/raid1/www/Hosts/bankrupt/TCRLA_Public/241120.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, November 20, 2024, Vol. 25, No. 233
Headlines
A R G E N T I N A
ARGENTINA: Fitch Hikes LongTerm IDRs to 'CCC'
YPF SA: Forecasts 40% Increase in Shale Oil Production Next Year
B A H A M A S
FTX GROUP: Bankrupt Estate Reaches Deal w/ MDL Plaintiffs
B E R M U D A
AFINITI LTD: Seeks Chapter 15 Bankruptcy Protection
B O L I V I A
BOLIVIA: New Rules on Gold Reporting Scrapped to Avoid Speculation
C H I L E
FALABELLA SA: Fitch Affirms 'BB+' LT IDR, Alters Outlook to Stable
X X X X X X X X
[*] LATAM: Goods Exports Rebound With 3.2% Growth in 2024
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Fitch Hikes LongTerm IDRs to 'CCC'
---------------------------------------------
Fitch Ratings has upgraded Argentina's Long-Term Foreign-Currency
Issuer Default Rating (IDR) to 'CCC' from 'CC', and its Long-Term
Local-Currency IDR to 'CCC' from 'CCC-'. Fitch typically does not
assign Rating Outlooks to sovereigns with a rating of 'CCC+' or
below.
Key Rating Drivers
Upgrade to 'CCC': Argentina's upgrade to 'CCC' from 'CC' reflects
developments that have improved Fitch's confidence in the
authorities' ability to make upcoming foreign-currency bond
payments without seeking relief of some sort. Dollar inflows
prompted by a successful tax amnesty have begun to lift
international reserves, and should continue to do so as they
circulate in the financial system, supporting the sovereign's
access to dollars.
The authorities are also pursuing several external financing
options, though but none has been finalized. Risks to repayment
capacity persist, however, as captured in the 'CCC' rating, given
still uncertain prospects for a transition to monetary and
exchange-rate policies that can ensure a durable improvement in
reserves and recovery of market access.
Larger Debt Payments Loom: The sovereign has made its hard-currency
bond payments in 2024, but faces larger payments in 2025 of USD4.3
billion in both January and July. This is on top of roughly USD2.3
billion in scheduled foreign exchange (FX) bond payments by the
central bank (BCRA) on its BOPREAL securities, and USD2.7 billion
by provincial governments.
International reserves remain low and insufficient to comfortably
make these payments, given that the current USD30.0 billion
consists mostly of a swap with China (USD18.3 billion), which is
not freely usable, and USD5.4 billion in gold that would need to be
sold first. However, recent BCRA reserve accumulation and prospects
for further gains should support the availability of FX for the
sovereign.
FX Reserve Gains: BCRA reserves have begun to strengthen again
after a mid-year setback, as private-sector inflows have more than
offset outflows from sovereign external debt service. A tax amnesty
has already brought over USD20 billion into the economy, driving
USD3.6 billion in reserve gains since July, and setting the stage
for further gains as this FX is used for USD credit intermediation,
which expands USD deposits and reserve requirements at the BCRA, or
sold to the BCRA for pesos.
The amnesty could attract additional inflows in the coming months.
The improved FX dynamic has been self-reinforcing, improving
confidence in the BCRA's ability to sustain the crawling exchange
rate, and thus reducing dollar demand and lifting supply. This has
been reflected in a fall in the gap between the parallel and
official exchange rates to under 20% from a high of 60% mid-year.
Financing Options Not Yet Clear: The authorities have achieved a
sharp reduction in sovereign bond spreads to around 800 basis
points, leaving them close to the levels that could allow for
recovery market access to refinance upcoming payments, although
this may still be hard to achieve before October 2025 midterm
elections. They are pursuing a USD2.7 billion repo line with
foreign commercial banks, though this has yet to be finalized.
Policy differences with the IMF continue to cloud prospects for a
new program with fresh funding, and it is not yet clear if or how
quickly the upcoming change in US administration could facilitate
an agreement.
Policy Progress, Uncertainties: The authorities remain committed to
an economic stabilization program centered on an aggressive fiscal
adjustment to unwind past monetary financing from the BCRA, a
crawling-peg exchange rate, negative real interest rates to shrink
the overhang of remunerated peso liabilities, and preservation of
FX controls to sustain these policies.
The program has achieved considerable success in reducing
inflation, which fell to 2.7% (28% annualized) in October, its
lowest level since 2021. This has led the BCRA to cut its policy
rate to 2.9% in monthly terms, marking a gradual phase-out of the
negative real rates. And it has allowed for a healthy recovery in
credit intermediation after many years of crowding out.
Nevertheless, the importance of heterodox FX controls in achieving
this initial progress makes it unclear when the authorities can
phase them out to transition to a more sustainable policy mix. They
are close to the goals for disinflation and monetary aggregates
they have set as preconditions for exiting FX controls, but have
yet to achieve the reserve accumulation that is likely to be needed
to manage this process without a large devaluation that could
detract from the disinflation process. The 2%-per-month crawling
peg sustained since the December 2023 devaluation has led the peso
to be overvalued again, which could put pressure on the current
account, and makes reserve gains reliant on financial-account flows
that are prone to greater risk and uncertainty.
Growth Recovering: Economic activity has been recovering gradually
since bottoming out in 24Q2. Real wages have been recovering on the
reduction in inflation, though remain below end-2023 levels,
supporting a pick-up in consumption. The revival in private credit
has provided additional support. Fitch projects a 3.6% contraction
in 2024 and 3.9% rebound in 2025, but subject to wide uncertainty
depending on FX policy. Preservation of FX controls is likely to
restrain a strong rebound in investment, though a new incentives
regime for strategic sectors (RIGI) and microeconomic reform
efforts should offer support.
Milei Maintains Support: Milei has made progress on his reform
agenda despite his party's small representation in congress,
delivering some legislative victories (albeit with dilution in the
negotiation process), and averting major setbacks, such as a
legislative effort to overturn his modification of the pension
indexation formula. He has preserved favorable popular support
despite the pain induced by economic adjustments. The outcome of
his party in October 2025 midterm elections will be pivotal for the
economic outlook, either bolstering or undermining Milei's ability
to advance his agenda, and thus with possible binary outcomes for
market confidence and financing options.
ESG - Governance: Argentina has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in its proprietary Sovereign Rating Model
(SRM). Argentina has a medium WBGI ranking at the 43rd percentile,
reflecting a recent record of peaceful political transitions,
moderate scores for institutional capacity rule of law and control
of corruption, and favorable score for participation in the
political process.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Structural: Execution of a debt operation that Fitch would
constitute a "distressed debt exchange" (DDE) per Fitch's
criteria;
- External Finances: Increased likelihood of restructuring or
default, due to Depletion of external liquidity or erosion of
market confidence that undermine the sovereign's ability to make
upcoming debt payments;
- Macro: Policy setbacks or political shocks that undermine
macroeconomic stability and prospects for recovering market
access.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- External Finances: Sustained build-up in international reserves,
and recovery of bond market access or large-scale external funding
of some sort.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
Fitch's proprietary SRM assigns Argentina a score equivalent to a
rating of 'B-' on the Long-Term Foreign-Currency IDR scale.
However, in accordance with its rating criteria, Fitch's sovereign
rating committee has not utilized the SRM and Qualitative Overlay
(QO) to explain the ratings in this instance. Ratings of 'CCC+' and
below are instead guided directly by the rating definitions.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a
forward-looking qualitative framework designed to allow for
adjustment to the SRM output to assign the final rating, reflecting
factors within its criteria that are not fully quantifiable and/or
not fully reflected in the SRM.
Country Ceiling
The Country Ceiling for Argentina is 'B-'. For sovereigns rated
'CCC+' or below, Fitch assumes a starting point of 'CCC+' for
determining the Country Ceiling. Fitch's Country Ceiling Model
produced a starting point uplift of 0 notches. Fitch's rating
committee applied a +1 notch qualitative adjustment to this, under
the Balance of Payments Restrictions pillar, reflecting that while
strict controls are in place that affect corporates' ability to
access the official FX market, these have not resulted in
restructurings for many corporates.
Fitch does not assign Country Ceilings below 'CCC+', and only
assigns a Country Ceiling of 'CCC+' in the event that transfer and
convertibility risk has materialized and is impacting the vast
majority of economic sectors and asset classes.
ESG Considerations
Argentina has an ESG Relevance Score of '5' for Political Stability
and Rights as WBGIs have the highest weight in Fitch's SRM and are
therefore highly relevant to the rating and a key rating driver
with a high weight. As Argentina has a percentile rank below 50 for
the respective Governance Indicator, this has a negative impact on
the credit profile.
Argentina has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
WBGIs have the highest weight in Fitch's SRM and are therefore
highly relevant to the rating and are a key rating driver with a
high weight. As Argentina has a percentile rank below 50 for the
respective Governance Indicators, this has a negative impact on the
credit profile.
Argentina has an ESG Relevance Score of '4'[+] for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
WBGIs is relevant to the rating and a rating driver. As Argentina
has a percentile rank above 50 for the respective Governance
Indicator, this has a positive impact on the credit profile.
Argentina has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Argentina, as for all sovereigns. As
Argentina has a fairly recent restructuring of public debt in 2020
and another default event remains a real possibility in Fitch's
view, this has a negative impact on the credit profile.
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
----------- ------ -----
Argentina LT IDR CCC Upgrade CC
ST IDR C Affirmed C
LC LT IDR CCC Upgrade CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
YPF SA: Forecasts 40% Increase in Shale Oil Production Next Year
----------------------------------------------------------------
offshore-technology.com reports that Argentina's state oil company,
YPF, forecasts an increase in shale oil production of 30-40% for
the coming year with a focus on capital investments in the Vaca
Muerta formation.
The Vaca Muerta formation is reputed to be one of the world's
largest shale reserves and central to YPF's strategy to transform
Argentina into a key energy exporter, according to
offshore-technology.com.
YPF CEO Horacio Marin stated "We expect to increase unconventional
production from 30–40%, our incremental production will be in
that range, that is why we can achieve our average of 160,000
barrels (per day) in the first quarter," the report notes.
Marin suggested that these projections could be on the conservative
side, the report relays.
In Q3, YPF reported a 36% increase in unconventional oil production
to 126,000bpd compared with the same period last year, surpassing
Q2 production by 11%, reports offshore-technology.com, citing
Reuters.
This surge in unconventional oil has compensated for the decline in
conventional oil production, bringing YPF's total average to
256,000bpd.
Natural gas production also saw a rise, growing by 4% from Q2 and
7.3% from the previous year, the report says. This growth is
largely attributed to the completion of the first stage of a gas
pipeline connecting Vaca Muerta to Buenos Aires, the report notes.
The company reported profit of $1.48bn in Q3, significantly
exceeding analysts' expectations of $312m, as per London Stock
Exchange data, the report relays. This profit boost is due to
increased output and higher oil and natural gas prices, the report
discloses.
Looking ahead, YPF is actively pursuing partnerships with major oil
companies to build a liquefied natural gas plant in Rio Negro,
aiming to facilitate exports to European and Asian markets, the
report relays.
Marin added that YPF is on track to achieve neutral cash flow by
2025 and expects to turn cash flow positive in 2026, the report
adds.
About YPF SA
YPF S.A. is a vertically integrated, majority state-owned Argentine
energy company, engaged in oil and gas exploration and production,
and the transportation, refining, and marketing of gas and
petroleum products.
Founded in 1922, YPF was an oil company established as a state
enterprise. YPF was later privatized under president Carlos Menem
and was bought by the Spanish firm Repsol in 1999, and the
resulting merged company was call Repsol YPF.
In 2012, about 51% of the firm was renationalized and this was
initiated by President Cristina Fernandez se Kirchner. The
government of Argentina agreed to pay $5 billion compensation to
Repsol.
As reported in the Troubled Company Reporter-Latin America on Sept.
3, 2024, S&P Global Ratings assigned its 'CCC' issue-level rating
to YPF S.A.'s (CCC/Stable/--) proposed senior unsecured notes due
2031. YPF will use the proceeds to tender up to $500 million of
its outstanding 8.5% senior unsecured notes due July 2025 and its
6.95% July 2027 notes, and for other general corporate purposes.
With this transaction, the company would start refinancing its 2025
maturities that total $1.9 billion.
=============
B A H A M A S
=============
FTX GROUP: Bankrupt Estate Reaches Deal w/ MDL Plaintiffs
---------------------------------------------------------
Carolina Bolado at law360.com reports that counsel for plaintiffs
in the multidistrict litigation over the collapse of cryptocurrency
trading platform FTX Trading Ltd. told a Florida federal judge that
they have reached a deal with the FTX estate in bankruptcy.
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9, 2022, struck a deal to
sell itself to its giant rival Binance, but Binance walked away
from the deal amid reports on FTX regarding mishandled customer
funds and alleged US agency investigations. SBF agreed to step
aside, and restructuring vet John J. Ray III was quickly named new
CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
billion in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year.
According to Reuters, SBF shared a document with investors on Nov.
10, 2022, showing FTX had $13.86 billion in liabilities and $14.6
billion in assets. However, only $900 million of those assets were
liquid, leading to the cash crunch that ended with the company
filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims
agent, maintaining the page
https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
=============
B E R M U D A
=============
AFINITI LTD: Seeks Chapter 15 Bankruptcy Protection
---------------------------------------------------
Janine Phakdeetham of Bloomberg News reports that Afiniti Ltd. has
sought Chapter 15 bankruptcy protection in Delaware, according to a
court document.
The company is also involved in a provisional liquidation process
in Bermuda.
Chapter 15 allows Afiniti to safeguard its U.S. assets while
restructuring efforts proceed abroad.
In September 2024, TRG Pakistan announced that Afiniti and its
lenders had come to an agreement on a restructuring plan.
About Afiniti Ltd.
Afiniti Ltd. provides management consultancy services.
Afiniti Ltd. sought relief under Chapter 15 of the U.S. Bankruptcy
Code (Bankr. D. Del. Case No. 1:24-bk-12539) on Nov. 3, 2024, to
seek U.S. recognition of the liquidation proceedings in Bermuda.
The Debtor's U.S. counsel:
Kara Hammond Coyle
Young Conaway Stargatt & Taylor LLP
302-571-6600
kcoyle@ycst.com
=============
B O L I V I A
=============
BOLIVIA: New Rules on Gold Reporting Scrapped to Avoid Speculation
------------------------------------------------------------------
Sergio Mendoza, writing for Bloomberg News, reports that Bolivia's
central bank ditched new rules on reporting its gold reserves which
it had published just two days earlier.
The bank said in a statement that it wouldn't implement the
resolution to avoid "speculation that seeks to damage the economic
stability of the country," according to the report. The resolution
would have allowed the bank to report its gold holdings twice a
year: on Nov. 5 and May 5, the report notes. That could
potentially have allowed it to access more liquidity to pay for
imports and address a crippling fuel shortage, the report adds.
By law, the institution must keep at least 22 tons of the metal,
but the change might have allowed it to drop below this level
between the reporting dates, notes Bloomberg News.
Bolivia is undergoing an economic crisis as a shortage of foreign
currency causes scarcity of fuel and other key goods as well as
accelerating inflation, Bloomberg News relays. The crisis is being
aggravated by clashes between supporters of President Luis Arce and
former President Evo Morales.
As reported in the Troubled Company Reporter-Latin America on Oct.
8, 2024, S&P Global Ratings, on Oct. 4, 2024, affirmed its 'CCC+'
long-term foreign and local currency sovereign credit ratings on
Bolivia. The outlook on the long-term ratings remains negative.
S&P also affirmed its 'C' short-term foreign and local currency
sovereign credit ratings. The transfer and convertibility
assessment remains 'CCC+'.
Fitch Ratings downgraded Bolivia's credit rating to 'CCC' from
'B-' in February, reflecting increased risk associated with the
country's economic management.
=========
C H I L E
=========
FALABELLA SA: Fitch Affirms 'BB+' LT IDR, Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Falabella S.A.'s (Falabella) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+'
and the National Long-Term Rating at 'A+(cl)'. Fitch has also
affirmed Falabella's senior unsecured notes at 'BB+' and National
Equity Rating at 'First Class Level 2(cl)'. The Rating Outlook has
been revised to Stable from Negative.
Fitch has additionally affirmed Sodimac S.A.'s (Sodimac) National
Scale and local bond ratings at 'A+(cl)'. Sodimac's Outlook has
been revised to Stable from Negative, following the rating action
on its parent Falabella.
The Outlook revision reflects Fitch's view that Falabella's
initiatives are gaining momentum, with a recovery in profitability
driven by its strategic focus on more profitable units and brands,
cost efficiencies, combined with a more benign consumer environment
in Chile and Peru. Fitch expects EBITDAR margin to stabilize in the
low double-digit range, which combined with a balanced financial
strategy, results in an adjusted corporate only net debt/EBITDAR
(capitalizing leases at 7.0x) of around 3.5x by 2024 (compared to
its previous expectation of 6x).
Falabella's ratings reflect the company's leading business position
as one of the most important multicategory retailer in South
America, with diversification into the real estate and financial
businesses. As of June 2024, Chile (A-/Stable) represented around
70% of the retail business EBITDA, while Peru (BBB/Stable)
represented around 23%, and the balance from Colombia (BB+/Stable),
Brazil (BB/Stable), and Argentina (CC).
Fitch believes Falabella's main challenges going forward will be
demonstrating agility in responding to new consumer preferences
while maintaining an appropriate financial profile.
Key Rating Drivers
Improved Operating Trajectory: Falabella is experiencing a recovery
in consumption in its main markets, which along with its plan to
improve performance, began to show results throughout 2024. Fitch
expects the company to present an EBITDAR margin of nearly 11% by
the end of 2024, a significant improvement from the nearly 7% in
2023. The ratings factor in the company's ability to recover its
business performance, while a further consolidation of its more
profitable business units to provide stability of its operating
margin remain as a concern.
The EBITDAR margin has recovered due to less discounting activity,
lower product costs, and moderated inflationary pressure. Fitch
expects margins to remain stable through initiatives that promote
more profitable brands and categories, along with strict cost
controls. For 2025-2026, Fitch projects an annual revenue growth in
the mid-single digit, and expects EBITDAR - including net dividends
from non-controlling interests and financial businesses exceeding
CLP1 trillion.
Refocused Strategy under Development: Fitch believes Falabella may
benefit in the long term from a refocused business strategy
undertaken over the past 12 months-18 months. These efforts include
optimizing its cost structure, refocusing its business units toward
direct-to-consumer channels in e-commerce, and making several
changes to its board and senior management.
As part of this strategy, Falabella expects to receive close to
CLP500 billion cash from asset monetization, including CLP308
billion from reorganizing its real estate business in Peru under
its subsidiary Plaza S.A., and the sale of the Open Kennedy mall
for CLP190 billion. These efforts could directly and indirectly
support Falabella's financial profile by providing greater control
and organization over its businesses, defending its profitability,
and allowing for greater debt reduction without limiting
investments for future growth.
If executed effectively, these efforts could support its business
position, particularly against digital and Asian competitors. Fitch
continues to see challenges from high promotional activities, and a
lower-than-anticipated recovery of consumption in the region that
could impact its EBITDAR projections.
Leverage to Continue Improving: Fitch forecasts Falabella's
corporate only net adjusted leverage at 3.5x in 2024, trending
towards 3.0x in the next 2 years-3 years. Fitch expects Falabella's
retail only gross leverage (excluding real estate business and
including net dividends received from its financial services and
minorities) should trend towards 4.0x in the next 2 years-3 years
from the 5.4x expected for YE 2024. This improvement should be
supported by the retail segments operating recovery and debt
repayments.
Neutral to Positive FCF margin: Fitch projects Falabella's FCF
margin to be neutral to positive in the short to medium term. For
2024, FCF margin is estimated at low single digit margin
considering capex for approximately CLP285 billion and dividend
distributions of CLP4 billion. For 2025 and 2026, FCF margin should
be neutral to positive assuming a higher capex intensity in the
mid-single digit and average dividend payments of CLP157 billion in
line with a 40% dividend distribution policy.
Challenging Competitive Environment: Fitch believes competition in
the retail sector has become particularly high and disruptive with
the entrance of pure online retailers whose entrance strategy has
been very aggressive. In Fitch's opinion, Falabella's plan to
improve its customer relationship, brand differentiation and
competitive advantage should help the company to strengthen its
competitive position and retain market share.
Sodimac's Strong Linkage with Falabella: Falabella subsidiary
Sodimac S.A.'s rating (A+[cl]/Stable) is based on the strong legal,
strategic and operational support incentives from Falabella, which,
under Fitch's Parent and Subsidiary Linkage Rating Criteria,
results in an equalization of the ratings.
Legal incentives are based on a cross-default clause in Falabella's
debt agreements that would be triggered by subsidiaries defined as
relevant, including Sodimac. Historically, Sodimac represented a
significant portion of Falabella's operating results, which
supports the strong strategic linkage. Operationally, synergies
enhance efficiencies in the company, such as integrated purchasing
and customer access to the group's credit card. There is also
integrated cash management through intercompany loans.
Equity Rating: Falabella's equity rating incorporates its solid
liquidity metrics, but it is limited by its national scale rating
at 'A+(cl)'.
Derivation Summary
Falabella's rating reflects a diversified business profile with
activities in primarily in the non-food retail segments and
shopping malls, with geographic diversification in Latin America.
The company benefits from high unencumbered assets, primarily
related to its real estate business. The company's credit profile
compares below its peers in the region such as Cencosud S.A.
(BBB/Stable) and El Puerto de Liverpool, S.A.B. de C.V.
(BBB+/Stable).
Cencosud's retail formats are more oriented to the food and
supermarket segments, which are viewed as more defensive during
weak macroeconomic environment. Liverpool is a leading retailer in
Mexico, with a sound financial profile but has a limited geographic
diversification relative to Falabella.
In terms of business profile, Falabella has a lower EBITDA margin
(11% estimated for 2024) than Liverpool (18%), but slightly higher
than Cencosud (10%). However, this factor is counterbalanced by
Falabella's higher net corporate only leverage (which reached
nearly 6.0x in 2023), compared to Liverpool (-0.4x) and Cencosud´s
(3.5x).
Key Assumptions
- 11% revenue growth in 2024 and mid-to-low single digits in 2025
and 2026;
- Average EBITDAR margin of 11% in 2024-2026;
- Capex Intensity of approximately 3.2% per year;
- Dividend distributions at 40% policy;
- Close to CLP500 billion of incoming cash flow from asset
monetization activities during 2024-2025.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A sustained corporate only EBITDAR margin below 8%;
- A net corporate only adjusted leverage (net adjusted debt/EBITDAR
including net dividends received from its financial services and
minorities) above 4.5x on a sustained basis;
- A retail-only gross leverage (excluding real estate business and
including net dividends received from its financial services and
minorities) close to 4.5x on a sustained basis;
- Consistently negative FCF generation.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A sustained corporate only EBITDAR margin in the mid-teens;
- A net corporate-only adjusted leverage consistently below 4.0x;
- A gross retail-only leverage consistently close to 3.5x.
Rating Sensitivities: Sodimac
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A positive rating action in Falabella's rantings would have the
same effect on Sodimac.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A deterioration in Falabella's rating;
- A decline in the company's support from its parent company, while
its debt profile weakens.
Liquidity and Debt Structure
Strong Liquidity: Falabella's liquidity position has improved
substantially following the execution of asset monetization's
combined with a higher operating cash flow generation. As of
September 2024, Falabella's cash position reached around CLP1.4
trillion, compared to its maturities of CLP595 billion due in 2025.
The company has announced that its January 2025 debt maturity will
be paid with cash in hand.
Issuer Profile
Falabella's is one of the most important multicategory retailer in
South America, with diversification into the real estate and
financial businesses. The company's operations include department
stores, a home improvements store, food segment, shopping mall
business, financial services and a marketplace platform.
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
----------- ------ -----
Falabella S.A. LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT A+(cl) Affirmed A+(cl)
Nat Equity Rating Primera Clase
Nivel 2(cl)Affirmed Primera Clase
Nivel 2(cl)
senior
unsecured LT BB+ Affirmed BB+
senior
unsecured Natl LT A+(cl) Affirmed A+(cl)
Sodimac S.A. Natl LT A+(cl) Affirmed A+(cl)
senior
unsecured Natl LT A+(cl) Affirmed A+(cl)
===============
X X X X X X X X
===============
[*] LATAM: Goods Exports Rebound With 3.2% Growth in 2024
---------------------------------------------------------
RJR News reports that the Inter-American Development Bank said the
value of goods exports from Latin America and the Caribbean rose by
3.2 per cent year-on-year in the first half of 2024, rebounding
after a 1.6 per cent decline last year.
In its latest report, the IDB said this improvement was the result
of an increase in export volumes and the stabilisation of prices
relative to 2023, according to RJR News.
The publication which is the latest edition of the annual Trade and
Integration Monitor, reveals that service exports slowed slightly
in the first quarter of 2024, growing at 9.5 per cent compared to
the average of 12.2 per cent last year, the report notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
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