/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/050124.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 Monday, January 24, 2005, Vol. 6, Issue 16 Headlines A R G E N T I N A AGUAS ARGENTINAS: Suez Departure Anticipated BANCO BISEL: Local S&P Maintains Bonds' `raD' Ratings BANCO SUQUIA: S&P Maintains `raD' Ratings on $36M Worth of Bonds CAPEX: S&P Reierates Junk Ratings on Company Bonds * ARGENTINA: Japanese Regulators Approve Debt Swap Documents B E R M U D A INTELSAT: Moody's Changes Rating Outlook to Negative SEA CONTAINERS: Declares Cash Dividend B R A Z I L BANCO CITIBANK: S&P Releases Ratings Report BANCO ITAU: Moody's Rates $125M, '08 Notes `Ba2' CEMIG: Six Firms Qualify for Power Supply Tender Offer UNIBANCO: S&P Assigns BB/B LC Counterparty Credit Ratings * BRAZIL: Fitch Assigns 'BB-' to 10-yr Euro Bonds D O M I N I C A N R E P U B L I C * DOMINICAN REPUBLIC: Expects Approval of $670M IMF Loan M E X I C O GRUPO IUSACELL: Cofetel Threatens Sanction Over PTT Launch MINERA AUTLAN: Revenue Rises 125% in 4Q04 U R U G U A Y ANCAP: Vazquez Meets Kirchner to Discuss Solution to Trade Snag UTE: Brazil Commences Power Supplies V E N E Z U E L A PDVSA: Substation Project Underway in Anzoaegui SIVENSA: Auditor Presents Independent Report SIVENSA: Annual Shareholders Meeting Set for January 28 * VENEZUELA: Payment Delay Underscores Debt Management Concerns - - - - - - - - - - - ================= A R G E N T I N A ================= AGUAS ARGENTINAS: Suez Departure Anticipated -------------------------------------------- Argentina's local press is speculating that French water company Suez will soon sell its stake in Aguas Argentinas. Suez holds 39.9 percent stake in the water works utility. According to Business News Americas, the Company is pulling out from Argentina because water rates control and tax charges have hurt its ability to recover losses stemming from the peso devaluation in 2001. The Company also suffers from government-imposed fines, most recently a US$683,000 penalty, coming from service interruptions as well as criticisms that it has been unable to fulfill investment targets. Suez however has refused to confirm these reports. Company representatives have explained that it needs the approval of shareholders before it can come up with a decision. Meanwhile, French President Jacques Chirac has expressed complaints over fees applied to Aguas Argentinas during President Nestor Kirchner's recent visit to France. BANCO BISEL: Local S&P Maintains Bonds' `raD' Ratings ----------------------------------------------------- Standard & Poor's International Ratings, Ltd. Sucursal Argentina maintains an `raD' rating on two Short Term Debt Securities (NSC Reg. N 344) issued by Banco Bisel S.A. under Program, the Comision Nacional de Valores (CNV) reports. The debt securities are: - US$54 million worth of "Obligaciones Negociables Subordinadas" issued under Series and/or Class that matured on July 20, 2000; and - US$300 million worth of "Programa de Emisi›n de Titulos de Deuda a Mediano Plazo" issued under Program that also matured on July 20, 2000 The rating action was taken based on Banco Bisel's financial health as of September 30, 2004. According to S&P, an obligation is rated `raD' when it is in payment default, or the obligor has filed for bankruptcy. The rating is used when interest or principal payment are not made on the date due even if the applicable grace period has not expired, unless the ratings agency believes that such payments will be made during such grace period. BANCO SUQUIA: S&P Maintains `raD' Ratings on $36M Worth of Bonds ---------------------------------------------------------------- Standard & Poor's International Ratings, Ltd. Sucursal Argentina maintains a default rating on US$36 million worth of corporate bonds issued by Banco Suquia S.A., says Argentine securities regulator, the CNV. The action, based on the bank's financial status as of September 30, 2004, affected the following bond issues: - US$23 million worth of "Obligaciones Negociables subordinadas, autorizadas por AGO de fecha 19.12.97" due on November 7, 2005; and - US$13 million worth of "Obligaciones Negociables subordinadas convertibles, autorizadas por AGE de fecha 19.9.97" due on May 23,2005. CAPEX: S&P Reierates Junk Ratings on Company Bonds -------------------------------------------------- Standard & Poor's International Ratings, Ltd. Sucursal Argentina reaffirmed junk ratings given to Capex S.A.'s corporate bonds. According to Argentina's securities regulator, the Comision Nacional de Valores, the given ratings are based on the Company's finances as of October 31, 2004. S&P issued a `raD' rating to US$105 million of "obligaciones negociables simples", due on December 23 this year. An obligation is rated `raD' when it is payment default, or the obligor has filed for bankruptcy, said the ratings agency. Another US$150 million of the Company's bonds due on January 1, 2005 received a `raCC'. The bonds are also called "obligaciones negociables simples." The same rating applies to US$40 million of the Company's bonds due on June 11. These set of bonds are classified under "simple issue". S&P said that an obligation with this rating is currently highly vulnerable to non-payment. * ARGENTINA: Japanese Regulators Approve Debt Swap Documents ------------------------------------------------------------ The Argentine Economy Ministry announced that securities regulators in Japan have given their approval on the embattled government's offering documents for its US$103 billion debt restructuring. According to Dow Jones Newswires, Japan was the last relevant jurisdiction to approve the offering documents, which had gotten the approval of U.S., Italy, Germany and Luxembourg as of Jan. 10. But while securities regulators abroad are giving green light to Argentina's debt offering documents, a broad coalition of some of the leading members of the biggest creditor group in Argentina's restructuring threatened to sue to country. According to bondholders familiar with the plan, New York-based hedge fund Greylock Capital and a number of other U.S. and European institutions influential in the US$38 billion-strong Global Committee of Argentine Bondholders began discussions with law firms last week over initiating a lawsuit against the government. These people say they intend to preemptively block the government from later using controversial "exit consent clauses" that could strip bondholders who don't participate in the restructuring of rights contained in old defaulted bond contracts. The government has said it won't use these clauses, which seek the approval of a binding majority of bondholders to amend the old bond language. However, bondholder lawyers say such promises are not legally binding and worry that the government will later introduce them as a condition for participating bondholders to settle the exchange. ============= B E R M U D A ============= INTELSAT: Moody's Changes Rating Outlook to Negative ---------------------------------------------------- Moody's Investors Service has revised its outlook on Intelsat Ltd. to negative from stable after the company announced a second satellite failure in two months, reports Reuters. Intelsat, the satellite operator being taken over in a leveraged buyout, plans to issue US$500 million of seven-year notes with floating interest rates, US$1.3 billion of eight- year notes and US$750 million of 10-year notes with fixed-rate coupons. Deutsche Bank AG, Credit Suisse First Boston Inc. and Lehman Brothers Inc. are managing the sale. According to research firm KDP Advisors Inc., the junk bonds may yield as much as 3.8 percentage points more than U.S. government debt. On Jan. 14, Moody's rated the Intelsat issues B1, four levels below investment grade. Intelsat's offering was delayed for a month by a malfunction on its Americas-7 satellite. The company said Jan. 16 that another satellite broke. CONTACT: Intelsat (Bermuda), Ltd. Wellesley House North, 2nd Floor 90 Pitts Bay Road Pembroke, HM 08 Bermuda Telephone: +1 441-294-1650 Fax: +1 441-292-8300 Website: http://www.intelsat.com SEA CONTAINERS: Declares Cash Dividend -------------------------------------- The Board of Directors of Sea Containers Ltd. declared Friday quarterly cash dividends on the Company's Class A and Class B common shares. The dividend will be $0.025 per share on the Class A common shares and $0.0225 per share on the Class B common shares. Class B common shares are convertible at any time into Class A common shares. The dividends will be payable February 22, 2005 to shareholders of record February 4, 2005. The Class A and B common shares of Sea Containers Ltd. are listed on the New York Stock Exchange under the symbols SCRA and SCRB, respectively. CONTACT: Sea Containers Ltd. Mr. William W. Galvin Phone: (203) 618-9800 =========== B R A Z I L =========== BANCO CITIBANK: S&P Releases Ratings Report ------------------------------------------- CREDIT RATING Foreign currency: BB-/Stable/-- Outstanding Rating(s) Counterparty Credit Foreign currency BB-/Stable Major Rating Factors Strengths: * Support from parent * Track record * Asset quality Weaknesses: * Exposure to Brazilian risk * Strong competition Rationale The ratings on Banco Citibank S.A. (Citi) reflect the uncertainties of operating in Brazil and the institution's exposure to the domestic economic risk, also marked by strong competition in both the wholesale and the retail segments. Offsetting these negatives, Citi's rating is sustained by having Citigroup Inc. (AA-/Stable/A-1+) as shareholder and Standard & Poor's Ratings Services' expectation of parent support. The rating also mirrors Citi's positive track record in the local market, its knowledge of the country, and the good credit quality of its loan portfolio, as attested by strong nonperforming loan indicators. The rating on Citi is based on the support of its parent. In our opinion, except for a scenario of systemic risk, support should be forthcoming in case of need. The Brazilian operation fits well into Citigroup's objective to have a global presence and provide financial services to its global corporate customers. In addition, Citi should continue to focus on its asset management operation (the bank controls the fifth-largest asset manager in Brazil as of December 2004) and in the credit card business. In this line, Citi increased its participation in Credicard, (one of the largest credit card companies in Brazil) to 50%, as Citi and ItaŁ bought out Unibanco. This acquisition is seen as strategic to maintain the bank's competitiveness in the credit card business and use its customer base to improve cross selling with products like insurance, funds, and others. The rating also considers the benefits of Citi's brand-name recognition and its integration to the parent company in terms of management, procedures, and philosophy. Management follows the conservative procedures adopted by Citigroup worldwide. In credit risk management, for example, its historically cautious approach has led to asset quality indicators better than market average even in difficult times. On the other hand, the bank's profitability in Brazilian GAAP is penalized by the conservative foreign exchange hedging policy of its parent. Citigroup hedges specific investments outside the U.S. by acquiring local assets denominated in dollars. This strategy affects the balance sheet in volatile countries like Brazil in 1999, and more recently in 2002, when the Brazilian real (BrR) devaluated and the bank posted generous profits. Nevertheless, in 2003 and 2004, this strategy led Citi's Brazilian books to show losses. During 2003, Citi presented net losses of BrR146 million and, in third-quarter 2004, Citi's losses amounted to BrR336 million. Excluding such foreign exchange effects, the bank would have presented a profit in 2003 and a small loss from January to September of 2004. During 2004, its results were also negatively affected by the bank's decision of writing off around BrR263 million of tax credit that was generated in 2002 (when Brazilian authorities implemented rules regarding the classification and registering of prices of securities). Given its historically cautious approach, Citi's asset quality remained strong, even in times of turbulence. Its nonperforming loans-to-total loans ratio (measured by credits classified between the E and H categories according to local regulation) reached 1.5% in September 2004, down from 2.2% in December 2001. The industry average is 6%, including consumer loans (not Citi's focus). In addition, the bank's good financial profile is also evidenced by the strong liquidity in its balance sheet-with liquid assets representing more than 30% of total assets. Citi has a long track record in the country. Having started operations in 1915, the bank acquired strong knowledge of Brazil and its credit culture. Currently, Citi is the 12th-largest private bank operating in Brazil, as measured by total assets. It offers a broad range of products and services, operating under the concept of "Global Bank" to its corporate and retail clients. It is a strong player in commercial, investment banking, and asset management in Brazil, with a good business profile and competent management to face competition in the wholesale segment. Outlook The stable outlook reflects the outlook assigned to the sovereign credit rating on Brazil. At the current level, the rating on Citi is constrained by the sovereign credit rating, meaning that any change either in the outlook or in the rating on the Federative Republic of Brazil would lead to a similar action for the ratings on the bank. Profile Citigroup's business in Brazil is conducted through two main legal entities: the subsidiary, Citi, and the full branch, Citibank N.A. Citigroup is the largest shareholder of both entities, indirectly owning 99.9% of Citi. The combined operations of Citigroup in Brazil are responsible for around 25% of the total generated results in Latin America. In Brazil, Citi focuses on wholesale activities, offering to approximately 3,000 clients a wide variety of financial products, including corporate banking, treasury management, capital markets, asset management, private banking, credit card, leasing, and bancassurance. The bank is also an important provider of services and products to high-income individuals. Primary Credit Analyst: Claudio Gallina, Sao Paulo (55) 11-5501- 8938; claudio_gallina@standardandpoors.com BANCO ITAU: Moody's Rates $125M, '08 Notes `Ba2' ------------------------------------------------ Banco Itau S.A.'s (Cayman Islands) US$125 million notes, maturing January 2008 obtained a Ba2 long-term foreign-currency debt rating from Moody's Investors Service. The outlook on the rating is positive. According to the ratings agency, the Ba2 rating incorporates Banco Itau's fundamental credit quality, which is reflected by its A3 global local currency rating and which includes all relevant country risks. Also, the Ba2 rating reflects the probability of a sovereign default implied by the Brazilian government's sub-investment- grade B1 foreign currency bond rating, and the likelihood that the Brazilian government could impose a debt moratorium in the event of default on its own foreign currency obligations. Banco Itau is based in Sao Paulo, Brazil. CEMIG: Six Firms Qualify for Power Supply Tender Offer ------------------------------------------------------ Six engineering firms qualified for the first stage of Brazilian power company Cemig's tender for BRL1.6 billion (US$589mn) light for all power supply expansion program, reports Business News Americas. These companies are Brazilian engineering firms CBPO Engenharia, Camargo Correa, Andrade Gutierrez, Queiroz Galvao, Selt Engenharia and Unicoba Importacao. The program, which aims to provide power to 105,000 consumers in poor rural areas in the state of Minas Gerais by end-2006, will be tendered as four separate contracts. Cemig plans to open bids January 26. CONTACT: Cemig - Companhia Energetica AV. Barbacenda 1200 Bello Horizonte MG, 30161-970 Brazil UNIBANCO: S&P Assigns BB/B LC Counterparty Credit Ratings --------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB/B' local currency counterparty credit ratings to Unibanco-Uniao de Bancos Brasileiros S.A. (Unibanco). The outlook is stable. The 'BB-' long-term foreign currency counterparty credit rating on Unibanco was also affirmed. At the same time, Standard & Poor's assigned its 'BB-' foreign currency long-term credit rating to Unibanco's first long-term notes (Eurobond) denominated in Brazilian reais in an amount equivalent to $75 million, with an annual coupon of 17.9%, issued on Dec. 14, 2004, and maturing on June 14, 2006. "The local currency rating on Unibanco reflects its operational efficiency, which is in line with that of its domestic competitors but still inferior to that of its Latin American peers; the relatively weak quality of its credit assets, reflected by the significant volume of write-offs against provisions when compared to its domestic rivals; and the implicit risks of operating in the Brazilian market," said Standard & Poor's credit analyst Claudio Gallina. Partially counterbalancing these aspects, the rating also mirrors the growth of the institution's franchise in Brazil by means of acquisitions and associations; its business strategy, which is aligned with the current scenario of the competitive Brazilian market; and its strong capacity to generate business. Although Unibanco recently announced the sale of its partnership in Credicard (a credit card company also controlled by Banco Itau S.A. and Citibank), the bank has expanded its share in the Brazilian retail market, both through operational agreements with large distribution chains (such as Sonae, Magazine Luiza, and Ponto Frio) and its own companies (Unicard, Dibens, Fininvest, and Hipercard), maintaining the participation of the individual items in its credit portfolio (33% at September 2004). In June 2004, Unibanco was the third-largest Brazilian private bank in terms of total assets. Its growth strategy through acquisitions, strategic alliances with large retail chains, and organic growth has helped the institution to remain as one of the main players in the Brazilian financial system. In our opinion, the bank should continue to benefit from the generation of business derived from its attractive franchise in insurance, credit cards, third-party asset management, pension funds, and credit. The stable outlook on Unibanco's local currency rating reflects our expectation that, while operating more actively in the retail market, the bank should conserve its profitability at levels close to those presented in September 2004. The stable outlook also factors in our expectation that, although the bank may experience some increase in problematic loans due to the characteristics intrinsic to the Brazilian retail market (which could put some pressure on its NPL ratio), the stringent monitoring of its credit portfolio quality may not allow strong deteriorations of its write-off ratios to levels higher than the current ones. The stable outlook on the foreign currency rating reflects that of the sovereign foreign currency rating of Brazil. Primary Credit Analyst: Claudio Gallina, Sao Paulo (55) 11-5501- 8938; claudio_gallina@standardandpoors.com * BRAZIL: Fitch Assigns 'BB-' to 10-yr Euro Bonds ------------------------------------------------- Fitch, the international rating agency, assigned a 'BB-' rating to the 500 million euros of 10-year global bonds, issued by the government of Brazil on Thursday. Brazil's sovereign ratings reflect the ongoing strong international trade performance of South America's largest economy, its declining public and external debt burdens, and a demonstrated commitment to sound macroeconomic policies. Exports have expanded 32% in 2004 over 2003, reflecting both price and volume increases and growth in a broad array of manufactured and primary exports to diverse destinations. Brazil's trade surplus has exceeded most expectations this year, at US$33.7 billion, yielding a current account surplus of approximately 1.9% of GDP. Economic growth has proceeded apace, with Fitch estimating a 5% expansion 2004, moving imports up markedly, but not creating substantive balance of payments pressures. As domestic demand and imports grow more briskly in 2005, the trade and current account surpluses can be expected to narrow. External financing needs, which Fitch forecasts at US$32 billion this year, up about US$5 billion from 2004 due to an expected narrowing current account surplus, remain heavy due to the legacy of past borrowing. Nevertheless, the net external debt burden is forecast at under 130% of broad exports this year, down from a high of 308% in 1999, but likely to fall below 100% over the next two years. The fiscal authorities continue to outperform their fiscal targets, with the public sector primary surplus totaling 4.64% of GDP in the 12 months to November. The authorities raised the full-year 2004 target to 4.5% of GDP in September, though the 2005 target remains at 4.25%, which is nonetheless 0.5% of GDP higher than the previous government's target. Exceptional tax performance has been underpinned by the economic upturn as well as by the reform of the Cofins (social security) tax in 2003. With this as a backdrop, Brazil's public and external debt burdens have moved down, with gross general government debt expected to be down 5% of GDP from 2003 to under 74% of GDP by year-end 2004, though Brazil's public and external debt ratios still exceed the 'B' and 'BB' medians for these measures. =================================== D O M I N I C A N R E P U B L I C =================================== * DOMINICAN REPUBLIC: Expects Approval of $670M IMF Loan -------------------------------------------------------- More loans could come in for cash-strapped Dominican Republic if the country manages to secure approval for an important loan program from the International Monetary Fund (IMF). Mr. Julio Ortega Tous, economic advisor to President Leonel Fernandez, told Dow Jones Newswires that the country expects no hitches in the approval of its loan request from the IMF. The IMF board is scheduled to vote on the US$670 million, 28-month credit line on January 31. Half of the US$670 million loan will be disbursed this year, adds Mr. Tous while another US$360 million will also come from combined disbursements from the World Bank and IDB. The Country is also scrambling to secure a favorable restructuring deal for its US$1.1 billion in outstanding global bonds. However, around US$500 million in outstanding Brady bonds will be excluded from any restructuring. Mr. Tous explained that the government will ask for an extension of the bonds' maturities. He adds that the government has no plans to reduce the principal or lower interest rates on these bonds. Investors holding global bonds that mature in 2006 and 2013 are the likely groups affected by this scheme. Meanwhile, the Dominican Republic is working to reschedule bilateral obligations with the Paris Club of sovereign creditors. The country has also successfully secured a EUR210 million loan from Spain and a financing deal with Venezuela to cover oil importation costs. =========== M E X I C O =========== GRUPO IUSACELL: Cofetel Threatens Sanction Over PTT Launch ---------------------------------------------------------- Mexican telecoms regulator Cofetel warned it will impose a sanction on mobile operator Iusacell (NYSE: CEL) if the latter goes ahead with the launch of its new its push to talk (PTT) service called Radio Plus, reports Business News Americas. Cofetel said Iusacell is not currently authorized to offer this type of service. "If Iusacell decides to launch and sell the product, Cofetel will impose a sanction that could be economic in nature and whose amount would be defined by the board," a Cofetel source said. Iusacell can get around the issue by applying for a specific permit to launch the services but the company has not done so, according to Cofetel. The new service will offer instant, two-way walkie-talkie communications to subscribers using their mobile phones. The Radio Plus will ride on Iusacell's third-generation Code Division Multiple Access (CDMA) technology that uses the IP voice system. Radio Plus will be available in 66 Mexican cities. CONTACT: Grupo Iusacell S.A de C.V. Prolongacion Paseo de la Reforma 1236 Colonia Santa Fe Delegacion Cuajimalpa Mexico, D.F. 05348 Mexico Phone: 011-525-109-5754 Web site: http://www.iusacell.com.mx MINERA AUTLAN: Revenue Rises 125% in 4Q04 ----------------------------------------- Strong demand for manganese-ferroalloy coupled with higher prices for its products pushed Minera Autlan's revenue 125 percent in 4Q04 compared with results a year earlier. Business News Americas reveals that the manganese producer ended the fourth quarter with MXP585 million in revenues and Net Sales of MXP1.75 billion, 79 percent higher in the same period last year. The company also recorded a 10 percent drop in Cost of sales from last year's figures. Meanwhile, Ebitda during the period came at MXP188 million, a 698 percent increase on 4Q03. ============= U R U G U A Y ============= ANCAP: Vazquez Meets Kirchner to Discuss Solution to Trade Snag --------------------------------------------------------------- The presidents of Uruguay and Argentina met last week to discuss, among other things, a solution to a glitch in the trade relationship between Uruguay's state-owned petroleum refining company ANCAP and Argentina's privatized Repsol-YPF, the PetrolWorld reports. Uruguay's President-elect Tabare Vazquez told his Argentine counterpart President Nestor Kirchner that ANCAP is losing US$2 million a month because it buys oil at international prices but is forced to sell to Repsol-YPF at the 30-dollar cap ordered by the national government to control local prices. "If we can't find a solution for that soon, our government will have to pay too much to cover the gap," Vazquez told a press conference he gave along with Kirchner's Cabinet Chief Alberto Fernandez. UTE: Brazil Commences Power Supplies ------------------------------------ Brazil began delivering power to Uruguay's state power company UTE early Wednesday morning, allowing the latter to stop using its expensive diesel-fired La Tablada plant, reports Business News Americas. But, due to "technical difficulties," Brazilian power trader Tractebel Comercializadora delivered only 350MW power supplies, less than the 500MW UTE had planned to buy through end-February. At an average price of US$30/MWh, UTE will buy US$25 million of power from Brazil through end-February. The power supply can be renewed for two months if the parties agree. Uruguay has turned to Brazil to cover domestic shortages in recent months, as water levels at Uruguay's Salto Grande hydro plant are much lower than normal due to lack of rain. ================= V E N E Z U E L A ================= PDVSA: Substation Project Underway in Anzoaegui ----------------------------------------------- State-owned oil company PDVSA and power outfit Cadafe will step- in to build two power stations in the state of Anzoaegui, in an effort to address growing power demands in the area. Business News Americas reports that the joint venture, to be constructed in the municipality of San Jose de Guanipa, will cost an estimated US$2 million and is expected to operate by mid-April. Oil and gas exploration and production projects initiated by PDVSA and its partners have increased energy needs in Anzoaegui. The added burden on the state's grid has exposed the company to power shortages such as the transformer failure two weeks ago that cut electric supply for close to 72 hours. The two substations will supply much needed power to the area while a larger US$6mn substation is in the works. SIVENSA: Auditor Presents Independent Report -------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Siderurgica Venezolana "Sivensa", S.A. 1) We have audited the accompanying supplementary consolidated balance sheets of Siderurgica Venezolana "Sivensa", S.A. (Sivensa) and its subsidiaries (Sivensa Group or the Group) at September 30, 2004 and 2003, and the related supplementary consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended, presented in U.S. dollars and prepared in conformity with International Financial Reporting Standards (IFRS). The preparation of these financial statements and their notes is the responsibility of Sivensa Group management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements include the accounts of the 50.002%-owned subsidiary Vicson, S.A. (Vicson), which show total consolidated assets of approximately US$112.1 million at September 30, 2004 (US$92.8 million in 2003) and consolidated net income of approximately US$7.1 million for the year ended September 30, 2004 (US$1.2 million in 2003). The consolidated financial statements of this subsidiary were audited by other independent accountants whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts and disclosures included for such subsidiary, is based solely on the report of the other independent accountants. 2) We conducted our audits in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other independent accountants provide a reasonable basis for our opinion. 3) In our opinion, based on our audits and the report of the other independent accountants, the accompanying supplementary consolidated financial statements audited by us present fairly, in all material respects, the financial position of Siderurgica Venezolana "Sivensa", S.A. and its subsidiaries at September 30, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in accordance with International Financial Reporting Standards. 4) Without qualifying our opinion, we draw attention to Note 9 to the financial statements. The loan agreement entered into by Sivensa and Siderurgica del Turbio, S.A. "Sidetur" (Sidetur) with creditor banks requires payment of US$17 million at March 31, 2005. Under the terms of this agreement, payment must be made with funds obtained from the sale of certain assets, including the shares of certain subsidiaries and real property. The final outcome of this matter cannot be foreseen and no provision for any liability that may result has been recorded in the accompanying supplementary consolidated financial statements. 5) Without qualifying our opinion, we draw attention to Notes 1 and 7 to the financial statements. The associate Orinoco Iron, C.A. (Orinoco Iron) has been unable to meet repayment terms and other covenants set out in the foreign currency loan agreement with creditor banks. Consequently, this loan is considered by creditor banks as due and payable. During 2004 Sivensa recognized in the accompanying consolidated financial statements a provision for contingencies in respect of the guarantee of approximately US$190 million (US$85 million in the short term), equivalent to the present value of estimated future payments required to be made by Venezolana de Prerreducidos Caroni "Venprecar", C.A. (Venprecar) to honor the guarantee granted to Orinoco Iron's creditor banks, whose offsetting entry is an account receivable from Orinoco Iron. These matters raise substantial doubts as to the capacity of the subsidiary International Briquettes Holding (IBH) and its subsidiaries and associates to continue as going concerns. At September 30, 2004, Orinoco Iron's financial debt amounts to US$672 million, of which US$290 million is guaranteed with shares and assets of IBH and its subsidiary Venprecar. Net assets of IBH and Venprecar, included in the consolidated financial statements of Sivensa and pledged as collateral of the aforementioned loan, amount to approximately US$83.7 million at September 30, 2004. In addition, the accompanying consolidated financial statements include other accounts receivable from Orinoco Iron of approximately US$55 million, mainly in respect of funds transferred by Venprecar during 2004 to assist Orinoco Iron in financing its operations. As described in Note 20, as from November 2004, IBH became majority shareholder and has management control of Orinoco Iron. IBH management continues negotiations with creditor banks to restructure Orinoco Iron's financial debt and is of the opinion that accounts receivable from this company will be recovered in the long term. The strategic plans of IBH, Venprecar and Orinoco Iron, as well as other operating and going concern issues of these companies, are explained in further detail in Notes 7 and 20. The final outcome of these matters cannot be foreseen and no provision for any liability that may result has been recorded in the accompanying supplementary consolidated financial statements. Espineira, Sheldon y Asociados Luis Rincon R. CPC 4768 Caracas, Venezuela December 9, 2004 To view financial statements: http://bankrupt.com/misc/Sivensatables.doc CONTACT: Independent Auditor Espineira, Sheldon y Asociados Avenida Principal de Chuao Edificio Del Rio P.O. Box 1789 Caracas 1010-A Venezuela Phone: 700-66-66 Telecopier: 991.52.10 Sivensa Mr. Antonio Osorio Corporate Planning Manager Av. Venezuela, Edif. Torre America, Piso 12 Sivensa Urb. Bello Monte Caracas, Venezuela Phone: (58) (212) 707.62.80 Fax: (58) (212) 707.63.52 E-mail: antonio.osorio@sivensa.com Web site: http://www.sivensa.com.ve/ SIVENSA: Annual Shareholders Meeting Set for January 28 ------------------------------------------------------- The Shareholders of the Company are hereby called to the Annual Shareholders' Meeting to be held on January 28, 2005, at 11:00 a.m., at the JW MARRIOTT of the city of Caracas, Room Armando Reveron, where the following matters will be discussed: 1. To consider the Report submitted by the Board of Directors. 2. To consider the Financial Statements and the Internal Comptrollers' Report corresponding to the fiscal year ended 09/30/04. 3. To appoint the Principal and Alternate members of the Board of Directors. 4. To appoint the Principal Internal Comptrollers and their respective Alternates. Likewise, to decide about their annual remuneration. 5. To appoint the Principal and Alternate Judicial Representatives. Note: Shareholders are advised that the Report of the Board of Directors is available at the offices located at Avenida Venezuela, 12th Floor, Torre America, Bello Monte, Caracas. Shareholders are reminded that the Audited Financial Statements with the Report of the External Auditors, the Internal Comptrollers' Report, and the lists of candidates for the appointment of each of the Internal Comptrollers and their Alternates have been, and continue to be, available to the shareholders, at the same offices, since December 29, 2004, as it was informed in the notice published in the newspapers El Nacional and El Universal, in their respective editions of that same date. CONTACT: Mr. Antonio Osorio Corporate Planning Manager Av. Venezuela, Edif. Torre America, Piso 12 Sivensa Urb. Bello Monte Caracas, Venezuela Phone: (58) (212) 707.62.80 Fax: (58) (212) 707.63.52 E-mail: antonio.osorio@sivensa.com Web site: http://www.sivensa.com.ve/ * VENEZUELA: Payment Delay Underscores Debt Management Concerns --------------------------------------------------------------- The Venezuelan government's apparent delay in payment on oil- indexed payment obligations and its failure to cure the problem more promptly are evidence of deficiencies in its debt management capacity,' according to Morgan C. Harting, Senior Director and Sovereign analyst for Fitch Ratings, "the situation also underscores general concerns about willingness to pay." These risks are factored into Fitch's 'B+' rating and Stable Outlook on the Republic's long-term foreign currency debt and will continue to constrain the ratings. The establishment of a special account to meet obligations related to the oil-indexed instrument is viewed favorably and bolsters the credibility of the government's stated intention to pay once the amount owed is determined. Officials estimate that the final determination will take one to two months. In Fitch's view, administrative shortcomings that contributed to the payment delay on the oil obligations are not expected to bear directly on the republic's capacity to make payments on bonds because principal and interest payments owed on bonds are more clearly defined and do not depend on assessments by third parties. The Venezuelan Ministry of Finance reported Wednesday that it would set aside US$30 million in a special account with its fiscal agent for late payments plus interest owed in respect of its oil-indexed payment obligations. The obligations were issued in 1990, together with discount and par bonds as part of the Brady restructuring. Fitch rates the discounts and pars 'B+', consistent with Venezuela's long-term foreign currency rating. Holders of the obligations are entitled to a payment of up to US$3 per obligation on the 15th of October when Venezuela's oil export price exceeds a reference price during the preceding year through Aug. 31. The amount owed is determined by an independent calculation agent, based on information received from state- owned oil company Petroleos de Venezuela (PDVSA) and other sources. Delays in the provision of relevant information by PDVSA may have prevented the calculation agent from reporting its determination of whether a payment is owed and, if so, in what amount. Ministry of Finance officials have acknowledged that it expects the calculation agent to report that some amount was owed but not paid on Oct. 15, 2004. These concerns notwithstanding, Venezuela's creditworthiness was supported once political uncertainty subsided, following a presidential recall referendum in August. International liquidity has also improved as a result of higher oil prices. International reserves now stand at US$23.5 billion, well in excess of this year's estimated $5.4 billion in interest and principal obligations on the central government's external debt. Longer term, credit risk remains quite high because of volatility in government revenues, half of which are directly related to oil. The structural fiscal balance has clearly deteriorated over the past year: rapid increases in public revenues, most of them either directly or indirectly oil- related, have been matched by similar boosts in spending, preventing the government from erasing its deficit during a bonanza year. As oil prices decline in the future, it will likely prove difficult to reduce government expenditures commensurately, so the nominal deficit could increase unless there is a devaluation to increase the local currency value of oil revenues. Such moves raise the value of public debt relative to GDP and could have political costs because they reduce purchasing power. Fitch believes that policymakers would nonetheless choose to devalue in the event of stress from lower oil prices or wide misalignment of the official and parallel exchange rates, although this might come only after significant depletion in international reserves. Compared with other 'B' range sovereigns, Venezuela stands out for its very low net public external debt position and its superior external liquidity. Public debt is also below average and contracted at relatively low interest rates, keeping current financing requirements lower than most peers. These strengths should allow the government to weather considerable revenue shocks over the next two years, as it did over the past two. In the event of a sustained decline in oil prices or a disorderly easing of capital and import controls, international reserves would come under pressure, diminishing key external strengths. Also, over the longer term, debt dynamics could deteriorate absent improvements to the significant structural deficit and meager prospects for sustainable economic growth. CONTACT: Morgan C. Harting +1-212-908-0820 Roger Scher +1-212-908-0240, New York MEDIA RELATIONS: Kenneth Reed +1-212-908-0540, New York *********** 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., Frederick, Maryland USA. John D. Resnick, Edem Psamathe P. Alfeche and Lucilo Junior M. Pinili, Editors. Copyright 2005. All rights reserved. ISSN 1529-2746. 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