this is likely to manageable for
Omantel.
Comfortable Leverage: Omantel has healthy leverage headroom with
forecast broadly stable EBITDA net leverage at 2.2x-2.3x in
2024-2026 under its base case. At this level, Omantel maintains
ample leverage headroom for its SCP, demonstrating a conservative
financial approach. The company's leverage is similar to its
higher-rated telecom peers.
Revised Leverage Thresholds: Fitch has tightened Omantel's EBITDA
net leverage thresholds by 0.6x to align with European telecom
peers and to partially account for the growing share of
wholesale-based fibre services. Omantel continues to own its copper
local access infrastructure, but is gradually replacing it in some
areas with fibre wholesaled on same terms as its competitors from
the national provider, OBC. Fitch has typically tighter leverage
thresholds for issuers that do not own all their network assets or
have an increased proportion of service provision in their revenue
mix. The company still has ample leverage headroom with these new
thresholds in its base case.
Derivation Summary
Omantel's rating is constrained by the sovereign rating, reflecting
open legal ringfencing with porous access and control under the
parent-subsidiary linkage criteria. Fitch also assesses links with
the government under its GRE Rating Criteria, reflecting strong
ties between the company and its ultimate parent. Similarly,
Bahrain Telecommunications Company is constrained by its sovereign
rating at 'B+'/Stable.
Fitch views Omantel's SCP as commensurate with 'bbb' peers in
western Europe. The SCP reflects Omantel strong domestic presence
in the post-paid and prepaid mobile markets and its leading market
share in Oman's fixed market. Corporates and small medium
enterprises segments contributed to Omantel's dominant fixed
revenue market share in 2023. Similar to other GCC telecom
operators, Omantel faces stiff competition from other market
players, but has less FX risk than peers.
Key Assumptions
- Revenue growth of 2.8% in in 2024 and 1.6%-2.2% 2025-2027.
- Fitch-defined EBITDA margin of 25% in 2024-2025 gradually
decreasing to 24% in 2026-2027 reflecting the dilution of higher
margin services as the company embarks on digital initiatives.
- Working-capital movements negative at around 3.7% of revenues
over 2024-2027.
- Capex of 15% of revenue in 2024 as guided by the company and
reducing to 13.5% by 2027.
- Dividends received from Zain Group of around OMR43 million per
year in 2024-2027.
- Dividends paid of OMR41.3 million in 2024-2027.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of Oman would lead to positive rating action on
Omantel, provided Omantel's SCP is at the same level or higher than
the sovereign rating, and links between the government and Omantel
remain strong.
- An upwards revision of the SCP would be possible if the company
can maintain its current market share and ARPU levels in an
increasingly competitive environment. Fitch-defined net debt to
EBITDA on a deconsolidated basis (excluding Zain) should remain
below 2.5x and CFO less capex/gross debt above 14% on a sustained
basis.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Negative sovereign rating action would be replicated on Omantel,
provided links between the sovereign and the company do not
weaken.
The below factors could lead to a weakening of the SCP but not
necessarily Omantel's IDR:
- Pressure on FCF driven by EBITDA margin erosion, consistently
higher capex and shareholder distributions, or significant
underperformance in the core domestic market and at other key
subsidiaries.
- Fitch-defined net debt to EBITDA on a deconsolidated basis
(excluding Zain) sustained above 3.0x as a result of M&A,
significant reduction in dividends from Zain Group and weakness in
domestic FCF without remedial action from the company.
Liquidity and Debt Structure
Adequate Liquidity: Omantel's cash balance at end-1H24 was OMR34
million. The company has access to OMR235 million revolving credit
facility, which Fitch expects to be undrawn at end-2024. Liquidity
is supported by a steady sufficient dividend flow from Zain Group
to meet interest expenses.
Fitch assesses refinancing risks as manageable given low leverage,
positive FCF and access to capital markets. In 1H24, the company
refinanced part of its debt with a USD500 million Sukuk issuance
with maturity in 2031. The other significant maturity relates to
the US dollar-denominated 2028 bonds, of which OMR256 million is
outstanding.
Issuer Profile
Omantel is the incumbent telecom operator in Oman. The company owns
national copper fixed and mobile telecoms infrastructure as well as
regional undersea cable infrastructure, which it wholesales to
other international operators. The company is 51% owned by the
state with the free float balance. In 2017 Omantel acquired a 21.9%
stake in Zain Group, which it fully consolidates into its audited
accounts on the basis of board control (Fitch does not follow this
accounting approach and analyse Omantel on a standalone basis
deconsolidated for its investment in Zain).
Public Ratings with Credit Linkage to other ratings
Omantel is a GRE and its IDR is constrained by the sovereign
rating.
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 Recovery Prior
----------- ------ -------- -----
Otel Sukuk Limited
senior unsecured LT BB+ Affirmed RR4 BB+
Oman Telecommunications
Company S.A.O.G. LT IDR BB+
Oztel Holdings SPC
Limited
senior unsecured LT BB+ Affirmed RR4 BB+
===============
C O L O M B I A
===============
COLOMBIA: Cuts Key Interest Rate to a Two-Year Low of 10.25%
------------------------------------------------------------
globalinsolvency.com reports that Colombia's central bank cut
borrowing costs to a two-year low while ignoring President Gustavo
Petro's calls for an even bigger reduction. The board also elected
Governor Leonardo Villar for a second four-year term, Bloomberg
News reported, according to globalinsolvency.com. The board split
once more as it lowered its benchmark rate by half a percentage
point to 10.25%, Villar told reporters, the report relays.
The move was correctly forecast by 20 of 27 economists in a
Bloomberg survey, while the others expected a deeper cut, to 10%,
the report discloses.
As reported in the Troubled Company Reporter on Aug. 7, 2024, Fitch
Ratings has affirmed Colombia's Long-Term Foreign Currency Issuer
Default Rating (IDR) at 'BB+' with a Stable Rating Outlook.
=============
J A M A I C A
=============
JAMAICA: Agriculture Industry Earned Less From Exports for Jan-May
------------------------------------------------------------------
RJR News reports that Jamaica's agriculture industry earned 3.6 per
cent less from export for the first five months of 2024.
The Statistical Institute of Jamaica says these export earnings
were valued at US$34.2 million, according to RJR News.
That's down from the US$35.5 million earned for January to May
2023, the report notes.
STATIN reported that this performance was due primarily to lower
exports of yams and coffee, the report relays.
The value of yam exports fell by 12.7 per cent, amounting to
US$14.9 million, the report discloses.
Coffee exports amounted to US$7.4 million, reflecting an 8.4 per
cent decline, the report notes.
STATIN says, however, the decline in exports from this industry was
mitigated by a 47.2 per cent increase in other root crops, the
report says.
This generated US$3.2 million, compared to US$2.2 million in the
similar period of 2023, 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.
JAMAICA: Promises Major Improvements to Tax Offices
---------------------------------------------------
RJR News reports that the Jamaican government is pledging
improvements to the local network of tax offices across the
country.
Speaking at the launch of the government's $20,000 one-off tax
credit to taxpayers earning less than $3 million annually, Finance
Minister Dr. Nigel Clarke said tax offices are currently not fit
for purpose, according to RJR News.
"Our tax offices were built decades ago for a different Jamaica, a
smaller Jamaica, a less prosperous Jamaica. Today, our tax offices
are inadequate in their size, in their internal space and in their
parking arrangements. With the volume of transactions that take
place in our tax offices, this often means that they are
overcrowded. The medium-term solution is a buildout of over 11
revenue centres and tax offices at a cost of over $12 billion. But
this is medium-term because it will take up to five years to get
this completed," he acknowledged, the report notes.
He said the Constant Spring Tax office in St. Andrew is an example
of a revenue centre, and others like it will be located in areas
like Portmore in St. Catherine, Mandeville in Manchester and
Montego Bay in St. James, the report relays.
"In addition to that, there'll be renovations and new tax offices
in other areas," the minister promised, the report notes.
"We are also implementing shorter-term solutions, and that is to
move transactions or the opportunity for more transactions onto the
digital space, and motor vehicle registrations, accounting for more
than 50 per cent of the transactions in tax offices, gives us an
opportunity for a substantial improvement in the customer
experience," he said, the report relays.
Tax Administration Jamaica announced on that motorists can now
renew their motor vehicle registration certificate online via its
online platform at www.jamaicatax.gov.jm, 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.
===========
M E X I C O
===========
BANORTE: S&P Withdraws 'BB-' Rating on $600MM Hybrid Notes
----------------------------------------------------------
S&P Global Ratings withdrew its 'BB-' issue-level rating on $600
million 6.75% hybrid notes that were fully redeemed by Banco
Mercantil del Norte S.A. Institucion de Banca Multiple Grupo
Financiero Banorte's (Banorte; BBB/Stable/A-2) on their first call
date. The bank's Grand Cayman Branch issued the perpetual,
callable, subordinated, nonpreferred, noncumulative, Tier 1 capital
notes on June 27, 2019.
S&P said, "The amortization doesn't materially affect our projected
risk-adjusted capital ratio for Banorte. Per our criteria, we can
include a hybrid capital instrument with intermediate equity
content in our total adjusted capital calculation until the
aggregate amount of all hybrid instruments with intermediate equity
content is equivalent to up to 33% of the bank's adjusted common
equity.
"Despite the amortization, we expect Banorte's outstanding hybrid
capital issuances with intermediate equity content will be close to
33% of its adjusted common equity base. Therefore, we continue to
assess Banorte's capital and earnings as strong. We forecast our
risk-adjusted capital ratio for Banorte to be 10.3%-10.6% for the
next two years."
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Continued Deficits Could Crash Economy
---------------------------------------------------------
Raphael John-Lall at Trinidad and Tobago Guardian reports that a
senior lecturer in economics at the University of the West Indies
(UWI) is warning the Trinidad & Tobago government that its nine
fiscal deficits in ten fiscal years is not sustainable in the long
term and can spell "doom and gloom" for T&T's future.
This is the view of Dr Daren Conrad who spoke at a post-budget
webinar hosted by the South Chapter of the T&T Association of
Insurance & Financial Advisors (TTAIFA) on October 2, according to
Trinidad and Tobago Guardian.
Finance Minister Colm Imbert presented the national budget for
fiscal 2025, projecting total expenditure is $59.741 billion and
total revenue is $54.224 billion, which means and estimated fiscal
deficit of $5.517 billion, the report notes. Since the 2008
budget, T&T has recorded fiscal deficits for every year, except
2022, when the country's energy revenues were boosted by Russia's
invasion of Ukraine and the supply-chain issues that resulted, the
report relays.
Conrad said running deficit budgets over the years should be a
"concern" for the country, the report says.
"Our gross debt is accumulating. I think last year (the 2024 fiscal
year) the deficit reached $7.1 billion. We have never been able to
align the revenues with the expenditures which tells us that given
a budget of $59.74 billion with more than 50 per cent being
transfers and subsidies, it tells us that we need to work on the
number of transfers and subsidies as these do not equate to
economic activity, the report notes.
"They are just that, transfers and subsidies to persons who are in
need. One of the ways to work on that is to have employment working
in the right direction," he said.
He added that not being able to balance a national budget can lead
to some economies crashing, the report relays.
"We can only run a deficit budget for so long and we can continue
to borrow to finance the deficit, but when you are borrowing to
finance the recurrent expenditure and that is driving your deficit
up, that well will run dry at some point in time, the report
notes.
"The debt-to-gross domestic product (GDP) ratio is at 76 per cent
and in some countries, it is at 101 per cent. There is no
scientific limit for it but what it means is that for every dollar
that you earn, it goes to paying the interest on the debt and not
able to reinvest anything. So, you will become a perpetual borrower
until that time your economy crashes if you don't take proactive
measures. So, it can spell doom and gloom for us if we continue to
do that," Conrad said, the report discloses.
He explained that running budget deficits and having to finance
burdensome debt can lead to a deterioration of the quality of life
for T&T's citizens, the report relays.
"We have been doing it for years, successfully managing the
borrowing to fit the expenditure in terms of recurrent expenditure.
That is why T&T has a deterioration of the infrastructure. People
talk about the roads, people talk about WASA (Water and Sewerage
Authority), the report notes.
"It is that when the revenue is generated or when the loans are
booked, they are being used for recurrent expenditure, so the
infrastructure is going to deteriorate and it cannot be
maintained," the report relays.
"So, you have to strike a balance between whether I continue to
feed people or I continue to allow some things to run awry. We need
to realign the revenue with the expenditure. It is an uncomfortable
truth that we do not want to acknowledge. That we cannot in
perpetuity continue to allocate more than 50 per cent of our budget
to transfers and subsidies," the economist said, the report says.
He was also critical of the Government for pegging the budget at
US$77.80 a barrel per oil and US$3.95 per MMBTU for gas, the report
relays.
"It is not conservative enough in terms of a price per barrel. If
you have been following the commodities markets, the price of oil
is around $70 per barrel and it is projected to remain at $70 per
barrel or even fall further until December.
"The only reason why it may start to go back up is if China
increases its demand for oil. But China has already built up their
reserves so their demand is not there to stimulate that price for
the oil. Countries in OPEC have said that they cannot survive on
that price, so that is good news so they can to get the price back
up," the report notes.
He spoke about some of the challenges in the fiscal measures
proposed, the report discloses.
"Since fiscal year 2009, the Government has spent more than it
collected in tax revenues. This means that we have not been able to
balance the budget and we keep mounting debt," the report relays.
"Also, transfers and subsidies make up more than half of recurrent
expenditure since 2009. That is where we can make adjustments
downward to reduce these. It is how you do it. You could make them
more targeted in that those individuals who are receiving it are
deserving of it. Then there is the debt-to-GDP ratio and this can
put T&T in a bad position with regard to credit ratings and we need
to align that and get it down. Reducing transfers and subsidies
will help in getting it down as we can use some of that money to
pay the debt," the report says.
T&T's estimated debt by the end of 2024 was $140.58 billion,
increasing to 75.6 per cent of GDP, the report relays.
The country's central government debt service in fiscal deficit was
estimated at $15.67 billion, which is expected to be 25.4 per cent
of central government revenue in fiscal 2024, the report notes.
Agriculture and Food Prices
Former president of the Supermarket Association of T&T (SATT) Rajiv
Diptee, who also spoke at the webinar, warned that T&T's economy
continues to be "fragile," the report relays.
"We continue to be very susceptible to shocks in the global markets
particularly where we have seen war happen. We have seen trading
lanes shut down and what this means is that we remain price takers
in the international markets for finished goods and inputs for
production, the report notes.
"Eighty-five to 90 per cent of the goods on T&T's supermarket
shelves are those that come from North America and Europe. We do
not have that much finished goods originating from Asia. A lot of
our inputs for production are still heavily imported.
Agro-processing needs to be focused on," the report discloses.
He also complained that because business owners have problems
accessing foreign exchange, there is less variety on supermarket
shelves now, the report relays.
He admitted that consumers are now tired of prices of supermarket
items constantly going up and said the increase of the minimum wage
in the public sector was the Government acknowledging this trend,
the report notes.
"A lot of consumers are battling constant fatigue in food price
inflation and there is something we call 'sticker shock' when you
go inside the supermarket and consumers say the price was this and
now it is that on your next trip. Salaries have not kept up with
inflation and I think that is an acknowledgement when you consider
the wage increase that was offered to public servants," the report
discloses.
Agricultural economist Nicholas Boodram, who is an academic staff
member at UWI, said a successful economy rests on the resources in
the budget dedicated to agriculture, the report relays.
He pointed to large economies like the US, China and Japan where
the US allocated 3 per cent of its 2024 national budget to
agriculture, China dedicated 7.8 per cent of its national budget to
agriculture and Japan 2.5 per cent of its national budget to
agriculture, the report notes.
For T&T, while for fiscal year 2020 to 2021, 2.42 per cent of the
national budget was assigned to agriculture, by the 2024 to 2025
fiscal year, the contribution of the national budget to agriculture
has been reduced to 1.98 per cent, the report adds.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
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* * * End of Transmission * * *