/raid1/www/Hosts/bankrupt/TCRLA_Public/200515.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, May 15, 2020, Vol. 21, No. 98
Headlines
A R G E N T I N A
ARGENTINA: Faces Make-Or-Break May to Avoid Default
ARGENTINA: Ready to Consider Ninth Sovereign Default, Says Guzman
C A Y M A N I S L A N D S
CREDIT SUISSE: BlackRock Values $38-Mil. Loan at 83% of Face
C O L O M B I A
AVIANCA HOLDINGS: Fitch Cuts LT IDR to D on Chapter 11 Filing
CREDIVALORES CREDISERVICIOS: Fitch Puts B+ LT IDR on Watch Negative
C O S T A R I C A
AUTOPISTAS DEL SOL: Fitch Cuts Rating on International Notes to 'B'
COSTA RICA: Fitch Corrects May 8, 2020 Ratings Release
D O M I N I C A N R E P U B L I C
BANCO DE RESERVAS: Fitch Affirms BB- LT IDR, Alters Outlook to Neg.
BANCO MULTIPLE: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Neg.
DOMINICAN REPUBLIC: 'No Date Yet' to Open Economy
DOMINICAN REPUBLIC: 592,201 Laid Off Workers Get US$44.3MM in Aid
DOMINICAN REPUBLIC: Central Banker Opposes Use of Pension Fund
E C U A D O R
BANCO PROCREDIT: Fitch Assigns 'CCC-/C' Issuer Default Ratings
ECUADOR: IMF Confirms $643MM in Aid, Says More Support Needed
E L S A L V A D O R
[*] Fitch Affirms El Salvador DPR Program Ratings, Outlook Neg.
J A M A I C A
JAMAICA: BOJ Probe Claims Some Banks Refusing to Encash Cheques
M E X I C O
CONSORCIO ARA: Moody's Alters Outlook on Ba2/A2.mx Ratings to Neg.
ELEMENTIA SAB: Moody's Cuts CFR to Ba3 & Alters Outlook to Negative
MEXICO: Artisans Return to Barter System in Face of Crisis
P E R U
PERU: IMF Receives Request for Flexible Credit Line
P U E R T O R I C O
DESTILERIA NACIONAL: Taps Isabel Fullana-Fraticelli as Counsel
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Basic Foods Already VAT-Free
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A R G E N T I N A
=================
ARGENTINA: Faces Make-Or-Break May to Avoid Default
---------------------------------------------------
Eliana Raszewski at Reuters reports that Argentina is entering a
crucial period this month for a precarious debt-restructuring
process that will determine whether or not the country falls into
default for a third time in just two decades.
After months of negotiations, the South American country made a
proposal in April to restructure $65 billion of its foreign debt.
This offer expires on May 8, while a grace period for paying
interest on three dollar bonds ends on May 22, according to
Reuters.
Argentina's leaders are racing to win over wary creditors, who have
already rejected the initial offer, with bankers and investors
increasingly concerned that no deal will be reached - at least not
in time, the report notes.
"The two sides are so far further apart than we imagined at this
stage, leading to bonds underperforming our earlier expectations,"
Morgan Stanley said in a note in late April, adding an agreement
was still possible later in the year, the report relays.
"We still believe that a deal will be found but the timing is now
much more uncertain."
The investment bank said it calculated the current offer's net
present value (NPV) - a key metric for creditors - at around 33
cents on the dollar, which it said would need to be improved to
around 40-45 cents with likely higher coupon payments, the report
relays.
Argentine officials, meanwhile, have indicated the offer on the
table is a take-it-or-leave-it deal. It involves a three-year
payment halt, maturities pushed back until the next decade and a
62% reduction in coupon payments, the report discloses.
The major grains producer also owes a large amount to the
International Monetary Fund (IMF), which has supported the
country's debt negotiations, and is trying to delay a $2.1 billion
payment to the Paris Club due on May 5, the report notes.
"My instinct is that they do want to get a deal, but even though
they have the support of the IMF and others, there is a sense that
it is not going to happen," said Jay Auslander, a partner at Wilk
Auslander who worked previously with creditors in a case against
Argentina, the report notes.
"I think the likelihood is they are going to default and it will be
their ninth default, so it is nothing new to them," the report
discloses.
Argentina suffered a major default in late 2001, which led to over
a decade of litigation with creditors, and a smaller partial
default in 2014, the report notes. By some counts, it has
previously defaulted eight times, a number the government disputes,
the report says.
A default would hurt, even as Argentina grapples with recession,
inflation and a major hit from the corona virus outbreak that will
likely cause a large economic contraction this year, the report
relays.
"There is already enough turbulence in the context of the pandemic,
with exchange rate pressures, and that will be sharpened further
with a default scenario," said Fernando Baer from consultancy
Quantum Finanzas, the report discloses.
"Everything would get even worse," he added, the report notes.
A parallel, if smaller, debt drama is playing out in Argentina's
largest province, Buenos Aires, which is looking to restructure
over $7 billion in foreign debt, the report relays. Its proposal
to bondholders has also been knocked back by creditors, the report
says.
Debt Deadlines
May 5: Argentina faces a $2.1 billion payment to the Paris Club
group of lenders. The government has asked the group to postpone
the payment for a year.
May 8: The current national debt restructuring proposal expires for
creditors to accept or reject the offer. The government may choose
to extend the deadline.
May 11: A grace period ends for a debt payment by Buenos Aires,
which could see the province enter default if payment is not made
or no restructuring deal is reached.
May 22: The 30-day grace period ends for a $500 million group of
interest payments on three foreign law sovereign bonds. If no deal
is reached and payment is not made, this could see Argentina
default.
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 May 12, 2020, S&P Global
Ratings revised its transfer and convertibility (T&C) assessment on
Argentina to 'CCC+' from 'B-'. The T&C assessment reflects S&P's
view of the likelihood of the sovereign restricting nonsovereign
entities from accessing foreign exchange needed to satisfy their
debt service obligations.
On April 9, 2020, 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: Ready to Consider Ninth Sovereign Default, Says Guzman
-----------------------------------------------------------------
globalinsolvency, citing the Financial Times, reports that
Argentina's economy minister has sought to raise the stakes with
the country's bondholders by suggesting his government would
consider defaulting on $65 billion of foreign debt unless investors
engaged in negotiations to alleviate its financial burden while
tackling the coronavirus pandemic.
Speaking to the Financial Times before the expiry of an offer
involving a three-year debt service moratorium, Martin Guzman said
the government would not accept a deal "based on illusions and rosy
scenarios" because it would herald yet another debt crisis in the
future, according to globalinsolvency.
Asked whether a default was too great a price to pay for Argentina,
Mr. Guzman said: "Every path is associated with trade-offs," the
report relays. Negotiations between the government of Peronist
president Alberto Fernandez and the country's international
creditors have been deadlocked after main creditors including US
fund managers BlackRock, Fidelity and T Rowe rejected an offer that
would involve the suspension of all debt payments for three years,
a 62 per cent reduction in interest payments worth $38 billion, and
a 5.4 per cent cut in principal repayment, valued at $3.6 billion,
the report relays.
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 May 12, 2020, S&P Global
Ratings revised its transfer and convertibility (T&C) assessment on
Argentina to 'CCC+' from 'B-'. The T&C assessment reflects S&P's
view of the likelihood of the sovereign restricting nonsovereign
entities from accessing foreign exchange needed to satisfy their
debt service obligations.
On April 9, 2020, 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.
===========================
C A Y M A N I S L A N D S
===========================
CREDIT SUISSE: BlackRock Values $38-Mil. Loan at 83% of Face
------------------------------------------------------------
BlackRock TCP Capital Corp. has marked its $38,000,000 loan
extended to privately held Credit Suisse AG to market at
$31,692,000, or 83% of the outstanding amount, as of March 31,
2020, according to a disclosure contained in a Form 10-Q filing
with the Securities and Exchange Commission for the quarterly
period ended March 31, 2020.
BlackRock holds Credit Suisse's Asset-Backed Credit Linked Notes,
which is scheduled to mature on April 12, 2025.
Credit Suisse AG is in the Diversified Financial Services industry.
===============
C O L O M B I A
===============
AVIANCA HOLDINGS: Fitch Cuts LT IDR to D on Chapter 11 Filing
-------------------------------------------------------------
Fitch Ratings has downgraded Avianca Holdings S.A.'s Foreign and
Local Currency Issuer Default Ratings to 'D' from 'C'. Fitch has
affirmed Avianca's senior unsecured bond issuance at 'C'/RR6' and
the secured notes at 'C'. Fitch revised the Recovery Rating of the
secured notes to 'RR6' from 'RR4', reflecting the impact of the
coronavirus on the sector and diminished recovery values of
aircraft that were used as collateral for the secured bonds.
The downgrades to 'D' follow Avianca's announcement that it has
filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of New York. This process will result in material
changes in the terms and conditions of its debt. Once the airline
exits the administration proceedings, Fitch will assess its new
strategy and restructured financial profile and re-rate Avianca
accordingly.
KEY RATING DRIVERS
Voluntary Reorganization Proceedings: Avianca announced on May 10,
2020 that it had filed for bankruptcy protection from its creditors
due to liquidity pressure it faces from the Covid-19 pandemic.
Avianca did not pay USD67 million due on its outstanding unsecured
bonds on May 10, 2020 and will not pay the coupon payment of its
senior secured bonds due 2023.
Covid-19 Lockdown: Avianca has temporarily ceased to operate all
regular passenger flight operations due to a decision by several
governments to close airspace as of March 25, 2020. The return of
operations is still uncertain. Avianca has offered a voluntary
unpaid leave program, and around 14,000 employees have accepted
this offer. This led to a decline in the company's revenues by more
than 80% and has squeezed its liquidity position. Avianca's
operating cash flow remains highly uncertain for 2020, as it is
unknown when the company will be able to restart operations and
what restrictions may be placed upon operations at that time.
DERIVATION SUMMARY
The rating has been downgraded to 'D' as the company has entered
voluntary administration.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
The recovery analysis is based on a liquidation approach given the
high value of its aircraft fleet, which positively compares to the
going concern approach under the current uncertain scenario for
global aviation.
Fitch has assumed a 10% administrative claim.
Liquidation Approach:
The liquidation estimate reflects Fitch's view of the value of the
aircraft that can be monetized in advance of 50%-70%. Considering
Avianca's total debt waterfall, these assumptions result in a
recovery rate for the secured notes and unsecured notes within the
'RR6' range, which generates a one-notch downgrade to the debt
rating from the IDR. Nevertheless, considering the debt default, it
is commensurate with a 'C' rating level.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch will rate Avianca following its exit from the administration
proceedings based on its new strategy and financial profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The company is rated 'D', and therefore there can be no negative
rating action on the IDR.
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
Limited Financial Flexibility: As of Dec. 31, 2019, Avianca had
USD398 million in cash and USD872 million of short term
obligations, USD237 million of which is related to lease
agreements. Total adjusted debt was USD4.9 billion at YE 2019. Debt
consists primarily of USD1.8 billion of aircraft loans, USD1.3
billion of corporate debt, USD0.5 billion of cross-border bonds and
USD1.2 billion of on balance-sheet lease obligations.
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.
ESG CONSIDERATIONS
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.
Avianca Holdings S.A. has an ESG score of 4 for Group Structure due
to its complex shareholder structure. The current developments with
United and Kingsland and other shareholders add complexity to the
case.
Avianca Holdings S.A. has an ESG score of 4 for Labor Relations &
Practices reflecting significant pilot strikes that affected the
company.
Aerovias del Continente Americano S.A.
- LT IDR D; Downgrade
- LC LT IDR D; Downgrade
Grupo TACA Holdings Limited
- LT IDR D; Downgrade
Avianca Holdings S.A.
- LT IDR D; Downgrade
- LC LT IDR D; Downgrade
- Senior secured; LT C; Affirmed
- Senior unsecured; LT C; Affirmed
CREDIVALORES CREDISERVICIOS: Fitch Puts B+ LT IDR on Watch Negative
-------------------------------------------------------------------
Fitch Ratings has placed Credivalores Crediservicios S.A.S.'s
Long-Term Foreign Currency Issuer Default Rating on Rating Watch
Negative and has affirmed Credivalores' Short-Term IDR at 'B'. The
LT Rating of the senior unsecured debt has also been placed on
RWN.
The RWN reflects the increasing near-term risks mainly arising from
the credit card business, as Fitch believes the deteriorating
operating environment, as a result of the coronavirus outbreak,
will adversely affect the payment capacity of its client base,
which is expected to affect Credivalores' credit metrics, mainly
asset quality and profitability. Although the magnitude of the
negative effects from the coronavirus are still uncertain, Fitch
believes current challenges from the operating environment pose
short-term pressures to the rating, as effects from the economic
downturn could rapidly impact the entity's already low
profitability and high tangible leverage metrics.
Credivalores' LT IDR Outlook had initially been revised to Negative
in 2019 to reflect Credivalores' weakened asset quality metrics,
which added pressure on the already modest profitability and loss
absorption capacity. Despite certain improvements in asset quality
metrics at YE 2019, Fitch expects a weakening of the metrics to be
seen during first-half 2020 due to the pandemic. Fitch has also
recently adjusted its assessment of the operating environment faced
by financial institutions in Colombia to 'bb+' with a Negative
Outlook.
KEY RATING DRIVERS
Credivalores' IDRs are highly influenced by the company's profile
and concentrated nature within the financial system, which, despite
is small size, benefits from its role as one of the largest
non-bank financial institutions engaged in consumer lending to the
low-to-mid income population. The ratings also consider, as high
influence factors, the company's modest profitability and high
leverage, while at the same time incorporates in the ratings the
company's good funding flexibility and adequate liquidity to
confront current challenges from the operating environment.
During the first few quarters of 2019, Credivalores' asset quality
metrics experienced an increase in non-performing loans and
charge-offs, especially in its credit card segment. This, along
with the earlier adoption of IFRS 9, resulted in higher credit
costs that affected the company's profitability. To mitigate the
deterioration in asset quality, the company imposed a series of
measures including tighter underwriting and collection policies,
along with technological and system improvements that reversed the
increasing trend. However, the effects of the coronavirus pandemic
are now expected to partially offset improvements and to result in
a higher level of impairments due to the already significant level
of requests for loan renegotiations and delays in repayments.
Credivalores' ratio of non-performing loans past due over 60 days
improved to 11% at FYE December 2019 from 13% as of December 2018,
driven mainly by improved underwriting and collection policies. The
overall loan loss coverage ratio on Credivalores' managed portfolio
also improved to 111% from 88%, which is a relatively more
comfortable level in view of the lower risk of its
payroll/pension-backed loan segment, which represented nearly 60%
at the beginning of May 2020 of the total managed portfolio. In
addition, the entity has been focusing on increasing its credit
card origination in lower-risk segments. Fitch will evaluate the
extent of loan renegotiations and its effect on the structural
asset quality of the entity.
Credivalores' profitability remained weak for 2019 as it continues
to be affected by higher credit costs, lower loan growth and higher
investments. Fitch expects the remainder of 2020 to remain
lackluster in terms of profitability. Fitch expects the already low
levels of profitability provides the entity with little room to
manage and absorb additional asset quality deterioration and loan
loss reserve requirements.
To mitigate the low level of internal capital generation, the
company's shareholders made a capital infusion during first-quarter
2019. Despite this increase, the rating also considers
Credivalores' relatively higher leverage ratios for its
concentrated and higher-risk business model. Fitch believes
leverage could be pressured if profitability reduces further or if
the entity reports losses due to the coronavirus' economic effects
on its borrowers, depending on the size of the impact this could be
partially offset by expected lower on-balance-sheet loan growth.
Although the funding profile is wholesale and confidence sensitive,
Credivalores' current funding and liquidity metrics remain at
satisfactory levels with average maturity tenors of close to 3.4
years. The company has been able to expand its sources of funding
from both domestic and foreign lenders. The bank also placed a
USD300 million, five-year note in February 2020 of which USD119
million remained as cash on their balance sheet as of March 2020.
Sources of funding appear ample to cover upcoming 2020 and 2021
debt amortizations and fund future growth.
Fitch believes management needs to prove effective in executing its
strategies in enhancing asset quality, profitability and leverage
metrics that have deteriorated over the past few years. Management
and strategy are expected to be tested under the current
challenging conditions.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
Credivalores' ratings are currently on RWN, due to the short-term
risks to its profitability, leverage and asset quality metrics,
given the coronavirus outbreak. This makes an upgrade highly
unlikely in the near future.
Ratings could be removed from the RWN and affirmed with a Stable
Outlook if the company is able to stabilize its operational
profitability, asset quality and leverage in a level consistent
with its current ratings despite deterioration in the operating
environment or if it shows ability to revert effects in a
relatively short period of time. Ratings continue to be sensitive
to significant changes in Credivalores' company profile.
Ratings could be upgraded by the confluence of a relevant
improvement in the asset quality, earnings and leverage, together
with an improvement of the operating environment.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
Credivalores' IDRs could be downgraded if there is a relevant
increase in tangible leverage, measured as tangible leverage
sustainably above 8.5x, or if profitability metrics deteriorate
relevantly, measured as negative operating income, that reduces the
company's ability to absorb unexpected losses.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
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.
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.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
Credivalores Crediservicios S.A.S.
- LT IDR B+; Rating Watch On
- IDR B; Affirmed
- Senior unsecured; LT B+; Rating Watch On
===================
C O S T A R I C A
===================
AUTOPISTAS DEL SOL: Fitch Cuts Rating on International Notes to 'B'
-------------------------------------------------------------------
Fitch Ratings has downgraded the rating on the international notes
of Autopistas del Sol, S.A. to 'B' from 'B+' and removed it from
Rating Watch Negative. A Negative Rating Outlook was assigned to
the international notes. Additionally, Fitch maintained the
'AA(cri)' national scale rating on AdS' local notes on Rating Watch
Negative.
RATING RATIONALE
The downgrade and Negative Outlook follow Fitch's recent action on
Costa Rica's sovereign ratings and also reflect the toll road's
exposure to the country's economic conditions and links to the
sovereign credit quality through the minimum revenue guarantee
mechanism. On May 8, 2020, Fitch downgraded Costa Rica's ratings to
'B' with a Negative Outlook. These actions reflected increased
risks of near-term financing stress due to widening fiscal
deficits, a steep amortization schedule and borrowing constraints
against a background of economic contraction caused by the effects
of the coronavirus pandemic. The Negative Outlook reflects further
downside risks to debt sustainability amid uncertain prospects for
post-crisis fiscal consolidation, economic growth and borrowing
costs.
Fitch also maintained the Rating Watch Negative on the local scale
'AA(cri)' rating of the local notes to reflect the expectation that
the project may experience significant traffic declines as a result
of travel limitations and a depressed economic activity brought up
by the recent coronavirus pandemic. The latter, depending on its
severity and duration, could have a major impact on the transaction
liquidity and credit quality relative to other rated issuers and
issuances within Costa Rica. The Negative Watch will be resolved
once Fitch gets more clarity with regards to the severity of the
coronavirus pandemic impact on traffic volumes and the shape of the
recovery, as well as on the issuer's ability to manage opex and
capex as to preserve liquidity.
KEY RATING DRIVERS
The ratings reflect the asset's stable traffic and revenue profile,
supported by an adequate toll adjustment mechanism. Mostly used by
commuters, the project may face significant competition in the
short-to-medium term once the main competing road is substantially
improved and if its tariff is significantly lower than that of the
project. Toll rates are adjusted quarterly to exchange rate and
annually to reflect changes in the U.S. Consumer Price Index. The
ratings also reflect a fully amortizing senior debt with a fixed
interest rate and a net present value cash trap mechanism that
prevents an early termination of the concession before debt is
fully repaid. Fitch revised its Rating Case to reflect a traffic
decrease of 20% in 2020 with respect to 2019 levels. For the rest
of the years, Fitch is projecting a traffic CAGR of 1.5% from 2021
to 2033, which considers, among other factors, that the competing
route would not be tolled. Under the aforementioned assumptions,
the minimum and average debt service coverage ratio are 0.8x and
1.1x, respectively, which remains in line with Fitch's criteria
guidance for the rating category. It is expected that the shortfall
in the coverage ratios is covered by the reserve accounts available
within the structure. Under this scenario Fitch expects the project
will receive MRG payments from 2023 to 2032, which amounts in
average 20% of annual revenues. The global scale rating is
currently constrained by the credit quality of the sovereign.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Although unlikely given the ratings are on Negative Outlook, a
positive rating action on Costa Rica's sovereign ratings could
trigger a corresponding positive rating action on the rated notes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative rating action on Costa Rica's sovereign ratings could
trigger a corresponding negative action on the rated notes;
-- Traffic reduction in 2020 higher than 20%, along with the
expectation of a longer-than-expected recovery;
-- An observed and continual deterioration on available liquidity
levels to face operating and financial obligations.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Public Finance 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 three 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.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3. ESG issuers are
credit-neutral of have only a minimal credit impact on the entity,
either due to their nature or to the way they are being managed by
the entity.
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.
COSTA RICA: Fitch Corrects May 8, 2020 Ratings Release
------------------------------------------------------
Fitch Ratings replaced a ratings release published on May 8, 2020
to include the senior unsecured debt ratings in the ratings table.
The revised release is as follows:
Fitch Ratings has downgraded Costa Rica's Long-Term
Foreign-Currency Issuer Default Rating to 'B' from 'B+'. The
Outlook is Negative.
KEY RATING DRIVERS
The downgrade of Costa Rica's Long-Term Foreign-Currency IDR to 'B'
reflects increased risks of near-term financing stress due to
widening fiscal deficits, a steep amortization schedule and
borrowing constraints, against a background of economic contraction
caused by the effects of the coronavirus pandemic. The ongoing
health crisis comes at a time when Costa Rica's fiscal space is
limited and rapidly narrowing, raising risks to post-crisis debt
sustainability. The interest bill is climbing rapidly, and the debt
burden is on a relatively steep upward trajectory.
The Negative Outlook reflects further downside risks to debt
sustainability amid uncertain prospects for post-crisis fiscal
consolidation, economic growth and borrowing costs. The government
will rely on multilateral loan disbursement this year to secure
budget financing. However, uncertain external market access coupled
with a domestic capital market that has become costly in past
periods of sovereign liquidity stress pose financing risks. Risks
from the ongoing health crisis remain tilted to the downside, as
Fitch's forecasts are predicated on a three-month period of
economic disruption due to the coronavirus. In the event of a
second wave of infections and the re-imposition of lockdown
measures, economic and fiscal outturns would be weaker for 2020 and
2021.
Fitch expects Costa Rica's economy will contract by 4% in 2020,
with risks tilted to the downside. Containment measures will lead
to a sharp contraction in households' and firms' disposable income,
which will affect domestic demand and unemployment. Domestic demand
was already weakening prior to the health crisis due to high
unemployment, weak private credit growth and declining consumer
confidence. External demand is highly vulnerable given the expected
halt in tourism (6% of GDP, 19% of current account receipts) and
the expected economic contraction of trading partners, particularly
the U.S., which is the destination for 40% of Costa Rica's goods
exports. Fitch expects the economy to recover gradually from 2H20,
growing by 2.6% in 2021, and while this forecast is subject to
unusually high uncertainty, a stronger rebound could be hindered by
a lasting negative shock to tourism and policy uncertainty related
to fiscal issues.
The economic contraction will lead to a significant loss of
government revenues and widen the fiscal deficit to over 9% of GDP,
according to Fitch estimates. Fitch expects government revenues to
decline by more than 3% yoy given the expected economic
contraction. Revenue measures announced by the government to
mitigate the economic crisis include a three-month temporary
moratorium on tax payments and social security contributions.
The government proposed a fiscal package of CRC260 billion
(USD460million, 0.75% of GDP). The bulk of the package represents
direct transfers to households vulnerable to the coronavirus that
it expects to be funded by budget reallocations, containing the
impact on the deficit, as well as new multilateral loans.
Expenditure reallocations include the suspension of wage increases
for public employees, excluding the police. However, a rapid
increase in interest payments continues to widen the overall fiscal
deficit.
The fiscal responsibility law approved in 2018 was intended to
limit current expenditure growth starting in 2020. The government
expects to invoke a temporary activation of the emergency escape
clause embedded in the fiscal rule. This would only apply to
institutions related to the health crisis at this juncture. The
government intends to reinstate the fiscal rule by 2021.
Nevertheless, the absence of a track record of compliance with the
fiscal rule and some ambiguity over the degree of spending
containment it will require in the coming years hinder its
credibility as an anchor for medium-term fiscal consolidation.
Compliance with the rule would require major cuts to primary
current spending to offset a rising interest bill, which would
likely face political and social resistance.
Fitch expects the central government debt burden to reach slightly
below 70% of GDP by 2020 from 58.5% in 2019 and 53.1% in 2018. This
would represent a doubling of the debt ratio over the past decade.
Fitch expects general government debt, which nets out social
security holdings, to reach 62.5% of GDP in 2020, above the current
'B' median of 58% this year. Central government debt to government
revenues is set to reach 471% in 2020, while interest payments
accounted for 28% of revenues in 2019. In Fitch's view, debt
sustainability risks have increased significantly.
Fitch estimates sovereign financing needs of nearly 13% of GDP for
2020 (3.8% of GDP in debt repayments and 9.0% of GDP for budget
financing) and to remain above 12% of GDP in 2021 and 2022 due to
increasing amortizations. The main sources of funding will come
from multilateral organizations, domestic bond issuances and use of
government deposits. The government issued a USD1.5 billion bond in
November 2019 that eased the financing pressures over the first
quarter of the year. The authorities discussed the possibility of
signing a Stand-By Arrangement with the IMF, which could ease Costa
Rica's funding stress.
The government plans to use multilateral borrowing of up to USD
3.175 billion (5.2% of GDP) for 2020. These include loans from
Inter-American Development Bank, Banco de Desarrollo de America
Latina, the World Bank and Central American Bank for Economic
Integration, all of which still require congressional approval,
except for a USD500 million loan from CAF already disbursed. These
also include the IMF Rapid Financing Instrument of USD508 million
for balance of payment support, which can be used for budgetary
needs. Failure to secure these external loans would lead to a
fiscal financing gap given prohibitive external market borrowing
costs and limited domestic market size. Although the government
continues to place debt in the local market, recent issuances were
short-dated (expiring before year-end), raising potential near-term
rollover risks.
Monetary policy prioritized liquidity and the easing of credit
conditions for households and businesses to soften the economic
damage from the health crisis. Costa Rica's Central Bank cut its
policy rate by a 100bps to a record low of 1.25% since the
beginning of the pandemic. Additionally, the BCCR began to purchase
government securities in the secondary market to provide liquidity
during times of systemic market stress. The BCCR purchases will be
limited to local-currency securities issued prior to 2020 with a
maximum maturity of 10 years.
Banks have adequate capitalization and liquidity levels. However,
banks remain vulnerable to high household indebtedness and high
credit dollarization, largely to unhedged borrowers. NPLs have been
low, 2.6% of total loans as of March 2020, but gradually increased
over the past years. Risks remain tilted to the downside, as the
economic shock will weaken asset quality across the banking system.
The BCCR has a financial facility available to the banking system
of about 5% of GDP in case of liquidity pressures. Other measures
include reducing cost of credit, relaxing regulations on loan
restructuring and a two-month moratorium on principal payments on
loans from affected households and firms, pending congressional
approval.
External finances are being supported amid the global crisis by
improved terms of trade and the absence of large foreign capital in
the local market, as demonstrated by the absence of recent currency
depreciation. Nevertheless, portfolio dollarization of domestic
agents could pose a risk, as has occurred in the past. Issuance of
the USD1.5 billion eurobond and access to multilateral loans
reduced the government's FX demand in the near term, but renewed
external financing constraints could increase pressure on the
exchange rate. Net foreign reserves stood at USD8.5 billion (6.1
months of goods imports) by April 2020.
ESG - Governance: Costa Rica has an ESG Relevance Score of '5' for
both Political Stability and Rights, and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption, as
is the case for all sovereigns. Theses scores reflect the high
weight the World Bank Governance Indicators have in its proprietary
Sovereign Rating Model. Costa Rica has a high WBGI percentile of
70.7%, reflecting its long track record of stable and peaceful
political transitions, well established rights for participation in
the political process, strong institutional capacity, effective
rule of law and a low level of corruption.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Costa Rica a score equivalent to a
rating of 'BBB' on the LT FC IDR scale.
In accordance with its rating criteria, Fitch's sovereign rating
committee decided to adjust the rating indicated by the SRM by more
than the usual maximum range of +/- three notches because of the
extent of Costa Rica's sharply rising debt burden, fiscal budget
financing constraints and emergence of macroeconomic
vulnerabilities.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its QO, relative to
rated peers, as follows:
-- Structural: -2 notches; one negative notch reflects a long
track record of institutional gridlock that has hindered progress
on necessary reforms, which is not fully captured in the WBGI in
the SRM. Fitch added an additional negative notch to highlight the
constraints on external financing posed by political gridlock in
the context of the current crisis.
-- Fiscal: -2 notches; reflects the severe constraints on fiscal
financing flexibility, and reflects its expectation that government
debt will continue to rise fairly rapidly over the medium term
while the appetite to further increase the revenue base is
limited.
-- External: -1 notch; reflects the institutional gridlock that
led to periodic barriers to external bond issuance. Absent
authorization for further external bond issuances, the government
would be a net buyer of FX rather than a supplier, increasing
external vulnerabilities.
-- Macro: -1 notch; reflects policy framework weakness, as
evidenced by the government's decision to use short-term financing
from the central bank, as well as spillover effects from the fiscal
imbalances affecting macro stability.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Evidence of sovereign funding stress in the event that
external and domestic borrowing sources cannot be accessed, or a
significant buildup of short-term debt liabilities;
-- Increased risks to debt sustainability reflected by difficulty
in post-crisis fiscal consolidation, weaker economic recovery
prospects and increase in borrowing costs;
-- Evidence of external liquidity stress; for example, a
significant sharp decline of international reserves.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sustained improvement in government financing flexibility,
including sustained access to external funding sources.
-- Greater confidence in the political commitment to fiscal
consolidation that significantly reduces the steep upward
trajectory of the government's debt/GDP ratio.
-- Reduction of political fragmentation that supports more
cohesive policy making, for example, a significant improvement in
the relationship between the executive branch and the legislative
assembly.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Public Finance 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 three 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.
KEY ASSUMPTION
Fitch assumes the global economy performs broadly in line with its
most recent Global Economic Outlook (GEO) published in April 2020.
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.
ESG CONSIDERATIONS
Costa Rica has an ESG Relevance Score of '5' for Political
Stability and Rights, as WBGIs have the highest weight in Fitch's
SRM, are highly relevant to the rating and a key rating driver with
a high weight.
Costa Rica has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption, as
WBGIs have the highest weight in Fitch's SRM, and are therefore
highly relevant to the rating and are a key rating driver with a
high weight.
Costa Rica has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms, as strong social stability and voice and
accountability are reflected in the WBGIs that have the highest
weight in the SRM. They are relevant to the rating and a rating
driver.
Costa Rica has an ESG Relevance Score of '4' for Creditor Rights,
as willingness to service and repay debt is relevant to the rating
and is a rating driver for Costa Rica, as for all sovereigns.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
Costa Rica
- LT IDR B; Downgrade
- ST IDR B; Affirmed
- LC LT IDR B; Downgrade
- LC ST IDR B; Affirmed
- Country Ceiling B+; Downgrade
- Senior unsecured; LT B; Downgrade
===================================
D O M I N I C A N R E P U B L I C
===================================
BANCO DE RESERVAS: Fitch Affirms BB- LT IDR, Alters Outlook to Neg.
-------------------------------------------------------------------
Fitch Ratings has affirmed Banco de Reservas de la Republica
Dominicana, Banco de Servicios Multiples' Long-Term Issuer Default
Ratings at 'BB-'. The Rating Outlook was revised to Negative from
Stable. Fitch has also affirmed the National Ratings of the related
entity, Inversiones y Reservas, S.A.
The Negative Rating Outlook on Banreservas' IDRs follows Fitch's
revision of the Dominican Republic's Sovereign Rating Outlook to
Negative from Stable, reflecting the coronavirus pandemic led to a
sharp fall in economic activity and exerted balance of payments
pressures on the Dominican Republic, given its reliance on tourism
and remittances.
Fitch also considers in its assessment the increased downside risks
from the economic implications of the coronavirus pandemic, which
resulted in an adjustment of the Outlook for the operating
environment score to Negative from Stable. Fitch believes the
weaker economic conditions reflected in the expected contraction of
the economy by at least 3.5% in 2020, will result in asset quality
deterioration and will weigh on profitability.
As part of this review, Fitch has also taken a rating action on
Banreservas' subordinated debt, which was placed on Under Criteria
Observation on March 5, 2020, on the release of Fitch's latest
'Bank Rating Criteria'.
KEY RATING DRIVERS
KEY RATING DRIVERS - BANRESERVAS
IDRS AND NATIONAL RATINGS
The bank's IDRs and National Ratings reflect Fitch's expectations
of support from the bank's sole shareholder, the government of the
Dominican Republic, should it be needed.
VIABILITY RATING
Banreservas' viability rating is highly influenced by the
challenging and deteriorated operating environment, weak
capitalization and robust company profile. Despite modest
improvements in profitability and loan quality last year, Fitch
expects these ratios to deteriorate in 2020, due to the economic
effects from the coronavirus pandemic. Banreservas is the largest
bank in the Dominican Republic with a market share by assets and
deposits of 28% and 29% at YE 2019, respectively. It enjoys a
leadership position in the commercial and consumer segments.
Banreservas' capitalization is tight, relative to its rating
category, particularly in light of its high asset concentrations.
Although the bank's regulatory capital ratio is well above the
minimum required, its tangible common equity ratio of 6.7% on an
unconsolidated basis is one of the weakest among peers.
Capitalization is the weakest link of Banreservas' financial
profile, and current metrics and loss absorption capacity will be
tested under a less benign operating environment.
Loan quality ratios modestly improved in 2019. The 90-day past-due
loans ratio improved to 1.4% at YE 2019 from 1.5% the prior year,
despite the bank's expansion in the retail segment. Fitch expects
weak operating conditions due to the coronavirus crisis to pressure
Banreservas' asset quality, given its significant exposure to
sensitive sectors such as retail (36% of total loans), commerce
(11%), construction (9%), industry (7%) and tourism (5%).
The bank's operating profitability/average total assets of 1.2% at
YE 2019 remains low compared with similarly-rated peers. The bank's
sound margin and income diversification are offset by high
operating expenses. Lower business volumes, tighter net interest
margins due to recent policy rate cuts, and higher credit costs due
to the economic impact of the coronavirus pandemic will pressure
profitability in 2020.
Fitch believes sector-wide deferment payment measures for loans
facing difficulties as a result of the crisis could relieve some
asset quality and loan loss reserves pressures in the near term;
however, liquidity risks from reduced cash flows, as well as longer
term effects on the asset quality and recognition of losses remain
a risk for banks.
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating of '3' and its Support Rating Floor of
'BB-' reflect its systemic importance, its role collecting funds
for the government's single treasury account to pay debt
obligations, its role as a provider of public sector loans, and its
100% government ownership. The Support Rating of '3' also reflects
some uncertainty over the Dominican Republic's capacity to provide
support due to its speculative-grade IDR, should it be needed.
SUBORDINATED DEBT
Banreservas' outstanding subordinated debt includes an
international issuance of USD300 million due 2023 and a domestic
issuance of DOP10 billion due 2024. Banreservas' subordinated bonds
are basic issues as they do not have coupon deferral features.
The anchor rating for the international subordinated issues is the
IDR, given the bank's government ownership and policy role. This
issuance has been downgraded to two notches below the IDR,
reflecting the change in baseline notching for loss severity to two
notches, from one previously, since the bank does not meet the
specific conditions under Fitch's criteria for applying one notch.
This rating has been removed from UCO.
KEY RATING DRIVERS - I&R
NATIONAL RATINGS
I&R's ratings are aligned with those of Banreservas, its sole
shareholder, reflecting the bank's propensity and capacity to
support I&R if needed. In Fitch's view, I&R is a key and integral
part of Banreservas' business as it provides investment services to
its core clients. Furthermore, a clear commercial identification
among this entity with Banreservas, and the reputational risk to
which it would be exposed in the event of an I&R default results in
a high probability of shareholder support, should it be required.
RATING SENSITIVITIES
RATING SENSITIVITIES - BANRESERVAS
IDRS, VR AND NATIONAL RATINGS
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- The IDR will be downgraded following a downgrade in the
sovereign rating.
-- The bank's IDRs and National Ratings are sensitive to a change
in Fitch's support assumptions.
-- A relevant deterioration in loan quality or profitability or
sustained high disbursements of income to the government that
pressures Banreservas' tangible common equity/tangible assets ratio
to below 5.5% could trigger a downgrade of its VR.
-- The ratings could also be pressured by a material
deterioration of the asset quality and profitability metrics due to
the disruption to economic activity due to the coronavirus
pandemic.
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- The IDR could be affirmed and the Outlook revised to Stable if
there is a similar sovereign rating action.
-- Over the medium term, the VR could be upgraded by the
confluence of improvements in the operating environment and the
financial profile of the bank.
-- A rating upgrade on the IDRs and VR is unlikely in the near
future, as reflected by the Negative Outlook.
-- There is limited upside for the bank's National Ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Banreservas' Support Rating and Support Rating Floor would be
affected if Fitch positively changes its assessment of the
Dominican government's propensity or ability to provide timely
support to the bank. This could arise in the event of a sovereign
rating action.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- Banreservas' Support Rating and Support Rating Floor would be
affected if Fitch negatively changes its assessment of the
Dominican government's propensity or ability of to provide timely
support to the bank. This could arise in the event of a sovereign
rating action.
SUBORDINATED DEBT
The subordinated debt ratings would move in line with Banreservas'
IDR and National Long-Term Rating.
RATING SENSITIVITIES - I&R
NATIONAL RATINGS
I&R's ratings are sensitive to a change in Banreservas's ratings or
a change in the ability or propensity of Banreservas to provide
support.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
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.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Banreservas' ratings are driven by the Dominican Republic sovereign
rating. Inversiones y Reservas' ratings are driven by Banreservas'
ratings.
ESG CONSIDERATIONS
Banco de Reservas de la Republica Dominicana, Banco de Servicios
Multiples (BANRESERVAS): Governance Structure: 4
Banreservas has an ESG Relevance Score of 4 for Governance
Structure due to its exposure to government intervention, which has
a negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
BANCO MULTIPLE: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Neg.
------------------------------------------------------------------
Fitch Ratings has affirmed Banco Multiple BHD Leon S.A.'s Long-Term
Issuer Default Ratings at 'BB-'. The Rating Outlooks were revised
to Negative from Stable. Fitch has also affirmed BHDL's Viability
Rating at 'bb-' and its National Ratings. The National Ratings of
BHDL's related entities, BHD Leon Puesto de Bolsa, S.A. and BHD
International Bank Panama, were also affirmed. BHDLPB's Rating
Outlook is Stable. The Rating Outlook of BHDIB's Long-Term National
Rating in Panama was revised to Negative from Stable, while the
Rating Outlook of its Long-Term National Rating in the Dominican
Republic is Stable.
The Negative Rating Outlook on BHDL' IDRs follows Fitch's revision
of the Dominican Republic's sovereign Rating Outlook to Negative
from Stable, reflecting that the coronavirus pandemic led to a
sharp fall in economic activity and exerted balance of payments
pressures on the Dominican Republic given its reliance on tourism
and remittances.
Fitch also considers in its assessment the increased downside risks
from the economic implications of the coronavirus pandemic, which
has resulted in an adjustment of the outlook for the operating
environment score to Negative from Stable. Fitch believes the
weaker economic conditions reflected in the expected contraction of
the economy by at least 3.5% in 2020, will result in asset quality
deterioration and weigh on profitability.
The Negative Rating Outlook on BHDIB's Long-Term National Rating in
Panama reflects a potential deterioration on its owner's credit
profile that would change BHDIB's local relative credit strength
with respect to Panamanian peers.
The Stable Rating Outlook on BHDIB's Long-Term National Rating in
the Dominican Republic derives from its relative credit strength in
the local market, which could not necessarily be affected in the
event of deterioration in the operating environment.
KEY RATING DRIVERS
BHDL
IDRS, VR and National Ratings
BHDL's VR, or stand-alone creditworthiness, drives its Long-Term
IDRs and National Ratings.
The bank's VR is highly influenced by the challenging and
deteriorated operating environment and its company profile due to
its strong franchise. BHDL is the third largest bank in the
Dominican Republic. The VR is moderately influenced by asset
quality and profitability that will face pressure in the near term,
a decreasing, although still reasonable, capitalization, as well as
a stable and diversified funding base.
Asset quality metrics have recently improved. The impaired loans to
gross loans ratio declined to 1.39% in fiscal 2019 from 1.50% in
fiscal 2018, remaining below the local system average (1.55%).
Reserve coverage compared favorably to peers', with loan loss
reserves covering 250% of impaired loans. BHDL is expected to face
material asset quality stress in those relevant economic sectors in
the loan portfolio such as in consumer loans (29.3% of the loan
book as of fiscal 2019) and commerce (13.6%), among others. In
terms of metrics, the recognition of asset quality deterioration
could be delayed due to the implementation of the regulatory
measures.
The profitability core metric, operating profits to risk weighted
assets, continued the decrease in 2019, to 2.71% (fiscal 2018:
3.30%), but comparing favorably to both similarly rated local and
regional peers (Latin American commercial banks). Under the
challenging scenario, Fitch expects BHDL to face notable pressures
on its profitability due to a potential credit contraction as well
as from higher credit costs.
Fitch believes sectorwide deferment payment measures for loans
facing difficulties as a result of the crisis could relieve some
asset quality and loan loss reserve pressures in the near term;
however, liquidity risks from reduced cash flows, as well as longer
term effects on the asset quality and recognition of losses, remain
a risk for banks.
BHDL's levels of capitalization have decreased, comparing similarly
against domestic and some international peers in 2019. BHDL's Fitch
core capital to risk weighted assets ratio was 13.26% in fiscal
2019 (fiscal 2018: 15.02%). Loss absorption capacity is benefited
by a sound loan loss reserve coverage; however, BHDL is building up
an additional reserve for unexpected losses to be used mostly in
2020. Fitch estimates this reserve would constitute around 10% of
fiscal 2019 FCC. Fitch expects that the capitalization core metric
will continue to be commensurate with the current Fitch
capitalization assessment under the current crisis.
BHDL has a solid local franchise in customer deposits. The bank has
been characterized as having a well-diversified and stable funding
base. Customer deposits represented 88.3% of BHDL's funding needs
as of fiscal 2019. The bank's loans to deposits ratio remains below
80% (fiscal 2019: 75.2%), comparing below other Dominican banks and
in line with similarly rated regional peers.
Support Rating
Despite BHDL's solid franchise in deposits, the bank's Support
Rating of '5' and Support Rating Floor of 'NF' indicate that Fitch
believes that sovereign external support cannot be relied upon due
to the Dominican Republic's speculative-grade IDR.
Subordinated Debt
BHDL's outstanding subordinated debt includes a domestic issuance
of up to DOP10,000 million, with a balance of DOP5,000 million as
of fiscal 2019. The bank's subordinated debt rating is one notch
below its National Long-Term rating, 'AA+(dom)', reflecting one
notch for loss severity but no notches for incremental
non-performance risk relative to the bank's IDR.
BHDIB and BHDLPB
BHDIB and BHDLPB's ratings reflect BDHL and its sole shareholder's,
Centro Financiero BHD Leon, propensity and ability to support its
subsidiaries if needed. In Fitch's view, both entities are a key
and integral part of CFBHDL's diversified financial business model
as they provide specific financial products. Moreover, a clear
branding identification among these entities with BHDL and CFBHDL,
and the reputational risk at which they would be exposed in the
case of potential financial difficulties in BHDIB or BHDLPB
ultimately result in a high probability of direct or indirect
support by BHDL and CFBHDL, should it be required.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
BHDL
IDRs, VR and National Ratings
-- BHDL's IDRs are sensitive to changes in the Dominican
Republic's sovereign and Country Ceiling ratings. Negative changes
in the bank's IDRs and VR would mirror any movement in the
Dominican Republic's sovereign ratings and Country Ceiling or any
deterioration in the operating environment.
-- BHDL's VR and National Ratings are sensitive to changes in the
Dominican Republic's operating environment, including its sovereign
rating. Downgrades in BHDL's VR and National Ratings could also
come from significant pressure on the bank's financial profile, due
to the disruption to economic activity due to the coronavirus
pandemic, such as a relevant deterioration in asset quality or
profitability combined with a fall of the Fitch core capital to
risk weighted assets ratio to below 10%.
SR
-- There is no room for downgrade in the SR.
Subordinated Debt
-- BHDL's subordinated debt rating is broadly sensitive to any
downgrade in the bank's National Long-Term rating.
BHDIB and BHDLPB
National Ratings
-- A negative change in the capacity or propensity of CFBHDL to
provide support could pressure creditworthiness. A potential
deterioration in CFBHDL's credit profile would affect BHDIB's local
relative credit strength in Panama.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
BHDL
IDRs, VR and National Ratings
-- Given BHDL's current ratings, there is limited upside
potential.
-- The Rating Outlooks on BHDL's IDRs could be revised to Stable
from Negative if the bank sustains a financial profile consistent
with its current ratings despite deterioration in the operating
environment if it shows ability to revert effects in a relatively
short period.
SR
-- The Dominican Republic government's propensity or ability to
provide timely support to BHDL is not likely to change given the
sovereign's low speculative-grade IDR. As such, the Support Rating
and Support Rating Floor have no upgrade potential.
Subordinated Debt
-- BHDL's subordinated debt rating is broadly sensitive to any
upgrade in the bank's National Long-Term rating. Consequently,
there is limited upside potential.
BHDIB and BHDLPB
National Ratings
-- There is limited upside potential for BHDIB and BHDLPB's
national ratings.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
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.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BHD Leon Puesto de Bolsa and BHD International Bank's ratings are
directly linked to Banco BHD Leon's ratings.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
DOMINICAN REPUBLIC: 'No Date Yet' to Open Economy
-------------------------------------------------
Dominican Today reports that Economy Minister Juan Ariel Jimenez on
Monday clarified that the Government does not yet have any date to
reopen Dominican Republic's economy.
The official indicated that from the moment the social or physical
distancing measures were taken, it was known that they would be
temporary in order to strengthen the health system and prevent an
increase in the number of contagion, according to Dominican Today.
"But that later, it would be necessary to return to a new modality
and one that should focus on a distance that is intelligent," the
report notes.
Interviewed on CDN's Morning Focus program, Jimenez indicated that
what has been spreading and that was given as an official in the
media, as a proposal by the Government, was only an internal
working document, and that make up a conglomerate of proposals that
are considered for the opening, the report relays.
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.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). 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: 592,201 Laid Off Workers Get US$44.3MM in Aid
-----------------------------------------------------------------
Dominican Today reports that Dominican Republic Finance Minister
Donald Guerrero said the accreditation of the accounts of 592,201
beneficiaries of the Employee Solidarity Assistance Fund (PASE) in
the second half of April last concluded "satisfactorily."
Guerrero said the amount transferred totaled RD$23.4 billion
(US$44.3 million), resources that began to be allocated on April
20, a process that continued throughout the week to benefit workers
under the support program that the Government is executing to
mitigate the economic impact of the coronavirus, according to
Dominican Today.
Guerrero added that the accreditation of resources corresponding to
the second half of April continued for beneficiaries of the program
who presented errors in their personal data and bank account
numbers, the report notes.
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.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). 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: Central Banker Opposes Use of Pension Fund
--------------------------------------------------------------
Dominican Today reports that Central Banker, Hector Valdez Albizu,
indicated that the proposals to allow the partial withdrawal of the
money deposited in Dominican Republic's pension fund are
unfortunate and inadmissible.
"I express my personal opposition, and as Governor of the Central
Bank and President of the Monetary Board, to the aforementioned
legislative initiatives due to the negative and perverse
consequences that would result in the most vulnerable sectors of
society, stability and economic growth. If welcomed, we would be
as a nation promoting a transitional health crisis into a more
permanent economic and financial crisis that would require years to
reverse," Valdez said in a statement obtained by the news agency.
He said the proposed legislative proposals are "unfeasible and
contrary to the interests of workers, since the only result they
would achieve would be a setback to a crisis scenario similar to
that of 2003, which generated a cost to the country around 20% of
gross domestic product," 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.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). 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
=============
BANCO PROCREDIT: Fitch Assigns 'CCC-/C' Issuer Default Ratings
--------------------------------------------------------------
Fitch Ratings has assigned Banco ProCredit S.A. a Long-Term Issuer
Default Rating of 'CCC-' and a Short-Term IDR of 'C'. Fitch also
assigned a Viability Rating of 'cc'.
KEY RATING DRIVERS
IDRS
ProCredit Ecuador's IDRs are driven by Fitch's view of the
potential support it would receive from its parent, ProCredit
Holding AG & Co. KGaA's (PCH rated BBB/Stable), if required.
Fitch's assessment of support is constrained by Ecuador's sovereign
rating downgraded to 'RD', the transfer and convertibility risks
captured by the country ceiling rated at 'CCC' and the risk of
government intervention in the financial system as the sovereign
nears default. Long-Term IDR is assigned one notch above its VR as
Fitch views parent support as being robust even in the case of
current high sovereign and macroeconomic stress.
The ProCredit group is an international group of development
oriented commercial banks with focus on Eastern Europe. Although
ProCredit Ecuador performance has been weak over the past five
years, it is the only operation remaining in Latin American and has
been described as a strategic market and operation due to its focus
on the core business of the group.
Fitch's believes the commitment of PCH is evident in the credit
lines provided by the group to the entity which represents a
relevant proportion of ProCredit Ecuador's funding (around 30%),
the guarantees provided to funders and the ordinary support granted
for its growth goals. Fitch also considers the high level of
operational and managerial integration, the reputational
implications of subsidiary default as well as the relatively modest
size of Procredit Ecuador compared to its parent (December 2019:
5.3% of consolidated assets), as extraordinary support would not be
considered material.
SUPPORT RATING
ProCredit Ecuador's Support Rating is also constrained by Ecuador's
sovereign rating, as reflected in the country ceiling. As per
Fitch's criteria, ProCredit Ecuador's IDR of 'CCC-' corresponds to
a support rating of '5'.
VR
ProCredit Ecuador's VR is highly influenced by Ecuador's current
challenging operating environment. Strategic group's major changes
associated with exiting the informal economy in order to focus on
more established SMEs has resulted in operating losses since 2016
which are marginally offset by recoveries given the still
insufficient business scale. Fitch expects additional pressure on
profitability as sustainable profit generation will be delayed
given the current economic conditions which limits ProCredit
Ecuador's capacity to grow at the previously expected pace and will
likely require additional loan loss provisions.
Ecuador is expected to suffer a deep recession in 2020 given the
economic disruption caused by the coronavirus pandemic amid
Ecuador's debt crisis that has led to a sovereign deferment of bond
repayments.
Capital metrics are higher than peers and provide the entity with
cushion to absorb deterioration of the operating environment which
will result in higher loan provisioning needs, generating
additional operating losses. As of March 2020, Fitch Core Capital
stood at 15.8%. Fitch considers that solvency ratios will maintain
a buffer above the regulatory requirements given PCH's propensity
to provide ordinary support if needed.
Fitch considers that low delinquency levels exhibited as of March
2020 (1.3% vs. 2.7% at the banking system) cannot be considered as
an indicator of future metrics. Fitch expects a delay in
recognition of impaired loans for 2H20 as temporary measures from
the regulator and banks should temporarily alleviate debtors and
banks affected by the coronavirus pandemic, however liquidity risk
from deferral remains while structural asset quality effects of the
current crisis are yet to be seen.
As of March 2020, customer deposits declined close 8.1% compared to
February 2020 as the deposit decline was compensated by external
funding sources which are primarily from related parties (December
2019: 35% of funding) including guarantees provided by PCH.
Procredit Ecuador has also access to a contingency credit line with
PCH if needed.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
ProCredit Ecuador's IDR could be upgraded in the event of upgrades
in the sovereign rating or material improvements in the operating
environment, especially if joined by a relevant reduction in the
risk of government intervention in the financial system, but the
timeframe over which these conditions could materialize is
uncertain.
The VR has limited upside potential as reflected by the negative
trend in the operating environment and would also require
sustainable profit generation.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
ProCredit Ecuador's IDR could be downgraded if PCH's propensity or
ability to support materially weakens amid increasing risk of
government intervention.
The VR could be downgraded in the event of a sharp deterioration of
profitability metrics that would significantly reduce capital
metrics.
The SR is potentially sensitive to any change in assumptions as to
the propensity or ability of PCH to provide timely support to the
bank.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
Prepaid Expenses and Deferred Payments were included as other
intangibles and deducted from the FCC.
ProCredit has a ESG Relevance Score of 4 for Governance Structure
due to influence of high government intervention reflected in its
regulatory framework, which could have an impact on its financial
profile and is relevant to the ratings in conjunction with 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.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
IDRs are driven by Fitch's opinion about the propensity of support
from ProCredit Holding (BBB/Stable).
ECUADOR: IMF Confirms $643MM in Aid, Says More Support Needed
-------------------------------------------------------------
Andrea Shalal at Reuters reports that the International Monetary
Fund confirmed it had approved $643 million in emergency assistance
for Ecuador, but said the Andean country would need additional
support from other external partners to respond to the coronavirus
pandemic.
The outbreak of the novel coronavirus and plummeting oil prices and
global demand were having a devastating effect on Ecuador, one of
the largest oil exporters in Latin America, said IMF Managing
Director Kristalina Georgieva, according to Reuters.
The IMF said the emergency aid would help Ecuador finance
much-needed health and social assistance spending, while helping to
catalyze additional resources from other multilateral financial
institutions such as the World Bank, the report notes.
Ecuador has been among the hardest-hit countries in Latin America
by the coronavirus, with 24,934 confirmed cases and 900 deaths,
plus a further 1,357 deaths that were likely caused by the virus,
the report relates.
Ecuadorean authorities have taken decisive action to contain the
virus and mitigate the socio-economic impact of the health crisis
on households and firms, while prioritizing efforts to protect the
poor and vulnerable, the IMF said, the report relays.
Austerity measures imposed on April 16 by President Lenin Moreno
have sparked fears of further social instability following a wave
of street protests that erupted last October after Moreno decided
to end a fuel subsidy, the report discloses.
"Protecting the poor and strengthening the social safety net are
central priorities of the government at the time of this healthcare
crisis," Georgieva said, the report relays.
She said Ecuadorean authorities were also committed to addressing
risks to fiscal and debt sustainability, and had taken some
"substantive initial steps", including talks with private sector
creditors on a debt operation," the report notes.
The coronavirus outbreak in Ecuador is boosting pressure on Moreno
to default on $17 billion in debt and devote more resources toward
fighting the pandemic, the report discloses.
The report relays that Moreno is scrambling to cover expenses with
$3 billion from multilateral agencies and China, but is still
securing firm commitments from those creditors.
Georgieva said Ecuadorean authorities aimed to reach a quick,
comprehensive debt restructuring agreement with private creditors,
while securing additional medium-term debt relief and financing on
favorable terms from official bilateral creditors and other
stakeholders, the report says.
She underscored the importance of ensuring transparency about
pandemic-related funding and said further support would be needed,
the report notes.
"Additional support from other external partners will be required
and critical to close the remaining financing gap and ease budget
constraints," Georgieva said, the report relays.
Ecuador this week cancelled a $4.2 billion structural lending
program with the IMF and will renegotiate a similar program under
the Fund's Extended Fund Facility (EFF) in coming months, the
report adds.
As reported in the Troubled Company Reporter-Latin America on April
27, 2020, Fitch Ratings has downgraded Ecuador's Long-Term
Foreign-Currency Issuer Default Rating to 'RD' from 'C'.
=====================
E L S A L V A D O R
=====================
[*] Fitch Affirms El Salvador DPR Program Ratings, Outlook Neg.
---------------------------------------------------------------
Fitch Ratings has affirmed all outstanding series issued by
Salvadoreno DPR Funding Ltd and Titularizadora de DPRs Limited. The
Outlook on the ratings is revised to Negative from Stable following
the Outlook revision on the originating banks and sovereign.
Titularizadora de DPRs Limited
- Series 2016-1 Bank Loan; LT BB-; Affirmed
- Series 2019-1 Variable Funding Loan; LT BB-; Affirmed
Salvadoreno DPR Funding, Ltd.
- Series 2015-1; LT BB; Affirmed
- Series 2015-2; LT BB; Affirmed
- Series 2015-3; LT BB; Affirmed
TRANSACTION SUMMARY
The future flow program is backed by U.S. dollar-denominated
existing and future diversified payment rights originated by Banco
Davivienda Salvadoreno and Banco Cuscatlan de El Salvador, S.A.,
respectively. The majority of DPRs are processed by designated
depository banks that have executed acknowledgement agreements,
irrevocably obligating them to make payments to an offshore account
controlled by the transaction trustee. Fitch's ratings address
timely payment of interest and principal on a quarterly basis.
KEY RATING DRIVERS
Originator's Credit Quality: The rating of the transaction is tied
to the credit quality of the originator, DS and BC, each bank's
Long-Term Issuer Default Rating is limited by El Salvador's Country
Ceiling of 'B' and is driven by the potential support that Fitch
believes the bank would receive from its shareholder, if needed.
Going Concern Assessment: Fitch uses a GCA score to gauge the
likelihood that the originator of a future flow transaction will
stay in operation throughout the transaction's life. Fitch assigns
a going concern assessment score score of 'GC2' to both DS and BC,
based on each bank's moderate systemic importance and potential
support from its respective shareholder. The score allows for a
maximum of four notches above the IDR of the originator, however,
additional factors limit the maximum uplift.
Uplift from LC IDR: The GCA score of GC2 allows for a maximum
uplift of four notches from the originator's IDR; however, uplift
is tempered to two to three notches due to factors mentioned below,
including the fact that each bank's IDR is support-driven, the
program size as a percentage of non-deposit funding and the
potential exposure to diversion risk and El Salvador's lack of last
resort lender.
Coronavirus Impact and Containment Measures Pressure Transaction
Flows: DS and BC have continued to process a steady volume of DPR
flows during the first three months of 2020. While these flows are
relatively similar when compared to 2019 flows during the same
period, Fitch expects that global events such as the expected sharp
economic contractions given the coronavirus pandemic and different
containment measures will translate into a decrease in transaction
cash flows, which can add pressure to the assigned ratings.
Therefore, the potential volatility of the DPR flows limits the
notching differential of the transaction.
Coverage Levels Commensurate with Assigned Rating: Global events
including the coronavirus crisis are expected to negatively impact
DPR flows. However, these situations have not translated into a
significant decrease in flows as of March 31, 2020. The projected
quarterly debt service coverage ratios are expected to be
sufficient for each transaction, and the transactions can withstand
a significant drop in flows and still cover a maximum quarterly
principal and interest payment. Nevertheless, Fitch will continue
to monitor the performance of the flows, as potential pressures
could negatively impact the assigned ratings.
Future Flow Debt Size & Program Performance:
Salvadoreno DPR Funding Ltd
Future Flow Debt Size: Davivienda Sal's total outstanding future
flow debt balance as of April 2020 represented around 3.6% of the
bank's consolidated liabilities and 15.4% of non-deposit funding
using YE 2019 financials. Fitch considers these ratios small enough
to differentiate the credit quality of the transaction from the
originator's LT IDR, but the maximum uplift is tempered to three
notches in this case for the reasons described. The reported
quarterly maximum DSCR has been close to 40x on average since the
2015 issuance. This moderate coverage level is in line with Fitch's
expectations.
Titularizadora de DPRs Limited (Banco Cuscatlan)
Future Flow Debt Size: Considering the outstanding balance of
USD$128.8 million as of the April 2020, BC's total outstanding FF
debt is estimated to represent approximately 8.7% of the bank's
consolidated liabilities and 58% of non-deposit funding considering
YE 2019 financials. While Fitch considers these ratios adequate
enough to differentiate the credit quality of the transaction from
the originator's LT IDR, the future flow debt size is a constraint
on the DPR rating. The reported quarterly maximum DSCR has been
close to 70x on average since the 2016 disbursement. BC's DPR
business line is supported by the bank's well-regarded franchise,
branch network, and longstanding relationships with key corporate
clients.
Potential Redirection/Diversion Risks Reduced: The structure
mitigates certain sovereign risks by collecting cash flows offshore
until collection of periodic debt service amount. In Fitch's view,
diversion risk is partially mitigated by the acknowledgments signed
by designated depositary banks. Particularly for the Cuscatlan DPR
program, the largest DDB, Citibank N.A., has been processing more
than 75% of DPR flows this past year. While the trend is
decreasing, the agency believes the DDB concentration still exposes
the transaction to a higher degree of diversion risk than other
Fitch-rated Central American DPR programs. The future flow rating
reflects this exposure.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch does not anticipate developments with a high likelihood of
triggering an upgrade. However, the main constraint to the program
rating is the originator's rating and bank's operating environment.
If upgraded, Fitch will consider whether the same uplift could be
maintained or if it should be further tempered in accordance with
criteria.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The transaction ratings are sensitive to changes in the credit
quality of the originating bank. A deterioration of the credit
quality of the sovereign and/or respective bank by one notch is
likely to pose a constraint to the rating of the transaction from
its current level.
-- The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score.
Additionally, the transaction rating is sensitive to the
performance of the securitized business line. The quarterly DSCRs
are expected to be greater than 20x and should therefore be able to
withstand a significant decline in cash flows in the absence of
other issues. However, significant further declines in flows could
lead to a negative rating action. Any changes in these variables
will be analyzed in a rating committee to assess the possible
impact on the transaction ratings.
-- No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven 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 seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
=============
J A M A I C A
=============
JAMAICA: BOJ Probe Claims Some Banks Refusing to Encash Cheques
---------------------------------------------------------------
RJR News reports that the Bank of Jamaica is looking into claims
that some commercial banks are refusing to encash cheques.
The issue was raised earlier by Opposition Spokesman on Finance,
Mark Golding, according to RJR News.
Mr. Golding noted that while there is support for the banks'
decision to encourage greater use of electronic and online
channels for payment transactions, it should not be done in an
arbitrary or insensitive way, the report notes.
In the meantime, Bank of Jamaica Deputy Governor, Natalie Haynes,
admitted that while the push to go digital is being emphasized,
there is still a place for cash in the economy, the report relays.
As reported in the Troubled Company Reporter-Latin America on
April 23, 2020, on April 16, 2020, S&P Global Ratings revised its
outlook on Jamaica to negative from stable. At the same time, S&P
Global Ratings affirmed its 'B+' long-term foreign and local
currency sovereign credit ratings, its 'B' short-term foreign and
local currency sovereign credit ratings on the country, and its
'BB-' transfer and convertibility assessment.
===========
M E X I C O
===========
CONSORCIO ARA: Moody's Alters Outlook on Ba2/A2.mx Ratings to Neg.
------------------------------------------------------------------
Moody's de Mexico has affirmed the Ba2 global scale and the A2.mx
national scale issuer ratings of Consorcio ARA, S.A.B. de C.V. The
outlook was changed to negative from stable. The action follows its
expectation of weaker than anticipated operating performance and
challenging business prospects through at least 2021.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. Business
conditions and revenue-growth potential are deteriorating rapidly
for homebuilding companies globally. The spread of the coronavirus
and the associated quarantines, social distancing measures, travel
restrictions and logistics disruptions have led to suspensions and
delays in construction activity. Its action reflects the potential
impact on ARA of the shock. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety.
The change in ARA's outlook to negative reflects its exposure to
Mexico's economy, where the disruption in supply chains, the sharp
decline in demand from the US, and the domestic impact of
quarantine measures will result in a profound economic recession.
The global coronavirus pandemic will weigh heavily on Mexico's
homebuilding sector amid government mild efforts to prop the
economy up during a deepening recession. Efforts to contain the
coronavirus outbreak will likely have a temporary calming effect on
the Mexican homebuilding sector, but as domestic business activity
declines, employment will suffer, dragging down housing demand.
Moody's now expects that Mexico's real GDP will contract by 7% in
2020 and to recover only slightly to 2.2% growth in 2021. An
extended recession indicates trouble for housing demand in Mexico,
which typically depends on the availability of mortgage loans, as
well as formal employment. Two federal institutions offer mortgages
to formally employed people: Infonavit, Mexico's largest mortgage
originator, serves private-sector employees, and Fovissste offers
mortgages to public-sector workers. But in mid-April 2020, Mexico's
labor ministry acknowledged the loss of close to 350,000 jobs since
mid-March because of the economic impact of the new coronavirus and
distancing measures imposed to fight its spread. According to the
ministry, the biggest losses occurred in the tourist-oriented state
of Quintana Roo, which lost nearly 64,000 jobs. The ministry also
said that the largest share of job losses, nearly 250,000
nationwide, happened during March 13 to March 30. As the pandemic
evolves, Mexico risks further declines in employment, and with it,
demand for both private mortgages and housing.
In 2019, 66% of ARA's units were sold through an Infonavit loan,
20% under a Fovissste loan and 14% through a private bank mortgage
loan. Private-bank mortgage origination will dwindle during the
period that containment measures remain in effect. Cautious loan
origination policies and well diversified portfolios mitigate these
risks, but its negative outlook for the Mexican banking system
reflects the likely deterioration in asset quality, in line with
its much weaker economic expectations for Mexico. Before the
coronavirus outbreak, Moody's was expecting private mortgage
lending to remain strong, with Mexican banks staying focused on
lower-risk lending to help control asset risk as the national
economic outlook deteriorated. Now, it foresees more sluggish
demand based on weakening consumer confidence.
ARA's Ba2 / A2.mx ratings continue to reflect its leading market
position in the Mexican homebuilding sector, as well as its
conservative growth strategy and prudent financial policies.
Moreover, Moody's considers that the company's strategy of having a
diverse product portfolio provides flexibility to its operations.
ARA's strong credit metrics and liquidity also support the ratings.
These positives are offset by its relatively small size, its
business concentration in Mexico and the challenges inherent to the
business such as the need to invest capital in land, licenses,
permits and infrastructure, which can be a costly and lengthy
process.
ARA's flexible portfolio and track record of prudent financial
policies also continue to support its ratings during the downturn.
ARA operates under a balanced product portfolio that allows it to
serve customers with different income profiles. In the last twelve
months ended in March 2020, around 39% of total revenue was related
to affordable entry level housing, 32% to middle-income homes and
the balance mainly coming from the residential segment. Product
diversification has provided ARA with the flexibility to adapt to a
changing operating environment by reducing the volatility and
cyclicality inherent to the homebuilding industry. Since the end of
2013, when adjusted debt/EBITDA reached close to 3.0 times, the
company has consistently reduced leverage, which reached 2.5x for
the 12 months ended March 2020. Likewise, interest coverage
(measured by us as homebuilding EBIT to interest expense plus
capitalized interest including standard adjustments) at 3.6x for
the same period is adequate for the rating category. Moody's
expects adjusted debt/EBITDA to raise above 4.0x through 2021 and
interest coverage to decline below 2.0x over the same period.
ARA has good liquidity. ARA's cash on hand of around MXN 2.7
billion as of March 30, 2020, is enough to cover its short-term
debt by 2.8x and fully covers ARA's total debt. The company does
not have committed credit facilities and instead funds its working
capital requirements with advised lines of credit. However, over
2014-18, ARA generated strong free cash flow (defined as cash from
operations minus dividends minus capital expenditures), which
averaged MXN 595 million per year. For the 12 months ended March
30, 2020 cash flow generation decreased, driven by an increase in
working capital and higher dividend payout, impacting ARA's free
cash flow to a MXN 65 million shortfall. However, after a
significant inventory build-up in the last couple of years and with
landbank equivalent to ten years of development, Moody's considers
ARA has ample room to scale back cash outlays during this period.
Moreover, Moody's expects the company will prioritize cash
preservation over cash distributions during the pandemic,
consistent with its track record of prudent liquidity management
amid crisis. But the extent of their cash burn and how much it
affects their liquidity still depends on the severity and duration
of the outbreak in Mexico.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings are unlikely to be upgraded in the short term. The
outlook could stabilize once the coronavirus outbreak is brought
under control and homebuilding activity is fully restored in Mexico
and lockdowns are over. At this point, Moody's would evaluate ARA's
credit metrics and liquidity strength, and positive rating pressure
would require evidence that the company is capable of substantially
recovering its financial metrics and restoring liquidity headroom
within a 1-2-year time horizon.
Ratings could be downgraded as a result of the virus pandemic and
economic downturn, a significant cash burn that threatens ARA's
ability to cover corporate expenses such as interests, taxes and
working capital with internal sources.
Consorcio ARA, S.A.B. de C.V. is the largest public homebuilder in
Mexico. The company operates in 16 states through 42 developments
in the country. ARA is majority owned (48.6%) and controlled by the
Ahumada family and the rest of the stock is publicly traded on the
Mexican stock exchange. The company reported revenues of MXN 7,413
million for the 12 months ended March 31, 2020.
The principal methodology used in these ratings was Homebuilding
and Property Development Industry published in January 2018.
The period of time covered in the financial information used to
determine Consorcio ARA, S.A.B. de C.V.'s rating is between
01/01/2015 and 31/03/2020 (source: Consorcio ARA and Mexican Stock
Exchange BMV).
ELEMENTIA SAB: Moody's Cuts CFR to Ba3 & Alters Outlook to Negative
-------------------------------------------------------------------
Moody's Investors Service has downgraded Elementia S.A.B. de C.V.'s
corporate family rating to Ba3 from Ba2. The outlook was changed to
negative from stable.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak has been
creating a severe and extensive credit shock across many sectors
and markets. It has also taken an enormous toll in the labor
market, with a resulting decline in consumer demand. Business
conditions for construction companies have also had a fast
deterioration as measures to contain contagion have led to projects
suspensions or delays. The building materials sector is affected by
both, a weakening consumer demand and a decline in construction
activity. Its action reflects the impact on Elementia of the
breadth and severity of the shock, and the broad deterioration in
credit quality it has triggered. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety.
The downgrade of Elementia's CFR to Ba3 was mainly prompted by the
impacts of the coronavirus outbreak in Mexico's economy and its
expectation of a slow recovery through 2021. Close to 65% of
Elementia's EBITDA comes from Mexico, where the disruption in
supply chains, the sharp decline in demand from the US, and the
domestic impact of quarantine measures will result in a profound
economic recession. Moody's expects a 7% decline in Mexico's real
GDP in 2020. Moreover, the recovery will be affected by a limited
fiscal response to the crisis and an already subdued business
environment. In the US, Elementia's second largest market, the
shock is most visible in the labor market with 30 million workers
filing for unemployment insurance in the first six weeks of the
containment measures. As a result, in the second quarter, the US
real GDP will shrink by nearly 30% on an annualized basis, whereas
unemployment rate will peak to close to 15%. The expected decline
in the US activity will deepen the negative trend in Mexico
affecting manufacturing exports, tourism and remittances. Somewhat
offsetting this risk is its expectation that growth will resume
faster in the US. Moody's now forecasts a 5.7% GDP contraction in
2020 followed by GPD growth of 4.5% in 2021.
Under such a scenario, Elementia's leverage including Moody's
standard adjustments, measured as gross Debt / EBITDA, will remain
above 5.0x through the end of 2021 from 5.1x in 2019. Prior to the
virus outbreak, Moody's estimated that, once closed, the sale of
the Pennsylvania cement plant would allow Elementia to rapidly
de-lever, considering that the $151 million (MXN3.6 billion)
proceeds were intended to be used to reduce debt. The transaction
was announced on September 2019 and is still awaiting anti-trust
authority approvals. Under the current environment, the approvals
could be further delayed and, therefore, Moody's is not considering
the proceeds of the sale in its leverage or interest coverage
calculations.
Elementia's liquidity has weakened due to cash burn in 2019 that
continued into 2020. On March 2020, cash on hand of MXN1.4 billion
was enough to cover close to MXN1 billion in the current portion of
long-term debt. However, cash burn in recent quarters has been
high, indicating risk of falling short to cover operating and
maintenance capital spending. In the first quarter of 2020, cash
flow before capital investments decreased by MXN508 million on an
annual comparison. This mainly derived from an extraordinary tax
payment in Mexico, as well as higher working capital needs. Foreign
exchange exposure has also deteriorated its assessment of
Elementia's liquidity profile. As of 1Q20, net debt increased by
MXN2.9 million due to an exchange rate effect coupled with a lower
result and a reduction in cash of MXN601 million. Still, Elementia
has a comfortable debt maturity profile. From 2020 through 2024,
annual debt maturities amount close to MXN1 billion. The next large
debt-related payment is due 2025, when the $425 million global bond
matures. The company's solid cash position vis-à-vis immediate
cash obligations has historically been tempered by tight covenant
compliance. As of December 2019, Elementia's reported net
debt/EBITDA was 3.89x and interest coverage was 2.45x, close to
their covenants under bilateral and syndicated credit lines. In the
1Q20, the company reported a net leverage ratio of 5.14x, well
above the established covenants, and is requesting the
corresponding waivers.
The negative outlook reflects its view that there are significant
downside risks to its forecasts related to both longer-than
anticipated lockdowns in the US and Mexico or due to a rebound in
the outbreak before the end of 2021. As a result, cash burn could
continue to be high resulting in a stressed liquidity situation
amid restricted sources of alternate liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
FACTORS THAT COULD LEAD TO AN UPGRADE
The outlook could be stabilized if liquidity risk is significantly
reduced by either the successful completion of the sale of the
Pennsylvania plant with proceeds used to reduce debt or to increase
its cash cushion during the coronavirus crisis. Also, any source of
committed alternate liquidity sizeable enough to cover the period
of the operational halt and economic downturn could result in a
positive rating action. For the outlook to stabilize, Moody's will
also need sound evidence that the coronavirus crisis has hit its
bottom and that the company is in a recovery mode. Longer term, the
rating could be upgraded with evidence that operating performance
has improved such that adjusted debt/EBITDA will remain below 4.0x
and EBIT/interest expense will remain close to 2x on a sustained
basis.
FACTORS THAT COULD LEAD TO A DOWNGRADE
The rating could be downgraded should economic activity takes
longer than anticipated to peak up or if the breadth of the
outbreak in Elementia's operation is larger currently assumed.
Quantitatively if adjusted debt/EBITDA remains above 5.0x with no
prospects to de-lever. Negative pressure will also arise if the
company is not able to improve margins from current weak levels.
Any significant deterioration in liquidity will also pose a threat
to the current rating.
Elementia S.A.B. de C.V. is a major manufacturer of semi-finished
copper, alloy, fiber cement, cement and plastic products, with
consolidated revenue of MXN25.9 billion in 2019. The company has
three business segments: metals, building systems and cement.
Although most of Elementia's operations are in Mexico, it also has
a presence in the US and in seven Latin American countries (Peru,
Ecuador, Bolivia, Costa Rica, Honduras, El Salvador and Colombia).
Elementia is majority owned and controlled by the Del Valle family
through Grupo Empresarial Kaluz. Grupo Carso is the second-largest
shareholder, and a 22.93% float is listed on the Mexican Stock
Exchange.
The principal methodology used in this rating was Manufacturing
Methodology published in March 2020.
MEXICO: Artisans Return to Barter System in Face of Crisis
----------------------------------------------------------
EFE News reports that artisans of various indigenous ethnic groups
residing in Mexico City have in recent days started exchanging
their handicrafts for goods due to the health and economic crisis
caused by COVID-19.
With no customers to sell their products to and urged on by the
lack of income, the artisans decided to leave the social isolation
restrictions promoted by the authorities and have gone out into the
city to exchange their handicrafts for food and supplies, according
to EFE News.
"The contingency did not allow us to leave and we took shelter
during the quarantine, but we could not stay longer . . . . we had
to go out and find a way to help ourselves and others," Susana said
Tuesday in an interview with EFE.
Susana has her origins in the Mixteca, a mountainous region that is
located between the states of Guerrero, Oaxaca and Puebla in
southern Mexico, the report notes.
The woman and her mother go to the well-off neighborhood of
Narvarte to offer handicrafts in woven natural palm from the Ajusco
area in the south of the city, where a community of artisans is
housed, the report relays.
"It is a simple and humble community where artisans live… but we
have helped each other," said the woman, who came up with the idea
of ??announcing her exchange on social media networks at the
weekend and people quickly arrived with food in the kilos and
hundreds of products, the report discloses.
"Everything we are receiving, and they have brought us, we have
shared among the community," said Susana, who said they realized
they had dozens of handicrafts at home and that with them they
could make exchanges, the report notes.
With prices ranging from 40 to 170 pesos (between $1.67 to $7)
Susana offers tablecloths, bags and fans that her family weaves and
that stand out with their shapes and bright colors, the report
says.
"The intention is to help and support each other . . . . in this
time of crisis," said Hector Salazar, who delivered basic baskets
and hygiene products, the report relays.
A group of about 25 indigenous people from the Mazahua, Otomí,
Mixteca, Triqui, Purepecha and Tsotsil ethnic groups arrived on
Tuesday at the Zocalo in Mexico City to exchange their products,
but the solitude of the immense plaza and the few passers-by
discouraged them, the report notes.
Jose, who works in handicrafts in Chaquira and who comes from the
state of Puebla, said that the situation is urgent and that is why
he wanted to exchange products, bracelets, necklaces, rings and
purses - for food for himself and his family, the report relays.
"There is not much work and that is why we come to the Zocalo,"
said the man, the report notes.
Another Mazahua Indian, Virginia, traded shawls, bags, and
handwoven tablecloths for pantry items, the report discloses.
"For a tablecloth or a shawl it takes me a month, or a month and a
half (to make)," said the woman who sells them for between 200 and
300 pesos (about US$8.3 and US$12.5), the report relays.
Confirmed cases of COVID-19 in Mexico currently total 24,905 with
2,271 deaths, the report notes.
Based on mathematical models, the government of Mexico considers
that the coronavirus epidemic in the country is in its most
contagious phase and that the peak will occur around Wednesday and
then begin to drop, the report adds.
=======
P E R U
=======
PERU: IMF Receives Request for Flexible Credit Line
---------------------------------------------------
The International Monetary Fund's (IMF) Executive Board met in an
informal session to discuss the Peruvian authorities' request for a
two-year Flexible Credit Line (FCL) with the IMF in the amount of
SDR 8.007 billion (about US$11 billion, equaling 600 percent of
Peru's quota). This credit line, available to countries with very
strong policies and frameworks, can help safeguard economies
against external shocks by providing large, upfront access to IMF
resources with no ex post conditionality. The authorities have
indicated that they would treat the credit line as precautionary
financing.
In light of Peru's very strong policy frameworks and track record,
IMF Managing Director Kristalina Georgieva intends to recommend IMF
Executive Board approval of the FCL arrangement request when the
Board convenes in the coming weeks to formally consider the
request. The IMF stands ready to continue to support Peru during
these challenging times.
=====================
P U E R T O R I C O
=====================
DESTILERIA NACIONAL: Taps Isabel Fullana-Fraticelli as Counsel
--------------------------------------------------------------
Destileria Nacional, Inc. received approval from the U.S.
Bankruptcy Court for the District of Puerto Rico to employ Isabel
Fullana-Fraticelli & Assocs. PSC as its legal counsel.
As legal counsel, Isabel Fullana-Fraticelli will advise Debtor of
its powers and duties under the Bankruptcy Code, represent Debtor
in adversary proceedings, and provide other legal services
inconnection with its Chapter 11 case.
The firm will be paid at these rates:
Senior Partners $250 per hour
Associate Lawyers $150 per hour
Paralegals $90 per hour
The firm received a retainer fee of $13,000, plus $1,717 for the
filing fee.
Isabel Fullana, Esq., disclosed in court filings that her firm is a
"disinterested person" within the meaning of Section 101(14) of the
Bankruptcy Code.
The firm can be reached through:
Isabel M. Fullana
Isabel Fullana-Fraticelli & Assocs. PSC
The Hato Rey Center Bldg.
248 Ave. Ponce de Leon Ste. 1002
San Juan, PR 00918-2013
Telephone: (787) 766-2530
Facsimile: (787) 756-7800
Email: ifullana@gaflegal.com
About Destileria Nacional
Destileria Nacional, Inc., a beer manufacturer headquartered in
Guaynabo, P.R., sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D. Puerto Rico Case No. 20-01247) on March
6, 2020. At the time of the filing, Debtor had estimated assets of
between $100,001 and $500,000 and liabilities of between $500,001
and $1 million. Judge Enrique S. Lamoutte Inclan oversees the
case. Debtor hired Isabel Fullana-Fraticelli & Asoc. PSC as its
legal counsel.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Basic Foods Already VAT-Free
-----------------------------------------------
Trinidad Express reports that Trade Minister Paula Gopee-Scoon of
Trinidad and Tobago has acknowledged a recommendation from
Opposition Leader Kamla Persad-Bissessar for the removal of import
duties and VAT on basic food items as part of the Opposition's
Economic Manifesto Plan.
But Gopee-Scoon noted that from 2015 to now, the Trinidad and
Tobago Ministry of Trade has obtained Caricom approval for the
suspension of the Common External Tariff (CET) on basic food items
like milk, sugar, oil, cheese, corned beef, canned herrings, tuna,
mackerel, sardines, pasta, infant formula and juices, according to
Trinidad Express.
"This means that all importers already pay zero import duties for
the imports of said items, the report notes.
"In addition, since 2016, the Government of Trinidad and Tobago
undertook an aggressive rationalization of the VAT regime in
Trinidad and Tobago. As a consequence of this exercise, the rate
of VAT on standard rated items was reduced from 15 per cent to 12.5
per cent in 2016 . . . bringing further relief to consumers by
enhancing their purchasing power," the Ministry said in a statement
obtained by the news agency.
In addition, as a result of this exercise the vast majority of
basic food and essential items remained zero-rated, meaning that no
VAT is currently charged or payable on such items and hence are
already VAT free which all consumers would be able to see on any
supermarket bill, it added, the report relays.
According to Schedule 2 of the Value Added Tax Act, some of the
basic food items that are currently zero-rated include rice
(parboiled and brown), flour (all-purpose and wheat), pasta
(uncooked or unstuffed), cheese (cheddar and rennet free) milk
(including infant formula and substitutes, evaporated and
powdered), bread (white and whole wheat), corned beef, sardines,
smoked herring, the report says. The complete list of zero-rated
items can be accessed on the Ministry of Finance's website
www.finance.gov.tt, the Ministry said, the report notes.
No CET on Pharmaceuticals
Trinidad and Tobago has also recently obtained approval from the
Secretary General of Caricom for the suspension of the Common
External Tariff (CET) on a specific list of pharmaceuticals, the
Ministry stated, the report relays.
The suspension which was implemented nationally via Legal Notices
Nos 77 and 78 dated April 22 2020, expires on April 30, 2021 "will
allow for citizens to access affordable medication through reduced
prices, the report notes.
"In addition, the suspension of the CET or customs duties on
pharmaceuticals covers over 1,000 products not produced
regionally," the report relays.
The list of Pharmaceuticals which can be accessed on the Ministry
of Trade and Industry's website www.tradeind.gov.tt, the Ministry
added, the report adds.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
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Copyright 2020. All rights reserved. ISSN 1529-2746.
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