/raid1/www/Hosts/bankrupt/TCRLA_Public/200424.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
Friday, April 24, 2020, Vol. 21, No. 83
Headlines
A R G E N T I N A
ARGENTINA: Debt Offer to Reflect Virus Impact, Fernandez Says
ARGENTINA: To Announce Debt Restructuring Soon
B O L I V I A
BANCO MERCANTIL: S&P Downgrades ICR to 'B+', Outlook Stable
BOLIVIA: S&P Lowers Long-Term Sovereign Credit Rating to 'B+'
B R A Z I L
INTERCEMENT PARTICIPACOES: Fitch Cuts LT IDRs to 'CCC-'
PETROLEO BRASILEIRO: S&P Affirms 'BB-' GS Rating, Outlook Stable
C O L O M B I A
BANCOLOMBIA SA: S&P Alters Outlook to Stable & Affirms 'BB+/B' ICR
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: IMF Says Economy Will Fall 1% This Year
DOMINICAN REPUBLIC: Will Escape a Strong Regional Recession
E C U A D O R
ECUADOR: S&P Affirms 'SD/SD' SCRs After Distressed Exchange
E L S A L V A D O R
EL SALVADOR: S&P Affirms 'B-/B' SCR, Outlook Stable
J A M A I C A
NATIONAL COMMERCIAL: S&P Alters Outlook to Neg., Affirms B+ ICR
SAGICOR JAMAICA: Gets $250MM of Funds for Tourism Workers Pension
P U E R T O R I C O
MACY'S INC: To Raise Up to $5 Billion in Debt to Weather Pandemic
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Debt Offer to Reflect Virus Impact, Fernandez Says
-------------------------------------------------------------
Scott Squires at Bloomberg News reports that Argentina will make an
offer to its creditors "in the coming days" that will reflect the
economic hit from the coronavirus pandemic, President Alberto
Fernandez said.
While debt talks are "going well," calculations of debt
sustainability will be affected by the impact of the virus,
Fernandez was quoted as saying by Perfil, according to Bloomberg
News.
"The coronavirus affects debt renegotiation just as the coronavirus
affects the entire global economy," Fernandez said, Bloomberg News
relates. "What we are going to sign is something that we can
accomplish as a government and as a country. I don't want to
commit to signing something unfulfilled."
Argentina needs an economic recovery plan akin to the post-World
War II Marshall Plan and a massive recovery effort now is more
urgent that an inflation containment plan, Fernandez told Perfil,
Bloomberg News notes.
Argentina is in talks to renegotiate $68.8 billion in international
debt with private creditors and has said it aims to avoid a costly
default, even after it extended quarantine measures until April 26
to halt the spread of coronavirus, Bloomberg News relays. The
country's GDP is now expected to contract 5.4% in 2020 from 1%
previously, according to a Goldman Sachs forecast, Bloomberg News
notes.
S&P Global downgraded Argentina to "selective default" after the
country said it would freeze payments on its dollar-denominated
debt under local law until year-end, Bloomberg News discloses.
Earlier in April, Fitch Ratings cut Argentina to "restricted
default" and Moody's announced a similar downgrade, Bloomberg News
says.
"What there is not going to be is any type of debt restructuring in
pesos," Fernandez said. "We will meet the debt in pesos," he
added.
Fernandez, in a TV interview, said the nation's quarantine measures
have been successful in slowing the pace of contagion, adding that
he couldn't say when the measures would end, Bloomberg News
relays.
The country has 2,142 confirmed cases of Covid-19 and 90 deaths,
according to the health ministry, Bloomberg News notes.
"At this moment I'm not worried about the budget or fiscal
deficit," Fernandez said. "The priority is protecting lives and
health," he added.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings
also lowered its long- and short-term foreign currency sovereign
credit
ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also affirmed
the local currency sovereign credit ratings at 'SD/SD'. There is
no outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2.
ARGENTINA: To Announce Debt Restructuring Soon
----------------------------------------------
Latin France reports that Argentina could disclose an offer to
restructure $83 billion in foreign-currency bonds as soon as this
week as it tries to avoid default, despite shutting down the
economy to contain the spread of the coronavirus.
"We will make the offer in the next few days," President Alberto
Fernandez said in an interview on the local television channel Net
TV, according to Latin France.
The Fernandez administration had wanted to restructure its
international bonds by March 31, but the spread of the coronavirus
delayed negotiations as authorities shifted their focus to dealing
with a worsening health crisis, the report relates. The virus has
gone from one confirmed case at the start of March to more than
2,200 cases and 97 deaths, according to data compiled by the Johns
Hopkins Coronavirus Resource Center, the report relates.
Despite the setbacks, the president said that talks with
bondholders "are going well" and added that he hopes to sign a deal
that will be "something that we can fulfill as a government and as
a country," the report notes.
The government has not provided specifics on what the offer could
entail, but Economy Minister Martin Guzman has said it will seek a
grace period of interest payments along with longer maturities,
lower coupons and a possible haircut, the report notes. The
International Monetary Fund (IMF), Argentina's largest creditor
with $44 million loan, has come out in support of such an offer,
calling on the private bondholders to make a "meaningful
contribution" so that Argentina can pull out if its financial
crisis, the report says.
"I don't want to commit to signing something that we cannot
fulfill," Fernandez said in the televised interview. "We are going
to make an offer that can be sustained over time, an offer that we
know we will be able to fulfill, taking into account the situation
in which Argentina will be after the coronavirus," the report
relates.
The government shut down the economy on March 20 to slow the spread
of COVID-19, the report discloses. It has since extended the
lockdown until April 26, bringing most activities to a halt and
ordering people to stay home except to buy essentials like food,
the report says.
When asked if the impact of the lockdown could mean that
bondholders will be asked to take greater reductions, Fernandez
said, "Yes, we could say that," but he went on to say that it could
mean longer maturities as well, the report relays.
The economy, already in its third year of recession, is expected to
shrink 5.2% this year, according to projections from the World Bank
published, the report relates. Most economists had expected a drop
of 1% before the coronavirus outbreak, the report notes.
While the foreign-currency bonds will be restructured, Fernandez
said the government will not renegotiate its peso-denominatred
notes in the local market, the report notes. "We are going to
comply with the debt in pesos because it is with people who put
their trust in the Argentine currency," he said, the report notes.
The big question, however, is whether the holders of the
foreign-currency bonds will accept the offer, the report relays.
Goldman Sachs said "the odds of a friendly resolution to
Argentina's debt situation have diminished considerably" because of
the coronavirus crisis, the report notes. In a note to clients,
economists at the US investment bank warned that dealing with the
outbreak will not only slow the economy, but also put a large
burden on Argentina's fiscal accounts, which will reduce "the
present discounted value of the expected fiscal cash flows backing
any restructuring proposal," the report says.
What is more, some investors "may be reluctant to accept
significant losses (especially reductions in the face value of
principal and coupons) without a commensurate 'fiscal sacrifice' by
the government," Goldman Sachs said, the report notes.
It added that the global reach of the COVID-19 crisis means that
bondholders are facing many challenges for their "focus and
interest" that is "creating further headwinds to a smooth and
expeditious negotiation process," the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings
lowered its long- and short-term foreign currency sovereign credit
ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also affirmed
the local currency sovereign credit ratings at 'SD/SD'. There is no
outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2.
=============
B O L I V I A
=============
BANCO MERCANTIL: S&P Downgrades ICR to 'B+', Outlook Stable
-----------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit ratings on
Banco Mercantil Santa Cruz S.A. (BMSC) and Banco Union S.A. to 'B+'
from 'BB-' after a similar action on Bolivia. In addition, S&P
affirmed the 'B' short-term issuer credit ratings on the banks. The
outlooks on the long-term ratings are now stable.
The downgrade on the two domestic banks reflects a similar action
on Bolivia, because the sovereign ratings constrain the ratings on
the banks. This is because S&P doesn't believe that the banks could
withstand a sovereign default scenario, given their large risk
exposure to Bolivia in the form of loans and securities.
The downgrade of Bolivia reflects a deterioration in its external
profile because sustained large current account deficits (CAD) have
eroded its once large external buffers. The CAD in the last five
years has been financed by a combination of external debt (mainly
from multilateral lenders) and drawing upon foreign-exchange
reserves. In 2019, Bolivia moved into a net external debtor
position as narrow net external debt (external debt less official
foreign-exchange reserves and public- and financial-sector liquid
external assets) increased to 27% of current account receipts from
an average of negative 43% over the prior five years. In S&P's
view, the recent global oil price shock will further exacerbate
this negative external dynamic.
S&P said, "Currently, BMSC and Banco Union's individual credit
fundamentals remain unchanged in our view--their stand-alone credit
profiles (SACPs) are still 'bb-'. However, we will continue
monitoring the banks' credit profiles as the COVID-19 outbreak and
global credit stress plays out." Particularly, continued economic
paralysis because of the pandemic could impair the banks' business
growth, increase credit losses, and potentially jeopardize its
liquidity in a scenario of volatile deposits. However, the rate of
the spread and timing of the peak of the outbreak, and the
effectiveness of the government's response to contain the virus,
remains unclear.
BOLIVIA: S&P Lowers Long-Term Sovereign Credit Rating to 'B+'
-------------------------------------------------------------
On April 17, 2020, S&P Global Ratings lowered its long-term foreign
and local currency sovereign credit ratings on Bolivia to 'B+' from
'BB-'. The outlook on the long-term ratings is stable. At the same
time, S&P affirmed its 'B' short-term foreign and local currency
ratings.
S&P also lowered its transfer and convertibility assessment to 'B+'
from 'BB-'.
Outlook
The stable outlook incorporates a gradual correction of Bolivia's
fiscal and current account deficits after the negative shocks
stemming from lower oil prices and the coronavirus pandemic. S&P
said, "We expect that the hit to the economy from containment
measures within Bolivia and its trading partners will diminish over
the course of 2020 and be followed by a return toward trend growth.
At this early stage, the presidential election dynamics remain open
and fluid, including their exact date. Nonetheless, in our view,
the challenging economic and fiscal scenario will lead whoever wins
the presidency to adopt pragmatic corrective policies. At the same
time, we believe that Bolivia's reserves and access to official
financing options would cover its financing needs.
S&P said, "We could lower our ratings on Bolivia over the next year
if the country's external debt and liquidity profile weaken beyond
our expectations. This could stem from more prolonged fiscal
slippage and a rise in government financing needs should failure to
contain economic imbalances be delayed or weaken following the
election. Alternatively, weaker credibility of monetary policy,
including from prolonged misalignment in the boliviano, could also
result in a downgrade.
"We could raise our ratings on Bolivia in coming two years if the
government undertakes corrective fiscal or other economic measures
that strengthen fiscal and external imbalances and reverse the
deterioration in the sovereign's financial profile, supporting
greater resilience against external shocks."
Rationale
The downgrade reflects a deterioration in Bolivia's external
profile as sustained large current account deficits (CAD) have
eroded its once large external buffers. The CAD in the last five
years has been financed by a combination of external debt (mainly
from multilateral lenders) and drawings upon foreign-exchange
reserves. In 2019, Bolivia moved into a net external debtor
position as narrow net external debt (external debt less official
foreign-exchange reserves and public- and financial-sector liquid
external assets) increased to 27% of current account receipts from
an average of -43% over the prior five years. In S&P's view, the
recent global oil price shock will further exacerbate this negative
external dynamic.
S&P's ratings on Bolivia reflect its low GDP per capita, which it
projects to fall to US$3,500 in 2020, from US$3,600 in 2020.
Despite substantial improvement in income, social indicators, and
physical infrastructure over the past decade of solid growth, the
country remains poor by overall Latin American standards. The
ratings also incorporate institutional weaknesses, a polarized
political landscape, and moderately low, albeit rising, government
debt on widening deficits given limited fiscal flexibility and a
track record of generally low inflation.
Institutional and economic profile: The economy will suffer from
the impact of the COVID-19 pandemic, lower global energy prices,
and prolonged political uncertainty
-- Fluid electoral dynamics and uncertainties about policy
execution remain as elections have been postponed.
-- GDP grew just 2.2% in 2019 due to sluggish exports and
investment.
-- S&P expects a contraction for 2020 and a moderate recovery over
2021-2022.
Bolivia's interim president Jeanine Anez (previously a senator from
the Democrat Social Movement opposition party) assumed office after
former president Evo Morales resigned in November 2019 in the wake
of widespread social protects following the disputed presidential
election results. While Morales presided over economic prosperity
and improved standards of living for over a decade in office,
perceptions of increased corruption and concentration of power
eroded his support base. Irregularities in the October vote count
and the contested outcome fueled weeks of protests and violence
across the country. The unrest only abated after Morales stepped
down from office and Congress agreed to call for new elections.
Newly appointed electoral authorities had scheduled the elections
for May 3, 2020, but the Tribunal Supremo Electoral (TSE) has
postponed them given the COVID-19 pandemic. No new election date
has been established yet.
With multiple candidates competing in this year's election and a
polarized backdrop, electoral dynamics are fluid and wide open.
Policy execution and the room to maneuver ahead of the election are
constrained given the unelected, interim Añez Administration. In
addition, it faces the challenge of managing the social and
economic impact of the COVID-19 pandemic with limited resources and
health care facilities. The post-electoral outlook remains
challenging as well. Bolivia has a legacy of weak public
institutions and a lack of effective checks and balances--evidenced
by its low ranking in corruption governance indicators
(Transparency International) and ease of doing business indices
(World Bank).
The Bolivian economy started slowing in 2019 due to sluggish
exports and investment, growing only 2.2% (after several years of
impressive 4.5% average growth). We expect growth to be severely
hurt this year by the impact of COVID-19, as well as by a fall in
export prices and volumes (as Argentina and Brazil, key trading
partners, are both likely to be in a deep recession this year). For
2020, S&P expects GDP to decline about 2.5% and GDP per capita to
fall to US$3500, but we expect a recovery in 2021 and 2022. The
country's long-term growth prospects are lower than the commodity
boom years and depend on the next administration's capacity to
address Bolivia's various economic challenges in a timely manner.
Flexibility and performance profile: Recent fiscal and external
deficits have gradually eroded Bolivia's once large financial
buffers
-- A higher CAD in 2020 should moderate in 2021 and 2022 as
exports recover, while external debt will continue to rise.
-- The general government deficit should widen further in 2020
given revenue shortfalls, mainly from lower hydrocarbon tax
collection and health and social spending pressures.
-- Despite overvaluation, S&P doesn't expect the boliviano to
depreciate ahead of the elections.
Bolivia's external profile has deteriorated after CADs averaged
4.9% over the past five years. These deficits have been financed by
a combination of external debt (mainly from multilateral lenders)
and a decline in international reserves. Bolivia's reported foreign
exchange reserves fell to US$6 billion in April 2020 (15% of GDP)
from US$8.9 billion at the end of 2018 and US$15 billion in 2014.
In 2019, Bolivia moved into a net external debtor position as
narrow net external debt (total external debt less official
foreign-exchange reserves plus public- and financial-sector liquid
external assets) increased to 27% of current account receipts.
In S&P's view, the recent oil price shock exacerbates the pressure
on the current account in 2020 and these negative external
dynamics.
Natural gas exports (whose prices are linked to international oil
prices) represent around 30% of the country's total exports. The
hit to prices compounds that export volumes were already falling
given lower demand from Argentina and Brazil and because of reduced
gas supply capacity. In S&P's view, the country's trade deficit
will rise toward 2% of GDP in 2020 from 0.7% in 2019 as lower
imports fail to fully compensate for the fall in exports. The CAD
is likely to rise above 5% of GDP in 2020 from 3.3% the previous
year. At the same time, gross external financing needs (percent of
CAR plus usable reserves) are likely to rise to 88%, from 74% in
2019. A faster-than-expected increase in gross external financing
needs would pressure Bolivia's external liquidity position.
S&P said, "We project the combination of negative shocks will push
the general government deficit over 8% of GDP in 2020, from 6.9% in
2019. The widening deficit reflects both revenue shortfalls and
spending pressures. Around 20% of general government revenue comes
from the hydrocarbon sector and will take a hit from lower prices.
Bolivia's natural gas export prices are linked to crude oil prices,
which are more than 55% lower than in mid-2019. At the same time,
we expect an increase in health and social spending as the
government aims to combat the pandemic.
"As a result, we expect net general government debt to exceed 38%
of GDP in 2020, from 30% in 2019, while interest costs will likely
rise toward 4% of general government revenue, given the higher debt
stock. Moreover, both the debt burden and interest costs are
vulnerable to potential adverse exchange-rate movements, given that
60% of the sovereign's debt is denominated in foreign currency.
"We consider contingent liabilities from the banking sector to be
limited based on a low level of reported nonperforming loans (which
could increase due to economic deceleration). Total assets of
depositary corporations are 93% of GDP. We place the Bolivian
banking system in our Banking Industry Country Risk Assessment
(BICRA) group '8'. BICRAs are grouped on a scale from '1' to '10',
ranging from what we view as the lowest-risk banking systems (group
'1') to the highest-risk (group 10').
"In recent years, Bolivia's stable exchange rate has anchored
inflation. However, inflation could increase more than we expect
because of potential future supply shocks or any unexpected abrupt
changes in the exchange rate. The stable exchange rate versus the
U.S. dollar since 2011 has also contributed to significantly lower
dollarization in the country. On the other hand, it constrains
monetary flexibility and is overvalued. Over the medium term,
greater exchange-rate flexibility could contain external
vulnerabilities, given persistent CADs and the decline in
foreign-exchange reserves."
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Downgraded; Outlook Action; Ratings Affirmed
To From
Bolivia (Plurinational State of)
Sovereign Credit Rating B+/Stable/B BB-/Negative/B
Downgraded
To From
Bolivia (Plurinational State of)
Senior Unsecured B+ BB-
Transfer & Convertibility Assessment B+ BB-
===========
B R A Z I L
===========
INTERCEMENT PARTICIPACOES: Fitch Cuts LT IDRs to 'CCC-'
-------------------------------------------------------
Fitch Ratings has downgraded InterCement Participacoes S.A.'s
Long-Term Foreign and Local Currency Issuer Default Ratings to
'CCC-' from 'B-', as well as the company's Long-Term National Scale
Rating to 'CCC- (bra)' from 'BB+ (bra)'. Fitch also downgraded
InterCement Financial Operations BV's unsecured notes due 2024 to
'CCC-'/'RR4' from 'B-'/'RR4'.
Sharp recessions expected in Argentina and Brazil will lead to
InterCement to generate significantly weaker cash flow than
previously anticipated by Fitch. EBITDA from Brazil has been
stagnant at a level below EUR70 million since 2016 due to the sharp
economic contraction in Brazil compared with EUR413 million
generated at the peak in 2013. The stability of the company's
credit profile largely depends on Brazil becoming a more important
cash flow driver during 2020-2022. However, the economic effects
from coronavirus will forestall Brazil's nascent recovery and defer
meaningfully any positive contribution to EBITDA from these
operations at least during the next two years.
The coronavirus pandemic worsens Fitch's expectations of a decline
in the purchasing power of the company's clients in the Argentine
market due to high inflation, which along with weak investment will
result in drastic reductions in cement demand. Argentine cement
consumption was already on a downward trend declining 3% in 2018
and 7% in 2019. So far in 2020 consumption has dropped by almost
30%. Argentina accounts for approximately 60% of InterCement's
EBITDA.
InterCement faces debt amortizations of EUR355 million in 2020 and
EUR333 million in 2021. The company is in the midst of refinancing
EUR900 million of debt it holds with Brazilian banks. However, the
refinancing has taken longer than anticipated, and although Fitch
believes the banks at minimum will continue to extend amortizations
by 90 days, the ability of the company to service its debt in both
principal and interest will be diminished as a result of the
coronavirus lockdown and its economic effects on the company's
markets.
KEY RATING DRIVERS
Brazil's Recovery Halts: Output in Brazil's cement market fell to
52 million tons from a high of 72 million tons during its economic
downturn of 2015-2018. A rebound in consumption to 54 million tons
of cement in this market in 2019 will likely be erased in 2020 as
cement sales decline sharply. The country's GDP is now projected to
decline 2.5% in 2020 with forecasts firmly biased to the downside.
The company is likely to face tough competition and pricing
weakness as capacity utilization rates decline throughout the
industry.
Argentina to Remain Challenging: InterCement's Argentine
subsidiary, which is currently the company's primary cash flow
generator, is likely to see plummeting cement demand in 2020. Loma
Negra C.I.A.S.A. generated EUR178 million of reported EBITDA in
2019. This figure benefited from an official exchange rate whose
volatility has been reduced due to strict capital controls, and
would likely be lower should the country lift controls. Cement
demand in the country contracted close to 30% during the first
three months of the year, and the lockdowns are expected to lead to
an even more profound recession, which will reduce construction
activity.
FX Exposure is Meaningful: Foreign Exchange (FX) mismatch risk is
significant, as 69% of total debt of EUR1.7 billion as of YE 2019
was either U.S dollar or Euro denominated and the company does not
generate hard currency revenue. InterCement mainly relies on its
pricing strategy to offset U.S. dollar cost inflation and revenue
weakness resulting from currency depreciation.
Solid Business in Depressed Markets: InterCement is the
second-largest cement producer in Brazil, which is one of the
world's largest cement markets, and the leading cement producer in
Argentina with close to 50% market share. The company also operates
in Mozambique, where it is the largest producer with a 50% market
share, as well as in Egypt, South Africa and Paraguay.
InterCement's businesses in Argentina and Paraguay are operated
through its 51%-owned subsidiary Loma Negra. InterCement's sales
are relatively balanced among Brazil (30%), Argentina and Paraguay
(41%) and its African subsidiaries.
InterCement has an Environmental, Social and Governance Relevance
Score of '4' for Governance Structure due to limited board
independence through ownership by key shareholder, Mover
Participacoes S.A. For all other factors, unless otherwise
disclosed in this section, the highest level of ESG credit
relevance is a score of '3'. 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.
DERIVATION SUMMARY
InterCement's 'CCC-' rating reflects substantial weakening of
EBITDA expectations resulting from depressed cement demand in
Argentina and significantly weaker sales volumes for the rest of
InterCement's markets as a result of the coronavirus pandemic.
Prior expectations of a recovery in Brazil, which is the company's
main market in terms of volume and which has seen stagnant cement
consumption since 2016, have been set back due to economic
recession resulting from the coronavirus. InterCement's net
leverage, which is projected to rise in 2020, was 5.9x in 2019
which is consistent with leverage of ratings in the 'CCC'
category.
InterCement has been extending amortizations to preserve cash.
However, its ability to service its debt will be diminished as a
result of recessionary economic conditions in its main markets.
Local currency across InterCement's business units, particularly in
the Brazilian real and Argentine peso is also factored into the
ratings. The company has a strong business position in these
markets. Business scale is an important driver for cement
industries, given its capital-intensive operations and high fixed
costs. Despite its scale, InterCement's cash flow has varied
greatly as it operates in highly volatile markets such as Brazil,
Argentina, Paraguay, Egypt, Mozambique and South Africa.
KEY ASSUMPTIONS
-- Brazil volumes decline about 15% in 2020 and rebound by close
to 15% in 2021;
-- Argentine volumes decline approximately 25% in 2020 and
rebound by about 20% in 2021;
-- Operating EBITDA of EUR170 million in 2020 and EUR200 million
in 2021;
-- Capex levels around EUR120 million in 2020 and EUR100 million
in 2021;
-- Continued access to bank lending.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Additional proactive steps by the company to materially
bolster its capital structure in the absence of high operating cash
flow;
-- Leverage below 6.0x on a sustained basis, and consistent
positive FCF generation to pay down gross debt levels.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- Deterioration in InterCement's liquidity profile or
difficulties to progress on refinancing strategy.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: InterCement's liquidity is weak as the company
faces debt maturities of EUR355 million in 2020 and EUR335 million
in 2021, which compares with EUR314 million of cash and short-term
investments as of YE 2019. In addition to upcoming debt maturities,
Fitch estimates that InterCement will generate negative FCF of
approximately EUR120 million in 2020 and EUR70 million in 2021,
which reflects weak cash flow generation in the company's main
markets due to the steep recessions expected in most markets. They
also reflect EUR70 million of capex to complete the expansion of
Loma Negra's L'Amali plant and that other capex is significantly
curtailed. The negative FCF is expected to be funded primarily
through local bank debt.
The company aims to refinance EUR900 million of debt with Brazilian
banks in a structure that would require no amortizations over the
next three years. Pro forma with this refinancing, the company
would face near-term debt maturities of EUR171 million in 2020 and
EUR108 million in 2021, mostly of debt held at the subsidiaries.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PETROLEO BRASILEIRO: S&P Affirms 'BB-' GS Rating, Outlook Stable
----------------------------------------------------------------
On April 17, 2020, S&P Global Ratings affirmed its 'BB-' global
scale and 'brAAA' national scale ratings on Brazil-based integrated
oil and gas company Petroleo Brasileiro S.A. - Petrobras.
The stable outlook incorporates S&P's view that the company's
leverage will peak this year, but cash flows and credit metrics
would rebound considerably in 2021.
Like the entire oil and gas industry, Petrobras faces a grim
scenario ahead given the plunge in oil prices and erosion in demand
due to the COVID-19 outbreak. As a result, S&P expects a
significant decline in Petrobras' revenue this year: 30%-40% lower
than R$300 billion it posted in 2019. EBITDA would likely decline
by a similar range, given that the company has been taking several
measures to reduce cost pressures and preserve cash flows. Under
these assumptions, the company would not burn material amount of
cash in 2020.
For the past few years, Petrobras has been focusing on several
cost-reduction and efficiency measures, as well as asset sales,
allowing it to reduce leverage sharply. Debt to EBITDA dropped to
3.2x at the end of 2019 from 5.3x in 2015. S&P said, "With our
assumption of EBITDA decline for 2020, we believe the company's
leverage could peak at around 6x. Nevertheless, given a sizable
recovery in oil prices (Brent price of $50 per barrel according to
our base-case assumptions) and demand in 2021, Petrobras' leverage
could drop close to 4x, which currently supports our assessment of
the company's stand-alone credit profile (SACP) at 'bb'. Still, we
see notable downside risks to our forecasts, and if we were to see
a delay in the expected rebound of EBITDA and cash generation by
next year, we could lower our SACP on Petrobras to 'bb-' over the
coming months."
Petrobras has drawn down most of its revolving credit lines,
totaling about R$43.5 billion, and announced a significant
reduction in its capex plan to $7 billion from $12 billion this
year to withstand the extraordinary scenario, which will cause
operating cash flows to plunge. The company should also receive
about $2.0 billion this year in proceeds from assets sales.
Moreover, management remains committed to its divestment plan,
which could result in additional cash inflows going forward. Still,
S&P doesn't incorporate any future asset sale in its base-case
scenario given the uncertainties--about timing and amounts --which
are much higher amid the current unprecedented scenario.
===============
C O L O M B I A
===============
BANCOLOMBIA SA: S&P Alters Outlook to Stable & Affirms 'BB+/B' ICR
------------------------------------------------------------------
S&P Global Ratings revised its outlook on Bancolombia S.A. y
Companias Subordinadas (Bancolombia) to stable from positive, and
affirmed its long-term 'BB+' and short-term 'B' issuer credit
ratings (ICRs) on the company. At the same time, given that S&P
views Bancolombia Panama S.A. and Banistmo S.A. as core
subsidiaries to Bancolombia, S&P also revised their outlooks to
stable from positive and affirmed its 'BB+/B' ICRs on both
entities. S&P also affirmed its 'BB+' issue-level rating on
Banistmo's $500 million senior unsecured notes due 2022.
S&P said, "Bancolombia's outlook revision reflects that even though
its risk-adjusted capital (RAC) ratio was broadly in line with our
previous expectation at 5.1% as of December 2019, we anticipate
that the ongoing economic stress from the COVID-19 pandemic and oil
price plunge will take a toll on the bank's future RAC ratio and
operating performance. We expect that a decrease in its
profitability due to lower interest rates and asset quality
deterioration, coupled with upheld dividend payouts, will outweigh
the mild increase in risk-weighted assets (RWAs) amid lower loan
distributions in 2020. Consequently, capital sustainability will be
impaired, dragging down our forecasted RAC ratio to about 4.6% for
2020 and 2021. In addition, we still consider Bancolombia's quality
of capital as low because of the notable amount of foreign currency
goodwill in its capital structure that has a larger impact on its
total adjusted capital than capital revaluation during exchange
rate fluctuations."
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: IMF Says Economy Will Fall 1% This Year
-----------------------------------------------------------
Dominican Today reports that the International Monetary Fund (IMF)
projects that the Dominican economy will fall 1% this year and then
rise 4% in 2021.
The forecasts were published during the presentation of its most
recent semi-annual report on "World Economic Outlook" in which it
estimates that the Latin American and Caribbean region will
contract 5.2% due to the pandemic, according to Dominican Today.
It said the unemployment rate in the Dominican Republic will rise
from the 6.1% posted in 2019 to 9% for this year, the report
relates. Meanwhile GDP per capita will undergo a -1.9% drop in
2020, and the IMF expects it to recover by 2.9% next year, the
report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On April 16, 2020, S&P Global Ratings revised its outlook on the
long-term ratings on the Dominican Republic to negative from
stable. At the same time, S&P affirmed its 'BB-/B' long- and
short-term foreign and local currency sovereign credit ratings.
The transfer and convertibility (T&C) assessment is unchanged at
'BB+'.
Moody's credit rating for Dominican Republic was last set at Ba3
with stable outlook (2017). Fitch's credit rating for Dominican
Republic was last reported at BB- with stable outlook (2016).
DOMINICAN REPUBLIC: Will Escape a Strong Regional Recession
-----------------------------------------------------------
Dominican Today reports that in a pessimistic forecast, the World
Bank revealed that the Latin American and Caribbean region would
register a sharp fall of 4.6% this year, except for Guyana, which
will grow 51.7%, and the Dominican Republic, which will end with
flat growth of zero.
However, the multilateral financial organization projects a rebound
for 2021 of 2.6% in the region, when the gross domestic product of
the Dominican Republic will grow 2.5% and 4% in 2022. The area will
experience a sharp recession due to the impact of Covid-19, except
for the DR and Guyana, he added, according to Dominican Today.
He suggested prioritizing informal and assuming clear policies.
"It is always better to plan for the worst scenario, not for the
best," said the World Bank's chief economist for the Latin American
and Caribbean (LAC) region, Martin Rama. Rama made the comments
during a virtual press conference from Washington, DC, in which he
recommended to the countries to have clarity of the sectors that
are going to require more significant support in the payments of
small companies and the protection of employment, the report
relates.
He argued that although everything will depend on the fiscal space
of each country, countries should prioritize assistance to people
who live day today, the report notes. He reported that both the
World Bank and the International Monetary Fund (IMF) are adopting
efforts to mitigate the impact of the COVID-19 in the region with
immediate responses and articulated in various stages, the report
discloses. Stages such as making available resources to contain
the progress of the pandemic, which, in the case of the World Bank,
will be US $ 160,000 million globally, in 15 months, to
lowest-income countries and middle-income countries in Latin
America and the Caribbean, the report relates.
While the IMF will guarantee greater liquidity to its members with
access to the quota, and that will give an increased available
surplus to the countries, the report notes.
"The governments of Latin America and the Caribbean face the
enormous challenge of protecting lives and at the same time
limiting economic impacts," said Martin Rama, chief economist at
the World Bank for the Latin American and Caribbean region, the
report relays. "This will require targeted and consistent policies
on a scale rarely seen before," he added.
Growth
The region, according to a new World Bank report, experiences a
sudden drop in growth due to the Covid-19 crisis, which will
require multiple responses in public policies to support the most
vulnerable, and avoid a financial crisis, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On April 16, 2020, S&P Global Ratings revised its outlook on the
long-term ratings on the Dominican Republic to negative from
stable. At the same time, S&P affirmed its 'BB-/B' long- and
short-term foreign and local currency sovereign credit ratings.
The transfer and convertibility (T&C) assessment is unchanged at
'BB+'.
Moody's credit rating for Dominican Republic was last set at Ba3
with stable outlook (2017). Fitch's credit rating for Dominican
Republic was last reported at BB- with stable outlook (2016).
=============
E C U A D O R
=============
ECUADOR: S&P Affirms 'SD/SD' SCRs After Distressed Exchange
-----------------------------------------------------------
On April 21, 2020, S&P Global Ratings lowered its issue ratings on
Ecuador's global bonds due 2023, 2024, 2026, 2027, 2028, and 2029
to 'D' from 'CC'. At the same time, S&P affirmed its 'SD/SD'
(selective default) ratings on the country and its 'D' (default)
ratings on the notes due 2022, 2025, and 2030. S&P also affirmed
our 'CCC-' transfer and convertibility assessment on Ecuador.
Outlook
S&P does not assign outlooks to 'SD' or 'D' ratings because they
express a condition and not a forward-looking opinion of default
probability.
S&P said, "Upon completion of the broader bond restructuring, which
the government intends to launch in the near term, we will raise
the sovereign issuer credit and issue ratings on the individual
bonds from 'SD' and 'D', respectively. Those ratings would reflect
Ecuador's post-restructuring creditworthiness, considering the
resulting debt burden and agreement with the International Monetary
Fund (IMF), as well as policy prospects under the Moreno and next
administration (with national elections scheduled in 2021). Our
post-restructuring ratings tend to be in the 'CCC' or low 'B'
categories, depending on the sovereign's new debt structure and
capacity to support that debt."
Rationale
S&P said, "We lowered our ratings on seven global bonds due 2023,
2024, 2026, 2027, 2028, and 2029 to 'D' after the government
announced it reached an agreement with majorities of bondholders
following a consent solicitation launched on April 8, 2020. The
modifications will defer until mid-August 2020 the payment of over
$800 million in interest due between March 27 and July 15, 2020, on
10 global bonds. We view these modifications, albeit accepted by
the bondholders (in the consent solicitation reached on April 17),
as a distressed exchange as per our "Rating Implications Of
Exchange Offers And Similar Restructurings, Update," May 12, 2009,
because they materially change the terms of the affected debt with
no adequate offsetting compensation."
The government also announced its intention to open negotiations
with its main creditors, including the International Monetary Fund,
its bilateral financing partners, and its bondholders, with the
view to restructure various debt instruments and, as a result, to
improve its debt profile.
Ecuador's already large budgetary financing needs have been
exacerbated by the plunge in oil prices and the negative global
economic impact of the COVID-19 pandemic. The country is one of the
worst affected by the virus outbreak in the region. Liquidity
pressures are mounting as a result as the government faces loss of
access to markets and Congress' opposition to debt repayments.
S&P said, "On April 13, 2020, we lowered the issue ratings to 'D'
on Ecuador's global bonds due 2022, 2025, and 2030 (totaling about
US$240 million), based on our view that the government would not
make the payments in the stated grace period (30 days) regardless
of the agreement with bondholders. At the same time, we lowered our
ratings on Ecuador to 'SD/SD'."
The consent solicitation includes a new IMF program by August 2020
as part of its conditionality, thus demonstrating commitment to the
plan from both Ecuador and the IMF. The administration has complied
with key aspects of the Extended Fund Facility program, initiated
in March 2019, notwithstanding the political complexities of doing
so. A new funded program from the IMF could provide a policy anchor
and encourage other international institutions' financial support.
In the near term, the IMF is expected to agree to grant Ecuador
access to the Rapid Financing Instrument.
According to the authorities, the interest deferral will also allow
them to engage in orderly discussions with bondholders to
re-profile their debt. S&P said, "Once the restructuring process is
completed, we will consider raising the rating from 'SD' based on
our forward-looking view on the benefits realized from the
restructuring and other interim developments, including the
conditions of the prospective new IMF program and the country's
economic, external, and fiscal metrics following the COVID-19
shock. We would likely raise the rating on the government to the
'CCC' or low 'B' categories upon resolution of the default."
S&P's ratings on Ecuador are constrained by elevated financing
needs, external vulnerabilities, weak institutions, relatively low
wealth levels, and lack of monetary and exchange rate flexibility.
With weak domestic capital markets, Ecuador's rating trajectory
depends on its access to official and external commercial financing
to cover the government's financing needs and support foreign
exchange reserves.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating action.
Ratings List
Ratings Affirmed
Ecuador
Sovereign Credit Rating SD/--/SD
Transfer & Convertibility Assessment CCC-
Senior Unsecured D
Downgraded
To From
Ecuador
Senior Unsecured D CC
=====================
E L S A L V A D O R
=====================
EL SALVADOR: S&P Affirms 'B-/B' SCR, Outlook Stable
---------------------------------------------------
On April 21, 2020, S&P Global Ratings affirmed its 'B-/B' long- and
short-term sovereign credit ratings on El Salvador. The outlook
remains stable. S&P also affirmed its 'AAA' transfer and
convertibility (T&C) assessment.
Outlook
S&P said, "The stable outlook reflects our expectation that
enhanced funding from the International Monetary Fund (IMF) and
other official creditors will provide liquidity and limit the
rollover risk of sovereign debt over the next 12-18 months as the
economy contracts due to the impact of the COVID-19 pandemic. It
also incorporates our expectation of only gradual economic recovery
in 2021. Due to the pandemic, we expect the government will make
only gradual progress over the long term in implementing its plans
for boosting economic growth and strengthening public finances."
Downside scenario
S&P said, "We could lower the ratings over the next 12 months if El
Salvador faces difficulties accessing financing from official
creditors and international markets--stemming from either low
investor confidence or heightened political polarization--which
would significantly increase short-term rollover risks. We could
also downgrade the sovereign if the impact of COVID-19 is more
severe than in our base case, or if the economic recovery is
delayed, weighing on long-term trend GDP growth and keeping fiscal
deficits high for longer than we currently expect."
Upside scenario
S&P said, "In contrast, we could raise the ratings over the next
12-18 months if the economy recovers quickly from the severe
external shock and if the faster-than-expected growth translates
into stronger fiscal and external results, which would portend a
substantial decline in the sovereign's debt burden. In this
scenario, we would also need to see a track record of political
commitment by the legislative and executive branches of government
to work more productively to advance key legislation."
Rationale
The ratings on El Salvador reflect the country's institutional
weaknesses, weak external profile, low per capita income, and only
moderate GDP growth record, due to persistently low investment. In
addition, they incorporate the sovereign's weak public finances and
high debt burden. As a fully dollarized economy, El Salvador has
limited monetary flexibility.
S&P's ratings also reflect El Salvador's relatively smooth debt
amortization profile over the next 12 months, as well as the
sovereign's recent access to official funding from the IMF and
other multilateral lending institutions, which has eased short-term
rollover risks.
Institutional and economic profile: The severe economic contraction
will delay the government's plans to boost long-term growth
-- Per capita income and economic growth are likely to remain
subdued, given structurally low public and private investment.
-- Despite recent attempts by President Nayib Bukele's
administration to promote economic dynamism, the severe impact of
COVID-19 will delay plans to boost economic growth over the next
three years.
-- The victory of President Bukele has raised the prospects of
reduced political polarization between political parties and
between the executive and legislative branches of government.
The COVID-19 pandemic is likely to have a severe--yet
temporary--impact on El Salvador's economy, following the shutdown
of all nonessential activities in the country. S&P expects the
economy to contract sharply, by about 4% in 2020, and recover to
2.4% growth by 2022-2023. Despite the low per capita income,
estimated at about $4,000 for 2020, the country has experienced
only moderate economic growth as it has suffered from many years of
low investment, political gridlocks, weak competitiveness, and high
emigration.
The performance of El Salvador's small and open economy is closely
linked to the U.S., the destination of about 40% of El Salvador's
goods exports. El Salvador is also vulnerable to remittances, which
account for about 20% of GDP and come mainly from the U.S. El
Salvador's economy suffers from limited industrial diversification
and poor labor market conditions, given its poor economic
development and shortfalls in basic services and infrastructure.
Beyond the pandemic, raising potential growth in the coming years
will require reforms to foster competitiveness and investment,
supported by sustained measures to reduce crime. Job creation
through more dynamic economic activity is essential to tackle the
large informal sector, which is estimated to employ about 70% of
the working-age population.
President Bukele's victory in the election last year--running as
the candidate of Gran Alianza por la Unidad Nacional--represents an
important milestone in the country's political landscape,
historically dominated by the leftist Frente Farabundo Martí para
la Liberacion Nacional and the rightist Alianza Republicana
Nacionalista. The election of a young president from a
nontraditional political party, as well as the likely strengthening
of his own political party (Nuevas Ideas), could help consolidate a
multiparty political system by gradually enhancing cooperation
between the presidency and Congress and reducing the polarization
between political parties. This would be a significant change from
the deep divisions and long-standing gridlock between the two
parties that have governed the country for nearly three decades.
A smooth change in government, congressional approval of an
external bond issuance to roll over a Eurobond at the end of last
year, and approval of the 2020 budget signal diminished political
polarization. Moreover, since 2019, budget approval includes
corresponding financing requirements, as per Article 14 of the
Fiscal Responsibility Law. All these events, in S&P's view,
constitute important changes since the sovereign defaulted in 2017
on pension-related obligations.
The administration is focusing on controlling the pandemic through
a substantial fiscal package to bolster the country's safety nets.
Once the pandemic subsides, S&P expects the administration to
remain focused on tackling crime and violence and on strengthening
the relationship with the private sector. It will also aim to
reduce red tape and burdensome regulations to open business to
facilitate private investment. The Bukele Administration has been
clear in its intention to improve relations with the U.S., its main
trading partner.
After less than a year in office, President Bukele continues to
enjoy strong popular support. However, with the president now
focusing on the impact of the COVID-19 outbreak, it is too early to
assess whether he will succeed in boosting highly needed public
investment in infrastructure. In addition, despite recent progress,
security problems and weak institutional checks and balances in
governance remain challenges and could continue dampening private
investment.
Flexibility and performance profile: High debt and limited fiscal
and monetary flexibility make the country vulnerable to external
shocks
-- A large fiscal package to mitigate the impact of the COVID-19
pandemic is likely to substantially increase the government deficit
in 2020, and S&P expects the deficit to only gradually narrow
during the next three years.
-- The higher government financing needs and current account
deficits (CADs) will accelerate external borrowings and exacerbate
the already high debt burden.
-- Dollarization has anchored macroeconomic stability in the past
but left limited monetary flexibility to respond to external
shocks.
To mitigate the impact of the COVID-19 pandemic, the government has
promptly announced a fiscal package to bolster social safety nets.
The package includes transfers to individuals, higher spending on
health-related goods and services, and tax relief measures, among
other policies. As a result, S&P expects the fiscal deficit to
spike to 8.7% of GDP in 2020 and gradually narrow to about 3% of
GDP over the next three years as temporary spending needs decline.
The government will largely borrow externally, from official
creditors and capital markets, to finance the fiscal package. This
would exacerbate El Salvador's high debt burden, which could jump
to about 80% of GDP over the next two years. Fiscal consolidation
efforts, supported by the Fiscal Responsibility Law of 2016 and
pension reform in 2017, have proved insufficient to reduce the
sovereign's very high debt burden. In S&P's base case, it expects
the government's interest burden to increase to about 20% of
revenue, exacerbated by the dip in tax collection this year.
S&P said, "Nonetheless, we consider short-term rollover risks to be
mitigated for now because El Salvador was able to access financing
from the IMF and other multilateral financing institutions.
Furthermore, the country's external amortization profile is
relatively smooth, with no significant external capital payments
until 2023. We also consider El Salvador to have sufficient
capacity to roll over its short-term debt (LETES), which accounts
for about 6% of GDP and is mainly held domestically. Having said
that, the debt profile is subject to vulnerabilities, given that
nonresidents hold over 60% of sovereign commercial debt."
El Salvador's limited fiscal flexibility remains a key credit
constraint, along with restricted monetary flexibility due to the
use of the U.S. dollar as the official currency. In S&P's view,
significant shortfalls in basic services and infrastructure
continue to limit the government's ability to curb expenditure,
while a large informal economy limits its ability to raise
additional revenue.
S&P said, "Externally, we expect the CAD to worsen to 4.4% of GDP
in 2020, given the decrease in remittances and lower demand from
the U.S. This would be only partly compensated by the lower oil
bill following the recent drop in oil prices, given El Salvador is
a net importer of oil. We forecast the CAD to stay at about 4% of
GDP in 2020-2023, based on gradual economic recovery in El Salvador
and the U.S., El Salvador's main trading partner.
"We estimate foreign direct investment will decrease significantly
in 2020 and remain about 2% of GDP over 2021-2023, only partly
covering the CAD. External borrowing, mainly by the central
government, will cover the rest of the CAD. As a result, we expect
El Salvador's narrow net external debt to jump to 120% of current
account receipts and remain above 100% over the next three years.
We also expect its gross external financing needs to average about
100% of its current account receipts and usable reserves."
El Salvador's high debt burden and its concentration of trade and
remittances from the U.S. make it vulnerable to external shocks and
adverse shifts in market sentiment. In addition, exports remain
highly concentrated in manufacturing, which accounts for above 95%
of goods exports. Over the long term, the customs union with
Honduras and Guatemala, a project that is progressing, could
improve commercial relationships in the zone and with their trading
partners.
S&P said, "The country moved to full dollarization in 2001, and we
expect no change in the exchange rate regime, given the very high
exit costs. This supports our 'AAA' T&C assessment, as well as our
opinion that the sovereign would not restrict dollar outflows by
private parties to make debt service payments. While we expect
dollarization will continue to contain inflation, the inflexible
monetary regime has not helped to promote growth and investment."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Ratings Affirmed
El Salvador
Sovereign Credit Rating B-/Stable/B
Transfer & Convertibility Assessment
Local Currency AAA
El Salvador
Senior Unsecured B-
=============
J A M A I C A
=============
NATIONAL COMMERCIAL: S&P Alters Outlook to Neg., Affirms B+ ICR
---------------------------------------------------------------
S&P Global Ratings revised the outlook to negative from stable on
the long-term issuer credit rating on National Commercial Bank
Jamaica Ltd. (NCBJ). S&P also affirmed its long-term 'B+' and
short-term 'B' ratings on the bank.
The sovereign ratings constrain the bank's credit quality. Thus,
the outlook revision on Jamaica results in the same action on NBCJ.
S&P said, "We limit the long-term rating on the bank by the
sovereign because we don't consider that NCBJ could withstand a
sovereign default scenario, given its large exposure to the country
in the form of investments and loans."
The outlook revision on Jamaica reflects that the global spread of
COVID-19 will have unprecedented implications for tourism-dependent
sovereigns in the Caribbean and North Atlantic. In addition to the
human costs, S&P expects that the pandemic, together with travel
restrictions in both Jamaica and in visitors' countries, will have
a significant impact on GDP, fiscal accounts, and foreign exchange
inflows in 2020.
At this point, NCBJ's individual credit fundamentals remain
unchanged--its stand-alone credit profile (SACP) is 'bb-'. S&P
said, "We still believe the bank has good creditworthiness due to
its sound market position in the domestic banking system, business
and revenue diversification, and adequate funding and liquidity
compared with those of domestic peers. However, we will continue
monitoring the bank's credit profile as the COVID-19 outbreak and
global credit stress plays out. Particularly, continued economic
paralysis because of the pandemic could impair the bank's business
growth and profitability, while potentially jeopardizing its
liquidity in a scenario of volatile deposits." However, the rate of
the spread and timing of the peak of the outbreak, and the
effectiveness of the government's response to contain the virus,
are still highly uncertain, so the full impact on the bank's SACP
remains unclear.
SAGICOR JAMAICA: Gets $250MM of Funds for Tourism Workers Pension
-----------------------------------------------------------------
RJR News reports that some $250 million of the $1 billion committed
to the Tourism Workers Pension Scheme by the Government has been
paid over to the newly selected-fund manager, Sagicor Jamaica
Limited.
Tourism Minister Edmund Bartlett says he is now awaiting
parliament's approval of the regulations, which will pave the way
for the Scheme's implementation, once industry workers return to
their jobs, according to RJR News.
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P U E R T O R I C O
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MACY'S INC: To Raise Up to $5 Billion in Debt to Weather Pandemic
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Macy's Inc. is looking to raise as much as $5 billion in debt in an
effort to avoid bankruptcy due to the coronavirus shutdown, CNBC's
Lauren Hirsch reported.
Macy's is taking extreme measures to avoid dire outcomes like
bankruptcy, and will try to raise billions in debt to weather the
pandemic crisis, CNBC said, citing people familiar with the
matter.
CNBC said the U.S.'s largest department-store chain would use its
inventory as $3 billion in collateral, with another $1 billion to
$2 billion in collateral coming from its real estate.
Sources told CNBC that bankruptcy is not a focus at this time.
Macy's is not planning to pledge its prime Herald Square location
in New York as part of the deal, one of the people said, according
to CNBC.
The retailer earlier this year retained investment bank Lazard to
help shore up its balance sheet.
In a statement provided to CNBC, a spokesperson for Macy's said:
"As we have previously communicated, the coronavirus pandemic
continues to take a toll on Macy's business. While the digital
business remains open, we have lost the majority of our sales due
to our store closures."
"Macy's has taken multiple actions to improve our position and
improve financial flexibility, including suspending our quarterly
dividend, deferring capital spend, drawing on our credit facility,
reducing pay at most levels of management and furloughing the
majority of our colleagues," she added.
The statement said "the company is also exploring numerous options
to strengthen our capital structure."
All of Macy's stores have been closed since March 18, 2020, due to
the Coronavirus pandemic.
CNBC notes that Macy's is in a stronger financial position than
J.C. Penney and Neiman Marcus. It still has relationships with
apparel brands that depend on the retailer to sell their clothes.
About Macy's Inc.
Macy's, Inc. -- http://www.macysinc.com/-- is one of
the nation's premier omni-channel fashion retailers, with fiscal
2019 sales of $24.6 billion. The company comprises three retail
brands, Macy's, Bloomingdale's and Bluemercury. Macy's, Inc. is
headquartered in New York, New York. With a national stores
footprint, robust e-commerce business and rich mobile experience,
customers can shop anytime and through any channel.
As of Feb. 1, 2020, Macy's had 123,000 employees.
The Company operates 775 store locations in 43 states, the District
of Columbia, Puerto Rico and Guam. As of February 1, 2020, the
Company's operations were conducted through Macy's, Bloomingdale's,
Bloomingdale's The Outlet, Macy's Backstage, and bluemercury. In
addition, Bloomingdale's in Dubai, United Arab Emirates and Al
Zahra, Kuwait are operated under license agreements with Al Tayer
Insignia, a company of Al Tayer Group, LLC.
The Company reported $564 million of net income on $24.56 billion
of revenue for the fiscal year ended Feb. 2, 2020, compared with
net income of $1.098 billion on $24.97 billion of revenue for the
year ended Feb. 2, 2019.
The Company had $21.17 billion in assets, including $685 million in
cash, and $12.76 million in liabilities as of Feb. 2, 2020.
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