/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/020828.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, August 28, 2002, Vol. 3, Issue 170 Headlines A R G E N T I N A AMERICA ONLINE: CFO Leaves Company for Cisneros Group DINAR LINEAS: Grounds Planes, Blames Creditor Bank for Decision ELECTRICIDAD ARGENTINA: Won't Pay US$91.2 Million Due this Week TGS: Local S&P Rates US$100 Million Corporate Bond "CCC" B E R M U D A FLAG TELECOM: Creditors to Vote on Settlement Plan Next Month GLOBAL CROSSING: Auctions Telecom and IT Assets GLOBAL CROSSING: Sells Right to Use Assets B R A Z I L BANCO ITAU: World Bank Loan Secured to Prop Up Economy DAIMLERCHRYSLER: Negotiates Brazilian Plant Sale ELETROPAULO METROPOLITANA: Gets Extension on Debt Repayment LIGHT SERVICOS: Could Be Sold to Ease Financial Burden VARIG: S&P Maintains RG Receivable Notes on Watch Negative E L S A L V A D O R BMI: Fitch Changes Long-Term Currency Debt To Outlook Negative M E X I C O BANCO INDUSTRIAL: IPAB Intervenes Over Huge Accounting Concerns CFE: Expects Change in Tax Payment Mode EMPRESAS ICA: Moody's Downgrades Debt Ratings to "Ca" Levels GRUPO IUSACELL: Moody's Drops Unsecured, Issuer Grades to "Caa2" ISPAT INTERNATIONAL: Extends Exchange Offer for Certificates V E N E Z U E L A UNIBANCA: Fitch Withdraws Ratings Following Merger SIDOR: Workers Claim Benefits Accounting Flawed, Threaten Strike - - - - - - - - - - ================= A R G E N T I N A ================= AMERICA ONLINE: CFO Leaves Company for Cisneros Group ----------------------------------------------------- Struggling America Online Latin America Inc. will have a new Chief Financial Officer by October after Javier Aguirre decided to leave the company for Venezuela's Cisneros Group. Mr. Aguirre's new employer, however, is one of the major shareholders of AOL-Latin America, along with AOL Time Warner. The company did not say the reason for the CFO's departure, says Reuters. Osvaldo Banos will replace Mr. Aguirre. The new CFO previously held the post of president and chief executive of Pepsi bottler Buenos Aires Embotelladora SA. The company expects the transition to be completed by late October. Threatened by a possible delisting from the Nasdaq SmallCap market, the company recently announced that it will increase market capitalization in the coming weeks to keep up with the market's requirements. Earlier this year, the company slid down from Nasdaq National Market status to its SmallCap market. The delisting warning for AOL came after the Company reported second-quarter results that reflected its user base fell 7.3% to 1.3 million, as marketing spending in the latest quarter was halved to US$24 million from US$48 million a year earlier. The Company's user base includes paying and free-trial members. Analysts are worried that the spending cuts may turn shareholders off. Citing Dow Jones, Troubled Company Reporter-Latin America said early this month that the first signs that shareholders wanted the Company to cut on spending was when the Company announced it would focus on retaining upper-income customers rather than adding new users. The strategy was announced after the Company raised cash in March. AOL's subscription revenue in the latest quarter was US$16.2 million, compared with US$15.7 million in the first quarter and US$11.3 million a year ago. The second-quarter net loss was US$44.6 million, less than US$74.5 million a year ago. Average revenue per user was US$12.39, higher than US$11.12 in the first quarter, but down from US$12.76 a year ago. The Company's results were negatively impacted by large currency fluctuations in Argentina and Brazil. It also offers services in Mexico. Parent AOL Time Warner is currently the subject of two U.S. government inquiries. It recently admitted to illegally inflating revenues in three advertising deals. CONTACT: AMERICA ONLINE 22000 AOL Way Dulles, VA 20166-9323 Phone: 703-265-1000 Fax: 703-918-1400 Home Page: http://www.corp.aol.com DINAR LINEAS: Grounds Planes, Blames Creditor Bank for Decision --------------------------------------------------------------- Ailing Argentine carrier Dinar Lineas Aereas SA cancelled flights beginning Tuesday after blasting creditor bank Banco de la Nacion Argentina of retaining funds from ticket sales. Citing the daily newspaper Clarin, Bloomberg said the airline's fleet grounding would continue indefinitely. Owner Fayez Chehab told the paper he might be forced to close permanently if the matter isn't resolved soon. Mr. Chehab bought Dinar from Argentina's Desimone family barely a month ago and invested US$4 million after absorbing US$25 million of the carrier's debt. The airline makes four domestic flights daily. The Desimone family was forced to auction the business due to mounting losses caused by the peso devaluation, a labor dispute and inability to get affordable credit from banks. "We just couldn't survive anymore in this business environment," Dinar Chief Executive Officer Alberto Desimone was quoted by the Troubled Company Reporter-Latin America in an August 6 report. Before the decision to sell the company, the Labor Ministry had ordered the Desimone family and employees into compulsory conciliation -- the result of a gridlock between managers and workers after Dinar cut its payroll to shore up finances. Cost-cutting measures, according to Mr. Desimone, came after its air travel business turned unprofitable after President Eduardo Duhalde in January removed the peso from an 11-year peg to the U.S. dollar at a 1:1 ratio. The peso's rapid deterioration has made dollar-debt financing increasingly difficult. CONTACT: DINAR LINEAS AEREAS Av. R. S. Pe a 933, Capital Federal, Buenos Aires Argentina Phone: (+54)(11) 53711111 Fax: 43260134 ELECTRICIDAD ARGENTINA: Won't Pay US$91.2 Million Due this Week --------------------------------------------------------------- Power generator Electricidad Argentina SA will become the latest entry into Argentina's list of utilities that have defaulted on their debts when it misses a scheduled payment. Argentine daily La Nacion reports the company will default on US$91.2 million of debt due this week. The paper claims parent Electricite de France has already reached an agreement with creditors to delay the payment for 90 days. Just last week, the group issued an official statement to the Buenos Aires stock market disclosing its plan to renegotiate its debt. Spokesperson Yves Desrousseaux also that the company's debts were mostly US-dollar denominated. "Due to the devaluation of the Argentine peso, which has negatively affected many energy sector companies, Edenor has been unable to meet some of its interest payments this year," Mr. Desrousseaux told Business News Americas. The company owns a majority stake in Edenor, which generates and distributes electricity in greater Buenos Aires. "We can't do anything until the government makes a decision about raising tariffs," Mr. Desrousseaux said, adding that "Edenor has met recently with its creditors and we are currently in negotiations." Edenor has been seeking to raise power tariffs to stave off an impending bankruptcy, Troubled Company Reporter-Latin America said yesterday. Edenor managing director Henri Ducre has admitted the company could go bankrupt unless it is allowed to hike power tariffs to offset the effects of inflation and the depreciation of the peso. In ten years of concession, Edenor made US$450 million in profits on US$1.165 billion in investments. Its debt now totals US$515 million. Edenor expects the government to announce rate increases soon, enabling the distributor to restructure its debt to new cash flow. However, the context is highly unstable and negotiations with the government could drag on, Mr. Desrousseaux says. To see latest financial info: http://bankrupt.com/misc/Electricidad_Argentina.htm CONTACT: EDENOR S.A. Azopardo Building Azopardo 1025 (1107) Capital Federal Phone: (54-11) 4346-5000 Fax: (54-11) 4346-5300 E-mai: to ofitel@edenor.com.ar Home Page: http://www.edenor.com.ar TGS: Local S&P Rates US$100 Million Corporate Bond "CCC" -------------------------------------------------------- Standard & Poor's International Ratings, Ltd. Sucursal Argentina assigned a "CCC" rating to US$100 million corporate bond issued by Transportadora de Gas del Sur S.A. The simple issue corporate bond matures December 2, 2002. The rating, which is dated August 22, reflects the company's position as of March 31, 2002. In May, TGS released its unaudited first quarter earnings with a loss of ARS515.6 million (US$1=ARS3.20) or 64.9 centavos a share. It also stated earnings of ARS33 million, or 4.2 centavos a share. Argentina's leading transporter of natural gas has been affected by the country's devaluation and the inability to increase rates. The Company's operating costs, selling and administrative expenses, as well as financial costs increased during the quarter. TGS is owned by Companhia de Inversiones de Energia SA, or Ciesa, which is in turn co-owned by Perez Companc SA and bankrupt Enron Corp. CONTACTS: IN BUENOS AIRES Investor Relations: Eduardo Pawluszek, Finance & Investor Relations Manager Gonzalo Castro Olivera, Investor Relations (gonzalo_olivera@tgs.com.ar) Mara Victoria Quade, Investor Relations (victoria_quade@tgs.com.ar) Tel: (54-11) 4865-9077 Media Relations: Rafael Rodriguez Roda Tel: (54-11) 4865-9050 ext. 1238 ============= B E R M U D A ============= FLAG TELECOM: Creditors to Vote on Settlement Plan Next Month ------------------------------------------------------------- FLAG Telecom Holdings Ltd. and FLAG Ltd. creditors are set to meet in Bermuda next month to vote on a proposal for a settlement proposal, The Bermuda Sun reports. The Supreme Court ordered the meeting, setting it for September 23. The meeting will take place at the offices of KPMG at Crown House on Par-la-Ville Road, with FLAG Telecom at 10am and FLAG Ltd. at 11am. FLAG Telecom Holdings Limited and certain of its subsidiaries joined the long list of telecom firms that have gone belly up this year by filing for bankruptcy protection between April 12 and April 23. Mounting debts forced it to go out of service. The company, which was floated just last year, filed for Chapter 11 protection in the bankruptcy court for the Southern District of New York. In July, the company filed a plan to reorganize its finances and said it hopes to complete the restructuring by September. FLAG Telecom Holdings Limited and the other companies continue to operate their businesses as Debtors In Possession under Chapter 11 protection. FLAG Telecom Holdings Limited and certain of its Bermuda- registered subsidiaries - FLAG Limited, FLAG Atlantic Limited and FLAG Asia Limited - filed parallel proceedings in Bermuda to seek the appointment of provisional liquidators to obtain a moratorium to preserve the companies from creditor actions. Provisional liquidators were appointed and part of their role is to oversee and liaise with the directors of the companies in effecting a reorganization under Chapter 11. Since the tech market bubble burst in March 2000, the US$300- billion-a-year telecom industry has been staggering under excess capacity, falling prices and mounting debt. So far, some 500,000 telecom jobs have disappeared and investors have absorbed US$2 trillion of paper losses. GLOBAL CROSSING: Auctions Telecom and IT Assets ----------------------------------------------- Global Crossing announced a major auction of telecom and IT equipment surplus as part of its restructuring. Featured Assets Include: (a) Computers (b) Servers (c) Gensets (d) Switches (e) Telecom Gear (f) Networking Equipment (g) Cable (h) Furniture Webcast Auction will be on August 27 & 28, 2002 at 9 am ET each day to be held at Hyatt Regency - Rochester 125 East Main Street Rochester, NY 14604. Bids should be in person or on the Web at http://www.dovebid.com Preview will be on August 26, 2002, 9 am to 4 pm local time. Visit http://www.dovebid.comfor preview locations. CONTACT: DoveBid Customer Care Phone: 800 665 1042 To schedule an auction call: Phone: 800 343 3683 x 2621 GLOBAL CROSSING: Sells Right to Use Assets ------------------------------------------ Global Crossing is selling certain indefeasible right to use assets (IRU) located throughout the United States and other countries. The company, in accordance with Sales Procedure of the United States Bankruptcy Court, will schedule a hearing to approve any Private Sale no earlier than thirteen days after the company's determination to conduct such Private Sale. For those IRU's not sold in a Private Sale, the company will conduct an auction on September 10, 2002 at 10:00 am at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153. The Debtors will seek Court approval of the sales of the IRUs pursuant to the Auction at a sale hearing on September 26, 2002 at 9:45 a.m. at the United States Bankruptcy Court for the Southern District of New York, Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004, before the Honorable Judge Robert E. Gerber, United States Bankruptcy Judge. Copies of the Sale Motion and the exhibits thereto may be reviewed during regular bankruptcy court hours at the office of the clerk of the Bankruptcy Court, Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004, and may also be obtained upon written request to Weil, Gotshal & Manges LLP, attorneys for the Debtors, 767 Fifth Avenue, New York, New York 10153, Attention: Shai Y Waisman, Esq. Any objections to the relief requested in the Sale Motion of the IRUs must be in writing, shall conform to the Federal Rules of Bankruptcy Procedure and the Local Rules of the Bankruptcy Court, and shall be filed with the Court electronically in accordance with General Order M?182 (General Order M-182 and the User's Manual for the Electronic Case Filing System can be found at www.nysb.uscourts.gov the official website for the Bankruptcy Court), by registered users of the Bankruptcy Court's case filing system and, by all other parties in interest, on a 3.5 inch disk, preferably in Portable Document Format (PDF), Wordperfect or any other Windows-based word processing format, and shall be served in accordance with General Order M-182 and the Local Rules of the United States Bankruptcy Court for the Southern District of New York. =========== B R A Z I L =========== BANCO ITAU: World Bank Loan Secured to Prop Up Economy ------------------------------------------------------ Banco Itau SA and Uniao de Bancos Brasileiros SA will be the recipients of a US$250 million World Bank loan to help arrest Brazil's deteriorating economic condition, says Bloomberg. The loan, which will be provided by the International Finance Corp. of the World Bank, is aimed at counterbalancing the moves by most international lenders to stay clear of Brazil's woes. A number of lenders, including Citigroup Inc., have begun pulling credit lines due to the country's worsening economic outlook. In addition, the Presidential election in October is casting considerable political uncertainty into the picture, triggering fears that the government will default on public debts just like Argentina. Banco Itau, the country's 4th largest commercial bank, will get US$100 million of the loan, while Unibanco will get the other US$150 million. IFC also said it would syndicate an unspecified additional amount to foreign banks to induce the lenders to keep open their trade credits. The World Bank loans "have an important role to play not only in providing needed financing to the country, but in buttressing investor sentiment," Bloomberg quoted a document from the International Finance Corp. For its part, the government sold US$100 million to banks last week to help exporters finance trade and to prop up the ailing currency. In all, the government has promised to provide exporters US$4 billion in credit through the central bank and the state development bank, with each contributing US$2 billion. An analyst interviewed by Bloomberg says without increases in exports, Brazil's economy will have a difficult time generating the economic growth necessary to stay solvent even after the International Monetary Fund provided US$30 billion in aid this month. Meanwhile, the U.S. Treasury says it will not pressure commercial lenders to keep their credit lines open to Brazilian companies, saying it won't ask them to do anything that's not in their best interest. Brazil is the 13th largest trading partner of the U.S., accounting for US$40 billion of annual trade. The analyst told Bloomberg that a Brazil default would undercut the profits and prospects for scores of U.S. companies. "Keeping exporters alive will help prevent Brazil's financial woes from thrusting the economy into the tailspin experienced by neighboring Argentina after its banks were shuttered and the government defaulted," Bloomberg says. The World Bank loans are scheduled to be voted on by the bank's board in mid-September, according to documents posted on the official Web site. The documents said the aid would be "complementary to policy initiatives, reportedly being mulled by the IMF, to address the current severe pullback of bank lines to Brazil." The report did not state why Banco Itau and Unibanco were chosen to receive proceeds of the loan. Moody's recently cut Banco Itau's long-term foreign currency deposits to B3 from B2 with a stable outlook. The ratings actions follow Moody's downgrade of Brazil's foreign currency country ceiling for bonds and notes to B2, from B1, as well as of foreign currency country ceiling for bank deposits to B3, from B2. Banco Itau provides investment banking, securities brokerage, and insurance to its consumer and business customers. In addition to some 3,000 branches in Brazil, Banco Itau has operations in North America and Europe. The bank has used acquisitions to expand its international presence. CONTACT: BANCO ITAU, S.A. Rua Boa Vista, 176 01014-919 Sao Paulo, Brazil Phone: +55-11-3247-3000 Fax: +55-11-5582-1133 URL: http://www.itau.com.br Contacts: Olavo Egydio Setubal, Chairman Robert Egydio Setubal, President and CEO Henri Penchas, SVP Accounting & Control Area DAIMLERCHRYSLER: Negotiates Brazilian Plant Sale ------------------------------------------------ German-American auto manufacturer DaimlerChrysler is in talks with U.S. Company Tecumseh Products Company for a possible sale of its closed down plant in Campo Largo Brazil, Gazeta Mercantil reports. The plant, in Brazil's Parana state, was closed a year ago as part of DaimlerChrysler's US$4 billion turnaround plan. The acquisition will be added to Tecumseh's presence in Brazil through two Sao Carlos-based plants in the Sao Paulo state. The new plant will produce engines and transmissions. Tecumseh is already producing 12 million compressors for refrigerators, freezers and air conditionings in its two plants. The Company has a goal of surpassing last year's turnover of BRL225 million by 33 percent this year. The Campo Largo plant was built under a government subsidy. It was set up in 1998 and was worth US$315 million. The plant was able to produce only 4,600 pickups out of the 40,000 units per year target. ELETROPAULO METROPOLITANA: Gets Extension on Debt Repayment ----------------------------------------------------------- Leading Latin American power distributor Eletricidade de Sao Paulo S.A. announced Tuesday that it had successfully extended payment of its US$225 million syndicated loan, after paying US$34 million that day. In an e-mailed statement to Bloomberg, the company said the balance of the loan -- most of which will be converted into Brazilian reais -- will be repaid over the next 24 months. It will hold discussions with banks over the next two weeks on the terms of the loan extension, the company statement said. J.P. Morgan Chase & Co., along with an undisclosed number of partners, provided this credit facility, says Bloomberg. Last week, Standard & Poor's Ratings Services lowered its global scale foreign currency and local currency corporate credit ratings on Eletropaulo Metropolitana to double-'C' from triple- 'C'. The downgrade is based on Standard & Poor's perception that Eletropaulo has already used available sources of liquidity and will face increasing challenges to amortize the remaining debt coming due in 2002. The ratings remain on CreditWatch with negative implications. Eletropaulo has total debt of US$1.6 billion, including the debt held at holding companies, Troubled Company Reporter-Latin America said in a report yesterday. Standard & Poor's said the CreditWatch listing will be resolved if Eletropaulo presents conditions to repay amortizations that are coming due, and succeeds in its negotiations with creditors. Through this, Standard & Poor's would be able to analyze the company's cash flow and coverage ratios, and consider the resulting amortization schedule. For the first half of this year, the AES Corp. subsidiary saw its net loss balloon to BRL146.3 million from BRL43.2 million registered in the same year-ago period. Operating loss stood at BRL43.5 million during the period against an operating profit of BRL18.6 million in the year-ago period, TCR-Latin America said in a report on August 13. Net revenue leveled at BRL2.82 billion compared with BRL2.56 billion in the same period last year. Eletropaulo has more than US$400 million in dollar-linked debt maturing this month. Last Wednesday, the company received a shot in the arm when it received funds from Brazil's National Development Bank (BNDES). The bank lent the company BRL402 million as part of a deal between the government and power companies that was concluded in December 2001. The government had promised to compensate power distributors for their losses due to a rationing program amid the country's energy crisis last year. BNDES is the financing agent in that deal. The funds helped Eletropaulo meet a US$120 million payment of commercial paper that fell due on the same day. Eletropaulo is the largest electricity distributor in Latin America in terms of revenues, with a sales volume of 32,563 GWh in 2001. Since privatization on April 15, 1998, Eletropaulo has been owned by LightGas, now known as AES ELPA. AES ELPA is 88.21% owned and controlled by AES. AES ELPA owns 77.81% of Eletropaulo's voting shares and 30.97% of total capital. CONTACT: ELETROPAULO METROPOLITANA Avenida Alfredo Egidio de Souza Aranha 100-B, 13 andar 04726-270 San Paulo Brazil Phone: +55-11-548-9461, +55 11 5696 3595 Fax: +55-11-546-1933 URL: http://www.eletropaulo.com.br Contacts: Luiz D. Travesso, Chairman and President Orestes Gonzalves Jr., VP Finance/Investor Relations LIGHT SERVICOS: Could Be Sold to Ease Financial Burden ------------------------------------------------------ Reports are circulating that Electricite de France is under heavy pressure to sell assets in Europe, Brazil and China in order to ease its financial woes, La Tribune said recently. The paper attributed the pressure on the French government, but no official confirmation has been made on this yet. The government holds majority control of the company. The report says if difficulties in Light Servicos de Eletricidade SA are not resolved, the Brazilian company could be sold. This unit is nearing the conclusion of a restructuring plan and a US$1 billion capitalization aimed at restoring financial balance. In May, the company reported profitable first quarter figures, registering BRL23.6 million in net profit compared with a net loss of BRL166.6 million in the same quarter a year ago. The Rio de Janeiro-based electricity distributor said it benefited from reduced exposure to foreign exchange losses. In addition, the real was largely stable in the first quarter, shedding just 0.4 percent of its value. Net revenue during the quarter rose 7.3 percent to BRL986.5 million, while earnings before tax, depreciation, interest and taxation increased 23 percent to BRL280.4 million. Light's chief executive, Maurice Gaillard, also revealed that the end of a power-rationing program in March helped restore revenue. The Brazilian government imposed a 205 electricity rationing plan in June last year to avert rolling blackouts after water reservoirs that feed hydroelectric plants reached critical levels. La Tribune says units in Austria (Estag), Sweden (Graninge AB) as well as Hungary (Bert and Demasz) are all also threatened and might be sold. The paper also hinted that Electricite de France could also sell for EUR400 million its 60% stake in China's Laibin B and 20% in Shandong. EdF CEO Francois Roussely said in a statement to the National Assembly at the end of July that the company's earnings will "come close to the red" this year. CONTACT: LIGHT SERVICOS DE ELETRICIDADE S.A. Avenida Marechal Floriano, 168 20080-002 Rio de Janeiro, Brazil Phone: +55-21-2211-2794 Fax: +55-21-2211-2993 Home Page: http://www.lightrio.com.br Contact: Bo Gosta Kallstrand, Chairman Michel Gaillard, President and CEO Joel Nicolas, Executive Director, Operation Paulo Roberto Ribeiro Pinto, Executive Director, Investor Relations and CFO VARIG: S&P Maintains RG Receivable Notes on Watch Negative ---------------------------------------------------------- Standard & Poor's Ratings Services said Monday that its single- 'B'-minus rating on the notes issued by RG Receivables Co. Ltd.-a special-purpose entity associated with Varig Airlines-remains on CreditWatch with negative implications after completion of a recent performance review. This review was undertaken in the context of recent changes in Varig Airline's top-level management, the prospect for continued near-term financial stress in the Brazilian economy, and the difficult operating circumstances of the global airline industry generally. The RG Receivables notes are secured by the proceeds of credit and charge card receivables generated by the sale of airline tickets in the U.S. to Varig customers flying between Brazil and the U.S. The transaction is structured to capture offshore U.S. dollar-denominated payments generated from the sale of tickets on Varig S.A. flights between Brazil and the U.S. and between the U.S. and Tokyo, Japan. Concerns leading to the CreditWatch negative placement of the transaction late last year included the prepayment of one quarter of principal with the proceeds of the transaction reserve account (leaving the transaction without a liquidity reserve), a general reduction in airline travel after Sept. 11, 2001, and the increasingly strained financial condition of Varig, the generator of the receivables used to repay the notes. These financial strains on Varig have increased in the past several months. Traffic volumes on routes within Brazil have eased, and competition on foreign routes has reportedly increased. Moreover, the Brazilian currency has depreciated sharply, increasing the servicing costs of Varig's mostly U.S. dollar-denominated debt at a time when revenue has stagnated and the prospects for financial improvement appear bleak due to deteriorating economic conditions within Brazil. As financial pressures have grown, Varig has returned several leased aircraft and negotiated more favorable terms on many of its remaining aircraft leases. More recently, the company has approached its major non-aircraft creditors, including several Brazilian banks, the Brazilian airport authority Infraero, and the oil company Petrobras, to negotiate a restructuring of the company's financial obligations. Adding to the uncertainties inherent in this process, Varig has undergone in recent weeks a major management change intended to give the company a "jump- start" in its restructuring efforts and its pursuit of new strategic investors. Despite an apparent willingness on the part of Varig's creditors to work with the company to achieve a productive restructuring, the long-term viability of Varig's financial condition remains unclear. The airline's chronic financial weakness has been a material rating constraint for much of the life of the RG Receivables deal, as this weakness has the potential to impair the airline's ability to maintain sufficient flight frequencies on the Brazil- U.S. routes that finance the repayment of the transaction notes. In addition, a general debt restructuring could lead to significant pressure on transaction creditors to agree to a similar restructuring or risk having unsecured creditors force the company into an involuntary bankruptcy proceeding-a step that could seriously threaten the interests of transaction creditors if it resulted in a liquidation of the airline or a reduction in service on its international routes. Notwithstanding these economic, managerial, and financial restructuring issues, there has been no significant reduction as yet in flight frequencies on the transaction-critical Brazil-U.S. routes. Receivables generation on these routes has been healthy, with revenue over the first six months of 2002 roughly flat compared with the same period in 2001. Debt service coverage has improved since the fourth quarter of 2001, averaging close to 4 times (x) over the same period of 2002. This ratio is well above the trigger levels (2x for the quarterly test and 2.5x for the semiannual test) that would trigger an early amortization of the notes and is a significant source of support to the transaction rating. It should also be noted that this ratio fell only to 3.6x in the three-month period ended in November 2001, immediately after the September terrorist attack in the U.S., and has never dipped lower than 3.1x over the life of the deal to date. The CreditWatch negative designation that Standard & Poor's maintains on the transaction indicates that there is a significant possibility that the rating could be lowered over the next several weeks or months. In Standard & Poor's view, significant downside risks associated with the airline's financial restructuring, competition on transaction-critical routes, and near-term performance of the Brazilian economy currently outweigh certain positive credit elements such as the historically robust receivables performance, the importance of Varig to Brazil's economy (which increases the incentives for Brazil's government to help engineer a solution to Varig's financial problems), and the prospect that a successful financial restructuring could place Varig's finances on a more viable long- term footing. Any developments that appear to threaten the airline's ability to continue operating or that could negatively impact the generation of receivables on the transaction-critical routes would likely lead to a reduction in the transaction rating. Conversely, if Varig's new management is able to conclude a viable long-term financial restructuring of the company and traffic continues to hold up on the critical routes amid Brazil's challenging economic environment (or if that environment should improve), a positive review of the current rating and CreditWatch designation would become possible. Standard & Poor's will continue to monitor carefully the Brazilian economy and all developments involving Varig, particularly its ongoing financial restructuring efforts. ===================== E L S A L V A D O R ===================== BMI: Fitch Changes Long-Term Currency Debt To Outlook Negative -------------------------------------------------------------- Fitch Ratings has lowered the long-term currency debt outlook of Banco Multisectorial de Inversiones (BMI) to negative from stable, following a change in outlook of El Salvador's sovereign long-term foreign currency rating of 'BB+', due to higher fiscal pressures and concerns about the country's growth prospects. Banco Multisectorial Inversiones --Long-term foreign currency rating affirmed at 'BB+'; --Short-term foreign currency affirmed at 'B'; --Individual rating affirmed at 'C'; --Support rating '5T'. --Rating Outlook to Negative from Stable. CONTACT: FITCH RATINGS, NEW YORK Peter Shaw Phone: 212/908-0553 Agatha Pontiki Phone: 212/908-0306 Akiko Kudo Phone: 212/908-0819 =========== M E X I C O =========== BANCO INDUSTRIAL: IPAB Intervenes Over Huge Accounting Concerns --------------------------------------------------------------- The Mexican Bank Deposit Insurance Institute (IPAB) took control of Banco Industrial due to a problem in the Mexican bank's accounting records, EFE reports. Some 3.78 billion pesos (about US$378.7 million) are reported missing from the bank's balance sheet. The matter was reported May 31, but the exact amount was only known after the bank's books were audited. IPAB disclosed that the Finance Secretariat revoked the bank's license. The institution also said it would return Banco Industrial's retail deposits through Banco del Bajio. As of August 6 report, shareholders of the bank are scheduled to decide whether to bail the bank out or leave it to the National Banking and Securities Commission (CNBV). Tender of the bank to the CNBV is expected to finally stop the bank's operation. Banco Industrial was intervened in 1998 after financial problems were detected in its assets and credit portfolio, as well as insufficient preventive provisions for high-risk credits estimated at MXN555 million (US$56.73 million). CFE: Expects Change in Tax Payment Mode --------------------------------------- The Federal Electricity Commission (CFE) hopes that a new fiscal program will change the basis of its tax payment, El Universal reports citing company Director Alfredo Elias Ayub. CFE expects that the new regimen, which is part of the electricity reform, will base its tax on profits or earnings instead of assets. Mr. Elias considers the tax based of the current system as "a large chunk of money." The Company is paying a tax equivalent to 9% of its assets, the amount reaching some MXN40 billion (US$4.08 billion) per year. According to him, the industry involves costly assets and the 9% tax based on it is "extremely expensive." The state power company's director also suggested that the government should be responsible for the subsidies to the company, with the Treasury determining the rate and the recipients. The Company is reported to be currently in need of help to carry out its investment program in 2011. Industry-wide upgrade is said to be required in order for the company to meet the MXN560 million (US$57.6 billion) it needs in the coming decade. EMPRESAS ICA: Moody's Downgrades Debt Ratings to "Ca" Levels ------------------------------------------------------------ Moody's Investors Service lowered its ratings on the debt of Mexico's largest engineering, procurement and construction company, Empresas ICA Sociedad Controladora, S.A. De C.V. The ratings were assigned a negative outlook. The downgrades were as follows: (a) US$170 million 5% convertible subordinated debentures due March 15 2004 to Ca from Caa2 (b) Senior implied rating to Caa2, from B3 (c) Issuer rating to Caa3, from Caa1. The action, according to the rating agency, reflects build-up of liquidity pressures as the company relies on asset sales to pay down maturing short-term debt. ICA has 29% of its total debt (1.5 billion pesos, or US$149 million) maturing within the next year. Some 87% of the company's US$305 million cash balance is held by its 50%-owned ICA Fluor Daniel subsidiary, which has already paid dividends for the year. This is a possible source of cash, but ICA has still to find means to use this source. Moody's also pointed out the need for its asset sales to be maintained in order for the company to meet debt payments. The downgrade and negative outlook also reflects concern on severe decrease in revenue expectations. The company's revenue base has declined by more than 70% since 1994 due to the continued invasion of foreign competitors as well as reduced number of projects. Revenue expectations declined from 23.3 billion pesos in 1994 to 9.1 billion pesos in 2001 and to seven billion pesos for the full year 2002. EBITDA margins also consistently decreased for years. They declined to 7.3% for the second quarter of 2002 and to 6.6% for the first half of 2002. The outlook for full year 2002 is as well not significant. Both trends have minimal exception. Both revenue and EBITDA expectations are also below Moody's expectations. Moody's action also stems from delays in the company's return to profitability. The rating agency is on lookout for business prospects in the region as well as in the neighboring countries. The agency is also closely watching ICA's "strategy for restoring growth and for continuing to deliver the balance sheet, and for restructuring its bank facilities and building liquidity," according to Moody's report. Established in 1947, the company is engaged in a full range of construction and related activities, including the construction of infrastructure, industrial, urban and housing facilities. It has completed construction and engineering projects in 21 countries. GRUPO IUSACELL: Moody's Drops Unsecured, Issuer Grades to "Caa2" ---------------------------------------------------------------- Moody's downgraded the senior unsecured and issuer ratings of Mexican wireless CDMA provider Grupo Iusacell from B1 to Caa2 and its senior implied rating of Ba2 to B3. The agency also lowered the senior unsecured rating of Grupo Iusacell Cellular from Ba2 to B3. The rating, which affected approximately $500 million of Debt Securities, has a negative outlook. The action was based on uncertain additional support from the company's top two shareholders, Verizon Communications and Vodafone. Moody's cited Verizon's decision to stop supporting under performing investment, Genuity in particular. According to Moody's despite the stronger cash flow of Iusacell compared to Genuity, it remains that Iusacell is financed on a non-recourse basis and continued financial support from Verizon cannot be ascertained. The downgrade was based secondly, on inconsistent operating strategy, which resulted to market share loss particularly to Telcel. Grupo Iusacell has an estimated market share of 9%, whereas Telcel has 77%. The rating agency pointed that the company plans to re-focus on post aid segment and will continue to expand coverage instead of improving pre-paid strategy in existing territories. Moody's noted that Telcel was able to capture most of subscriber growth in the country through its execution in the pre-paid market. The third basis of the downgrade was the presence of a strong competition in the market, especially now that Telefonica de Expana acquired Pegaso. The support of Telefonica to Pegaso is seen to strengthen the latter's competitiveness. Moody's finally attributed the downgrade to the company's reduced financial flexibility due to company's expectation that it will have no substantial free cash flow going forward and that it has "completely drawn down its committed bank lines", as evident in the company's cash reserves of around US$45 million in 2Q02, of which US22 million was operating cash balance. The company's remaining credit lines is US25 to 30 million. An additional pressure will be brought in if the company fails to bring its free cash flow to break even in 2002, according to Moody's. The negative outlook was due to forecasts that the company's "credit metrics," will worsen due to strong competition and economic slowdown in the country. The company's credit metrics consistently deteriorated over the last few quarters as the profitability levels have been affected by a lower ARPU. This was the effect of migration of post-paid customers to cheaper payment plans as well as lower subscription, says Moody's. It undermines solid customer growth. Grupo Iusacell's total debt to EBITDA ratio (excluding non-recurring items) has increased to about 4.3x as of the end of 2Q02, from 3.5x at year-end 2001. The EBITDA coverage of interest expense in turn has fallen to 2.1x as of the end of 2Q02, down from last year's level of 2.3x. The company, on the other hand, was credited on its drive to maintain minimal short-term debt maturities. Moody's also sees the reduction in its projected capital expenditures for 2002 from $250 million to $130 million as a good move. According to Moody's the ratings will change depending on the availability of significant financial support from the its two main shareholders; the ability of the company to reverse market share loss; the improvement in credit metrics through solid customer, sales and EBITDA growth in combination with lower debt levels; and an improvement in Grupo Iusacell's financial flexibility. Grupo Iusacell, with headquarters in Mexico City, is a wireless CDMA operator with a subscriber base of more than 2.2 million and licensed POPs of around 90 million. ISPAT INTERNATIONAL: Extends Exchange Offer for Certificates ------------------------------------------------------------ Ispat International N.V., (NYSE: IST US; AEX: IST NA), on Monday announced that Ispat Mexicana, S.A. de C.V., Ispat's Mexican operating subsidiary, has extended its exchange offer for all outstanding 10-1/8% Senior Structured Export Certificates due 2003 of Imexsa Export Trust No. 96-1 (the "Senior Certificates") for an additional six business days in order to finalize documentation for the restructuring. The exchange offer will now expire at 5:00 p.m., New York City time, on September 3, 2002, unless otherwise extended or terminated by Imexsa. The exchange offer had been scheduled to expire at 5:00 p.m., New York City time, on August 23, 2002. As of August 22, 2002, Senior Certificates representing over a majority of the aggregate principal amount of Senior Certificates outstanding have been tendered pursuant to the exchange offer. Imexsa anticipates completing the documentation for its restructuring shortly and is extending the exchange offer to permit the remaining holders adequate time to tender their Senior Certificates. Requests for documentation should be made to the Information Agent for the exchange offer, D.F. King & Co., Inc., at (800) 847-4870. Questions regarding the transaction should be directed to the financial advisor to Imexsa, Dresdner Kleinwort Wasserstein at (212) 969-2700. This announcement is not an offer to purchase or a solicitation of consents with respect to any Senior Certificates or an offer of New Senior Certificates for sale. Securities may not be offered and sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States must be made by means of a prospectus that may be obtained from the issuer or selling security holder and will contain detailed information about the company and management, as well as financial statements. CONTACT: ISPAT INTERNATIONAL N.V. Annanya Sarin, Head of Communications Phone: +44-20-7543-1162 +31-10-404-6738 T.N. Ramaswamy, Director, Finance Phone: +44-20-7543-1174 Citigate Dewe Rogerson John McInerney, Investor Relations Phone: +1-212-419-4219 ================= V E N E Z U E L A ================= UNIBANCA: Fitch Withdraws Ratings Following Merger -------------------------------------------------- Fitch Ratings has withdrawn Unibanca Banco Universal's (Unibanca) foreign currency long-term 'B-' (Outlook Stable), short-term 'B', Individual 'D/E' and Support '4T' ratings. The rating withdrawal follows the merger of Unibanca into Banesco Banco Universal (BBU) in June 2002. Following the merger, BBU became Venezuela's fourth largest bank in terms of funds under management (assets + investment funds), with a market share of around 13%. It holds a leading position in the retail market and especially in credit cards and mortgages. Around 80% of BBU's capital is held by the former shareholders of BBU and Unibanca, Mr. Juan Carlos Escotet and the Salvatierra Family. The remaining stake belongs to the Venezuelan Deposit Guarantee Fund and minority shareholders. CONTACT: FITCH RATINGS Franklin Santarelli Phone: +58 212 286 3356 (Caracas) Gustavo Lopez-Cortes Phone: 212/908-0819 (New York) SIDOR: Workers Claim Benefits Accounting Flawed, Threaten Strike ---------------------------------------------------------------- Another strike threatened to hit integrated steel-maker Siderurgica del Orinoco (Sidor) yesterday after workers voted Monday to launch industrial actions to protest management's erroneous computation of vacation and holiday payments. Employees told Business News Americas Monday that they intended to stage a five-hour strike from 7am to noon local time Tuesday due to alleged breaches in the collective labor contract. Sutis trade union President Ramon Machuca also told the paper that they are currently soliciting signatures to support the filing with the labor ministry for an indefinite, legal strike. "We feel the work ethic imposed on us is treating us very unfairly in terms of calculating workers' salaries and in terms of complying properly with the collective labor contract," Machuca told Business News Americas. "Downing tools is a way of expressing our unhappiness and showing that workers are prepared to go all the way with this and find a way for the company to treat us more humanely and fairly. There are fewer of us now but we produce three times what we used to produce," the union leader said. In recent months, Sidor's productivity has risen considerably, as production has hit a record and costs have been cut. In addition, the strength of the dollar against the local currency has also helped companies like Sidor, which exports 80% of its output of some 3.2Mt/y. In May last year, the company was also hit by a three-week strike. Sutis represents 5,400 Sidor employees plus nearly 6,000 sub-contracted workers. At the end of July, President Hugo Chavez said a financial rescue package for the company is currently in the works. The company also obtained preliminary agreement with bank creditors to have a 60-day period to restructure US$1.7 billion in debt, Troubled Company Reporter-Latin America reported earlier this month. The preliminary agreement includes writing off up to half of the Company's debt and capitalization from the government through share increase. Sidor suspended US$31.3 million interest payment on debt last December. Sidor's ability to pay its obligations has been hampered by low international steel prices and a slumping economy. The company is 70% owned by the Amazonia consortium made up of Mexico's Hylsamex, Argentina's Techint group, Venezuela's Sivensa and Brazil's Usiminas. State heavy industry holding CVG owns the other 30% of Sidor. Based in southeastern Bolivar state, Sidor is Venezuela's largest private sector exporter. CONTACT: SIDERURGICA DEL ORINOCO, C.A. (SIDOR) Edificio General, Piso 9 Avda. La Estancia Chuao, Caracas 1060 Venezuela Tel: (582) 902 3800/3917/3955 Fax: (582) 993 2930 Home Page: www.sidor.com.ve/ 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 American is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ, and Beard Group, Inc., Washington, DC. John D. Resnick, Edem Psamathe P. Alfeche and Ma. Cristina Canson, Editors. Copyright 2002. 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 $575 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 $25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *