/raid1/www/Hosts/bankrupt/TCRLA_Public/210728.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, July 28, 2021, Vol. 22, No. 144
Headlines
B R A Z I L
BRAZIL: Tourism Revenue Up 47.5% in May, Despite $971 YTD Drop
BTG PACTUAL: Joins Partnership for Carbon Accounting Financials
VALE SA: Output Disappoints in Fresh Blow to Tight Iron Market
C H I L E
LATAM AIRLINES: Resumes Flights from Sao Paulo to Paris, Bogota
LATAM AIRLINES: Still Working on Commencing Bankruptcy Exit Talks
C O L O M B I A
COLOMBIA: $3.9B Tax Reform Bill Sent to Congress Amid Protests
J A M A I C A
DIGICEL GROUP: Identifies Buyer for Pacific Operations
M E X I C O
ENGENCAP HOLDING: S&P Affirms 'BB-' Long-Term ICR, Outlook Stable
P A R A G U A Y
FRIGORIFICO CONCEPCION: Posts Expiration & Tender Deadline Results
P E R U
PERU: To Modernize Public Financial Management With $74M IDB Loan
SAN MARTIN CONTRATISTAS: Fitch Publishes 'B' LT IDRs
SAN MARTIN CONTRATISTAS: S&P Assigns Preliminary 'B+' ICR
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B R A Z I L
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BRAZIL: Tourism Revenue Up 47.5% in May, Despite $971 YTD Drop
--------------------------------------------------------------
Rio Times Online reports that tourism revenues in Brazil in May
reached R$9.6 (US$1.8) billion, up 47.5% over the same month in
2020, as shown in a survey by the Federation of Commerce of Goods,
Services and Tourism of the State of Sao Paulo (FecomercioSP).
Despite the sharp rise, the sector accumulates a 9.8% contraction
in the year-to-date, representing a R$5.1 billion (US$971 million)
revenue slump, according to Rio Times Online.
Comparing May this year with the same month in 2019, pre-pandemic,
the sector's revenue drop, considering inflation, stands at 31.2% -
down R$4.3 billion (US$819 million), the report relays.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Fitch Ratings' credit rating for Brazil stands at 'BB-' with a
negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) has been affirmed
in May 2021. Standard & Poor's credit rating for Brazil stands at
BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and
short-term foreign and local currency sovereign credit ratings for
Brazil were affirmed in December 2020. Moody's credit rating for
Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's
credit rating for Brazil is BB (low) with stable outlook (March
2018).
BTG PACTUAL: Joins Partnership for Carbon Accounting Financials
---------------------------------------------------------------
BTG Pactual (BPAC11), the largest Investment Bank in Latin America,
announces that it has joined the Partnership for Carbon Accounting
Financials (PCAF). PCAF is a collaboration of financial
institutions around the world for harmonizing assessments and
disclosures of greenhouse gas emissions funded by loans and
investments. With more than 140 banks and investors from five
continents, the group is quickly expanding into North America,
Latin America, Europe, Africa and the Asia-Pacific.
"Joining PCAF will enable us to make an inventory of emissions not
only from our own activities, but also from the businesses and
investments in which we operate directly or indirectly, in a
comparable way with that of our peers", notes Rafaella Dortas, the
director responsible for ESG at BTG Pactual.
By signing with PCAF, BTG Pactual is committed to measuring and
disclosing the greenhouse gas emissions of its portfolio companies
within three years, while learning and sharing reliable GHG
accounting methods and experience.
"This is an important milestone in our ESG agenda, reflecting the
Bank's commitment to sustainability", says BTG Pactual CEO Roberto
Sallouti.
In 2019 and 2020, BTG Pactual offset 100% of its direct carbon
emissions and indirect emissions from air travel, employee
transportation and waste generated in operations. Also last year,
BTG created the Impact Investing area, which encourages creating
products and services that combine financial returns with a
positive social and environmental impact. In 2021, the bank joined
the Nasdaq Sustainable Bond Network (SBNS), a database of the US
stock exchange that gathers information on the main issues of
sustainable bonds around the world.
About BTG Pactual
BTG Pactual (BPAC11) is the biggest investment bank from Latin
America, operating in Investment Banking, Corporate Lending, Sales
& Trading, Wealth Management and Asset Management. Since inception,
in 1983, the Bank has been run based on a meritocratic partnership
culture, focused on clients, excellence and a long-term vision. We
have cemented our status as one of the most innovative sector
players and have won numerous national and international awards.
http://www.btgpactual.com
* * *
As reported in the Troubled Company Reporter-Latin America on
July 16, 2021, Fitch Ratings has assigned Banco BTG Pactual S.A.'s
USD500 million senior unsecured notes due 2025 a 'BB-' final
rating.
The notes are part of BTG Pactual's proposed reopening of senior
unsecured notes, originally issued in November 2019 and issued
through BTG Pactual's Cayman Islands Branch under the parent bank's
existing USD5 billion medium-term note program.
The final rating is in line with the expected rating that Fitch
assigned to the proposed debt on Jun. 30, 2021.
VALE SA: Output Disappoints in Fresh Blow to Tight Iron Market
--------------------------------------------------------------
Mariana Durao at Bloomberg News reports that Brazilian mining giant
Vale SA produced slightly less iron ore than expected last quarter
because of teething problems at a new plant in a fresh blow to an
already tight global market for the steelmaking ingredient.
The world's second-largest iron producer churned out 75.7 million
metric tons in the second quarter compared with the 78 million-ton
average estimate among analysts tracked by Bloomberg. The result
was still up from both the previous three months and the
Covid-impacted year-ago period, according to Bloomberg News.
Vale's ongoing recovery from an early-2019 dam disaster makes it a
major swing factor in a market in which demand remains strong
despite China's efforts to curb emissions and contain commodity
inflation, Bloomberg News relays. Vale's ability and willingness
to expand and take back the No. 1 producer title it lost to Rio
Tinto Group will help determine whether the market moves back into
surplus. Rio Tinto has said suppliers are struggling to meet
demand, Bloomberg News notes.
Bloomberg News discloses that while Vale is resolving a rail
interruption at one of its complexes in southern Brazil, production
was held back by disruptions cause by the installation of a crusher
plant at its S11D complex in the country's north. The Rio de
Janeiro-based also said it had pushed back resumption dates at
other operations due to slower-than-expected permitting and extra
work to increase dam safety, Bloomberg News says.
Vale's ramp-up took a hit in early June when it was ordered to
restrict operations at its Timbopeba complex amid concerns
surrounding the stability of another dam, Bloomberg News relays.
In the first quarter, the partial resumption of Timbopeba had
helped push up Vale's output, Bloomberg News notes.
Still, Timbopeba delivered a better performance thanks to the
commissioning of the three additional wet-processing lines in
March. The company said a driver-less train solution at the complex
is performing well, Bloomberg News discloses.
In the production report, Vale maintained its full-year guidance of
315 million to 335 million tons and said it achieved annual output
capacity of 330 million tons, Bloomberg News relates. The company
expects to reach 350 million tons capacity by year-end and 400
million tons by the end of 2022, Bloomberg News says.
Still, quarterly iron ore sales lagged output, coming in at 67.2
million tons, Bloomberg News notes. Rio Tinto said that its
shipments fell 2% on the previous quarter and flagged annual
exports could come in at the low end of its forecast, partly
because of rainier-than-normal weather, Bloomberg News relates.
BHP Group reported a 12% increase in quarterly shipments, Bloomberg
News discloses.
Vale is also one of the world's largest nickel producers and a
major copper supplier. Production of both metals fell in the second
quarter and Vale said it's reviewing annual guidance amid a strike
at one of its complexes in Canada, Bloomberg News notes.
The Brazilian miner is set to release earnings on July 28.
About Vale SA
Vale S.A. is a Brazilian multinational corporation engaged in
metals and mining and one of the largest logistics operators in
Brazil.
As reported in the Troubled Company Reporter-Latin America in
September 2019, Moody's Investors Service affirmed Vale S.A.'s Ba1
senior unsecured ratings and the ratings on the debt issues of Vale
Overseas Limited, fully and unconditionally guaranteed by Vale
S.A.
Moody's also affirmed the Ba2 senior unsecured ratings of Vale
Canada Ltd. The outlook changed to stable from negative.
At the same time, Moody's America Latina Ltda. affirmed Vale's
Ba1/Aaa.br corporate family rating and the Ba1/Aaa.br ratings on
its senior unsecured notes. The outlook changed to stable from
negative.
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C H I L E
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LATAM AIRLINES: Resumes Flights from Sao Paulo to Paris, Bogota
---------------------------------------------------------------
Joao Machado at airlinegeeks.com reports that after another wave of
flight restrictions to most countries regarding passengers arriving
from Brazil, international flights from the South American country
finally start to be rolled out again as the worst of the nation's
second wave of Covid-19 has passed.
Regarding this, LATAM Brasil said it is restarting flights
connecting the country to Bogota and Paris, according to
airlinegeeks.com. The flights have already been restarted, leaving
from the airline's hub in Sao Paulo with three weekly flights to
each destination, the report notes.
While domestic capacity in Brazil is rebounding strongly, with
LATAM reaching 75% of pre-Covid-19 numbers in July, international
figures are still very much lagging behind and surrounding the
numbers seen at the start of the Covid-19 pandemic, the report
relays. In July, LATAM Brasil's international capacity reached 20%
of pre-pandemic numbers, the report notes.
"Bogota is an important destination for the airline since it
connects a good part of LATAM's domestic network in the
country,"the airline said in a press release regarding the
resumption of flights to Bogota. LATAM Airlines Group operates a
branch in Colombia. "With the resumed frequency, Bogota generates
connections to destinations such as San Andres, Cartagena and Miami
- though with the necessity of quarantining in the country,"the
report discloses
The flight from Sao Paulo to Bogota is currently being operated on
Sundays, Tuesdays and Fridays with the Airbus A320neo, the report
relays. LATAM Brasil currently operates three units of the latest
generation of the Airbus narrowbody family, the report notes. The
aircraft is configured for 174 seats in a single cabin, and the
operation will compete with Avianca's daily run to Sao Paulo, also
operated by the A320neo, the report says.
On the other hand, LATAM's operations to Paris will leave the
Brazilian airport on Tuesdays, Fridays and Saturdays, returning
from France the following day, and will be operated by LATAM
Chile's Boeing 787-8, which leave from Santiago, Chile. The
aircraft is configured to carry 30 passengers in Premium Business
class and 217 customers in Economy, the report relays.
Especially since the pandemic started, LATAM has been operating
this kind of flight from Brazil much more frequently, using Chilean
aircraft with Chilean crews, originally leaving from Santiago, the
report discloses. Although the airline group uses the strategy as
a way of reducing costs, it did generate some attrition with the
local union of cabin crews, which complained about the fact - and
used the halt of such flights as a condition for passing any new
deals - while discussing permanent wage reductions. Ultimately,
such reductions were rejected, the report says.
In any case, the LATAM Airlines Group's expectations about
international travel in Brazil could not be much worse, despite a
vaccination campaign that is speeding up, the report relays. Back
in March, at the height of the second wave of Covid-19, the CEO of
LATAM Brasil Jerome Cadier told Folha de Sao Paulo newspaper that
he thought "Brazil will be one of the last countries to manage [to
have border freedom],"the report adds.
About LATAM Airlines Group
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise. It is the largest passenger airline in South
America.
Before the onset of the COVID-19 pandemic, LATAM offered passenger
transport services to 145 different destinations in 26 countries,
including domestic flights in Argentina, Brazil, Chile, Colombia,
Ecuador and Peru, and international services within Latin America
as well as to Europe, the United States, the Caribbean, Oceania,
Asia and Africa.
LATAM and its 28 affiliates sought Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in
Chile, Peru, Colombia, Ecuador and the United States are part of
the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP
asbankruptcy counsel, FTI Consulting as restructuring advisor, Lee
Brock Camargo Advogados as local Brazilian litigation counsel, and
Togut, Segal & Segal LLP and Claro & Cia in Chile as special
counsel. The Boston Consulting Group, Inc. and The Boston
Consulting Group UK LLP serve as the Debtors' strategic advisors.
Prime Clerk LLC is the claims agent.
The official committee of unsecured creditors formed in the case
tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters
Jureller Southard & Stevens, LLP as conflicts counsel, UBS
Securities LLC as investment banker, and Conway MacKenzie, LLC as
financial advisor. Ferro Castro Neves Daltro & Gomide Advogados,
is the committee's Brazilian counsel.
The Ad Hoc Group of LATAM Bondholders tapped White & Case LLP as
counsel.
Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew
Glenn and partner Shai Schmidt, has been retained as counsel to the
Ad Hoc Committee of Shareholders.
LATAM AIRLINES: Still Working on Commencing Bankruptcy Exit Talks
-----------------------------------------------------------------
Jeremy Hill of Bloomberg News reports that Lisa Schweitzer of law
firm Cleary Gottlieb said in a court hearing Thursday, July 22,
2021, that Latam Airlines Group is still working on the terms of
non-disclosure agreements and information sharing with "various
stakeholders" ahead of Chapter 11 plan talks.
Latam expects to hold discussions regarding a bankruptcy exit plan
and new capital to support it in the coming weeks and months, Ms.
Schweitzer said.
The NDA process has taken longer than the company had hoped, she
said.
About LATAM Airlines Group
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise. It is the largest passenger airline in South
America.
Before the onset of the COVID-19 pandemic, LATAM offered passenger
transport services to 145 different destinations in 26 countries,
including domestic flights in Argentina, Brazil, Chile, Colombia,
Ecuador and Peru, and international services within Latin America
as well as to Europe, the United States, the Caribbean, Oceania,
Asia and Africa.
LATAM and its 28 affiliates sought Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in
Chile, Peru, Colombia, Ecuador and the United States are part of
the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as
bankruptcy counsel, FTI Consulting as restructuring advisor, Lee
Brock Camargo Advogados as local Brazilian litigation counsel, and
Togut, Segal & Segal LLP and Claro & Cia in Chile as special
counsel. The Boston Consulting Group, Inc. and The Boston
Consulting Group UK LLP serve as the Debtors' strategic advisors.
Prime Clerk LLC is the claims agent.
The official committee of unsecured creditors formed in the case
tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters
Jureller Southard & Stevens, LLP as conflicts counsel, UBS
Securities LLC as investment banker, and Conway MacKenzie, LLC as
financial advisor. Ferro Castro Neves Daltro & Gomide Advogados,
is
the committee's Brazilian counsel.
The Ad Hoc Group of LATAM Bondholders tapped White & Case LLP as
counsel.
Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew
Glenn and partner Shai Schmidt, has been retained as counsel to
the
Ad Hoc Committee of Shareholders.ead the full article log in.
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C O L O M B I A
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COLOMBIA: $3.9B Tax Reform Bill Sent to Congress Amid Protests
--------------------------------------------------------------
globalinsolvency.com reports that Colombia's government formally
presented a $3.95 billion tax-reform bill to congress, even as
unions and student groups sought to revive the street protests that
helped scupper the reform's original iteration, Reuters reported.
The law would raise 15.2 trillion pesos per year, significantly
less than the 23.4 trillion pesos sought by the government in an
April proposal that was later withdrawn amid sometimes-deadly
protests and lawmaker opposition, according to
globalinsolvency.com.
The government of President Ivan Duque insists the law is vital at
a time of rising debt and an expanding fiscal deficit and must be
passed to shore up social programs and allay investor fears about
Colombia's medium-term fiscal management, the report notes.
Standard & Poor's and Fitch have already cut Colombia's credit
rating to junk.
The bill would increase businesses' taxes by 4 percentage points to
35% from 2022, raising some 6.7 trillion pesos, the report notes.
It would raise another 2.7 trillion pesos by fighting evasion and
enshrine 1.9 trillion pesos in public spending cuts, among other
measures, the report relays.
The finance ministry has emphasized that the bill will not affect
most taxpayers, after a proposed increase in sales tax in the April
version drew special ire, the report adds.
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J A M A I C A
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DIGICEL GROUP: Identifies Buyer for Pacific Operations
------------------------------------------------------
Durrant Pate at Jamaica Observer reports that Jamaica-based
telecoms provider Digicel Group has found a buyer for its Pacific
operations, which it has been trying to offload in order to pay off
its multi-billion-dollar debt to bondholders.
Australian telecoms giant Telstra Corp confirmed that it is
currently locked in talks with Digicel to buy its Pacific
operations in partnership with the Australian Government, according
to Jamaica Observer. The pacific operations of Digicel comprise
its businesses in Papua New Guinea, Fiji, Samoa, Vanuatu and
Tahiti, where it is the biggest mobile carrier in these pacific
states, the report notes.
Reuters reported that the Australian Government's involvement in
the purchase is being widely seen as a move to block China's
influence in the region, the report relays. Last year Digicel
denied an Australian newspaper report it was considering a sale of
its Pacific business to State-owned China Mobile Ltd, the report
notes.
Sale to China Would be Cause for Concern
The report discloses that a sale of Digicel Pacific to a Chinese
company would be a cause of concern for the Australian Government
amid strategic competition between US allies and China in the
Pacific region. Telstra is quoted as saying the Australian
Government would finance the bulk of any bid for Digicel's Pacific
operations, the report relays. Telstra did not provide financial
details but The Independent newspaper in Ireland quoted the The
Sydney Morning Herald as saying more than AU$1.5b (EUR939 million)
in Australian taxpayers' money could be used to help Telstra buy
Digicel, the report relays. It has been reported that the sale
would see Telstra pay between AU$200 million and AU$300 million for
the Digicel Pacific assets, the report notes.
Telstra reported, however, that discussions are incomplete. "There
is no certainty that a transaction will proceed,"the company said
in a statement, the report notes. The Australian telecoms group
said it was initially approached by the Australian Government to
provide "technical advice"in relation to Digicel Pacific, which is
a "commercially attractive asset and critical to telecommunications
in the region,"the report says.
The Independent newspaper in Ireland indicated that Telstra has
asked Digicel's founder, Irish billionaire Denis O'Brien, to sit on
the board of the company, and for revenue forecasts to be
underwritten for three years as part of the terms of the deal, the
report discloses.
Digicel Pacific was founded in 2006 by O'Brien, having a strong
market position in the South Pacific region. It generated earnings
before interest, taxes, depreciation, and amortisation (EBITDA) of
US$235m (EUR199 million) last year, the report recalls.
Several Telecoms Firms Indicate Interest to Buy
A spokesperson for Digicel declined to comment on the latest
reports. Last December, Digicel confirmed that the telecoms
company had "received unsolicited approaches from a number of
parties in respect of its Pacific operations", which a spokesperson
noted were amongst the strongest-performing markets within the
32-market group, the report relays. The spokesperson declined to
comment further at that time as discussions with the parties were
confidential, the report notes.
More recently, in an earnings call with its bondholders, Digicel
advised that it views Digicel Pacific as a highly attractive and
strategic business and is very comfortable with its current
performance and status, the report relays. The company at the time
reiterated that it would not be commenting further on unsolicited
approaches received in respect of its Pacific operations other than
in the case of a notifiable event, the report adds.
About Digicel Group
Digicel Group is a mobile phone network provider operating in 33
markets across the Caribbean, Central America, and Oceania
regions.
The company is owned by the Irish billionaire Denis O'Brien, is
incorporated in Bermuda, and based in Jamaica.
As reported in the Troubled Company Reporter-Latin America in April
2020, Moody's Investors Service downgraded Digicel Group Limited's
probability of default rating to Caa3-PD from Caa2-PD. At the same
time, Moody's downgraded the senior secured rating of Digicel
International Finance Limited to Caa1 from B3. All other ratings
within the group remain unchanged. The outlook is negative.
On April 10, 2020, the TCR-LA reported that Fitch Ratings has
downgraded Digicel Limited to 'C' from 'CCC', and its outstanding
debt instruments, including the 2021 and 2023 notes to 'C'/'RR4'
from 'CCC'/'RR4'. Fitch has also downgraded Digicel International
Finance Limited to 'CCC+' from 'B-'/Negative, and its outstanding
debt instruments, including the 2024 notes and the 2025 credit
facility, to 'CCC+'/'RR4' from 'B-'/'RR4'. Fitch has removed the
Negative Rating Outlook from DIFL.
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M E X I C O
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ENGENCAP HOLDING: S&P Affirms 'BB-' Long-Term ICR, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' long-term issuer credit
rating on Engencap Holding S. de R.L. de C.V., a Mexico-based
leasing company. The outlook remains stable.
The integration of TIP--one of the largest trailer and equipment
leasing companies in Mexico, supported by its two main business
lines, trailers and autos--in the last quarter of 2019 has enhanced
Engencap's business diversification. The consolidated business
enjoys a large customer base and nationwide presence, which has
helped maintain the company's prominent market position as the
second largest independent leasing company in Mexico. S&P said, "We
believe that the latter will continue to cushion the company from
the effects of the COVID-19-related economic crisis, so we expect
operating revenues to grow about 6%, on average, for the next
couple of years. Finally, in our opinion, Engencap has shown
expertise and management capabilities to withstand deep economic
recessions and adverse market conditions for NBFIs in Mexico. We
believe the company will maintain prudent loan portfolio growth and
adequate asset liability management, while maintaining its leading
market position in the country's leasing sector."
S&P said, "The company's conservative underwriting standards and
its exposure to clients with higher credit quality than other NBFIs
are reflected in relatively stable asset quality indicators that
are consistent with our current risk position assessment. Moreover,
in an effort to prevent a steep erosion of its portfolio, in 2020
the company granted relief programs to 20%-25% of its clients that
required liquidity. As of April 2021, about 87% of these clients
had resumed normal payments and Engencap expects the relief program
to end on July 31, 2021. In addition, the company increased rates
so the relieved loans' net present values were equal or higher to
the original structure and took additional guarantees when
possible.
"Nevertheless, we still expect pressure on asset quality indicators
due to Engencap's exposure to clients that belong to vulnerable
sectors, the full recovery of which depends on the vaccination
pace. Considering this, we expect that by the end of the year, the
nonperforming assets (NPAs) ratio could deteriorate further to
about 6.0% (compared to 4.4% of March 2021) with net charge-offs to
average gross receivables at 1.5%. Loan loss reserves coverage
increased significantly to 85% as of March 31, 2021, from
historical levels of 50%-60%. The latter reflects worsening client
credit quality and the International Financial Reporting Standards
guidelines to create provisions based on expected losses. Finally,
Engencap's entire portfolio is collateralized and there's a
well-developed secondary market for this type of asset, which, in
our view, could limit the downside risks during difficult economic
conditions.
"Finally, we consider it positive for the rating that Engencap's
single-name concentrations have been gradually decreasing, which
will also help the company keep potential losses in line with the
industry norm. Its top 20 borrowers represent 20% of the total
portfolio and 1.4x of total adjusted capital, down from 25% and
2.1x, respectively, in 2019."
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P A R A G U A Y
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FRIGORIFICO CONCEPCION: Posts Expiration & Tender Deadline Results
------------------------------------------------------------------
Frigorifico Concepcion S.A (the "Company") disclosed the expiration
and final results of the previously announced offer to purchase for
cash any and all of the Company's 10.25% Senior Secured Notes due
2025 (the "Notes") and solicitation of consents to proposed
amendments to the indenture governing the Notes and the related
security documents (the "Consents"), pursuant to the terms and
conditions set forth in the Offer to Purchase and Consent
Solicitation Statement dated June 21, 2021 (the "Offer to Purchase
and Consent Solicitation Statement"). Capitalized terms used but
not defined herein shall have the meaning ascribed to them in the
Offer to Purchase and Consent Solicitation Statement.
A full-text copy of the company's press release is available at:
https://prn.to/3wT7fxk
As reported in the Troubled Company Reporter-Latin America on
July 13, 2021, Fitch Ratings has assigned a 'B+' rating to
Frigorifico Concepcion S.A.'s initial public Long-Term Foreign and
Local Currency Issuer Default Ratings (IDRs). Fitch has also
assigned a 'B+'/'RR4' rating to Frigorifico Concepcion's new senior
secured bond. The Rating Outlook is Stable.
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P E R U
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PERU: To Modernize Public Financial Management With $74M IDB Loan
-----------------------------------------------------------------
Peru will improve its public financial management through digital
transformation with a $74 million loan approved by the
Inter-American Development Bank (IDB). The project's goal is to
improve the quality of financial management information by
increasing the efficiency of public spending processes.
In particular, it will finance actions to strengthen the
organizational capabilities of the public sector's financial
administration by reviewing and updating processes, regulations and
methodologies associated with public resource programming,
administration and evaluation.
The project will promote the digitalization of processes and
documents and the use of data analytics tools for data mining and
reporting, s fostering the implementation of a public cost
management system. It will also finance personnel training to
facilitate the adoption of the new processes and the adaptation to
organizational changes.
In addition, the funds will finance the expansion of technological
infrastructure and the modernization of information technology
systems. Regarding infrastructure, the project will finance the
implementation of a cloud environment for data processing and
storage, IT equipment expansion, and the adoption of a
cybersecurity system and a platform for system data exchange.
The IDB loan is for a 17-year term, with a 7.5-year period of grace
and interest rate based on LIBOR. The Government of Peru will
provide an additional $18.5 million in local counterpart funds.
SAN MARTIN CONTRATISTAS: Fitch Publishes 'B' LT IDRs
----------------------------------------------------
Fitch Ratings has published Long-Term Foreign- and Local-Currency
Issuer Default Ratings (IDRs) of 'B' to San Martin Contratistas
Generales S.A. (San Martin or SMCG). At the same time, Fitch has
assigned a 'B/RR4' rating to its proposed senior unsecured bond, in
the amount of USD100 million and due in five years. The Outlook for
the corporate rating is Stable.
San Martin's ratings reflect the company's business position as one
of the leading providers of contract mining and construction
services for large mining companies that operate in Peru. The
ratings also consider the company's long relationship with its
clients, as well as their mutual reliance upon the company, in
addition to the strength of its niche position in the market.
This interdependence is reflected by a backlog of future projects
with key customers. Key rating constraints are San Martin's small
scale and heavy client concentration. The lack of product
diversification also limits San Martin's ratings relative to those
of other E&C companies.
The Stable Outlook reflects Fitch's expectation that San Martin
will execute on its backlog as planned and manage to replenish it
adequately, benefited by the booming market for hard commodities.
The Stable Outlook also incorporates an expectation that the
company will successfully issue its bond, which will improve its
weak liquidity position.
KEY RATING DRIVERS
Small Mining Services Company: San Martin is a provider of E&C
services to mining companies in Peru, with a small presence in
Colombia and Spain. The company focuses in large and conventional
mining and the cement industry, and executes certain civil works
for its mining clients.
Nearly 80% of the company's revenues comes from services provided
to its clients and about 45% of its revenues from mining for its
two largest customers. The USD1.2 billion backlog in March 2021
provides adequate revenue visibility for the rating case. The near
30-year expertise enables San Martin to competitively price and
execute services and maintain adequate margins.
Cyclical and Competitive Business: San Martin's ratings are
constrained by above average business risk, as the demand for the
mining services provided by San Martin tends to follow the mining
cycle, with large projects being initiated when prices are high and
cost cutting measures being implemented during downturns.
Competition in Peru to provide services for large mining projects,
which demands the heaviest and most expensive equipment, tends to
be moderate and margins are in the mid-teens. In conventional
mining, where equipment can be rented, competition is slightly more
intense, which results in high-single digit margins. For
traditional E&C services, competition is fierce and margins are in
the low single digit.
Large Clients: Unlike mining, where there are several local and
international companies operating in Peru, the cement market is
concentrated in the hands of a few Peruvian conglomerates. The
credit quality of most miners and cement companies is strong. This
puts small service companies such as San Martin in a structural
disadvantage when negotiating potential contracts. This is
partially offset by the trend to outsource some aspects of mining,
which saves these companies capital expenditure and labor costs and
related issues.
Neutral to Positive FCF: San Martin's FCF is expected to be
positive USD20 million in 2021 after being negative USD2 million
during 2020. The recovery stems from the normalization of
activities following three to four months of government mandated
lockdowns for the Peruvian mining sector during 2020 plus the
collection of past due receivables.
San Martin's EBITDA is projected to be USD54 million during 2021
while its cash flow from operations is estimated to be USD40
million. This compares with USD15 million of EBITDA and USD9
million of CFFO in 2020, as per Fitch's criteria. Capex is
projected by Fitch to total USD21 million in 2021. For 2022, Fitch
is projecting FCF to be neutral due to an expected climb in Capex
to USD45 million.
Resuming Adequate Leverage: San Martin's leverage ratios should
decline over the rating horizon due to the rebound in EBITDA. In
2020, net leverage peaked 5.8x, as per Fitch criteria, impaired by
the restrictions caused by the pandemic. This unfavourably compares
to the 1.9x average between 2017-2019. Net leverage is set to fall
to 2.0x during 2021, with a more gradual downward trend as of 2022.
Only a large and new contract with a miner or cement producers
would push the company to acquire new equipment and increase
leverage.
DERIVATION SUMMARY
With the successful bond issuance and expected EBITDA recovery in
2021, San Martin will achieve adequate liquidity and net leverage
that are commensurate with its rating category. San Martin credit
profile favourably compares with other 'B' rated issuers in Latin
America such as oil producer Frontera Energy Corporation, which has
a small and concentrated production profile in Colombia.
San Martin's classification is weaker than Atento Luxco
(B+/Negative) and Unigel Participacoes S.A. ('B+'/Positive). Both
Atento and Unigel have reported EBITDAs of approximately USD100
million, almost two times San Martin's USD54 million projected for
2021. Their cash coverage of 2.4x for Atento and 1.4x for Unigel,
materially outpaces San Martin's 0.1x. Nevertheless, San Martin
with net leverage of 2.0x towards the year-end is expected to
deleverage faster than Atento's 4.1x and Unigel 3.6x net leverage
in the LTM.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Mining revenues of USD256 million in 2021 and USD265 million
in 2022;
-- Construction revenues of USD38 million in 2021 and USD44
million in 2022;
-- Gross margin returning to historical levels of approximately
11% in 2021 and 2022;
-- SG&A growing on average 10% per year on the expansion of
contract volumes;
-- Effective tax rate of 30%;
-- Capex of USD21 million in 2021 and USD45 million in 2022;
-- No dividend distribution on the rating horizon.
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that San Martin would be reorganized
as a going-concern in bankruptcy rather than liquidated. Fitch has
assumed a 10% administrative claim.
Going-Concern (GC) Approach
-- San Martin's GC EBITDA of USD27 million considers a 50%
discount to Fitch's 2021 projection caused by a material
reduction in revenues combined with a weaker dilution of fixed
costs.
-- The GC EBITDA forecast reflects potential reduction on the
execution pace of the contracts by reasons beyond the
company's reach such as drop in international commodity prices
and clients' decision to reduce volumes or cancel contracts.
It can also be driven by reduction in backlog with San Martin
not being able to replenish it either because of fierce
competition or lack of new projects.
-- A 5.0x enterprise value multiple is used to calculate a post
reorganization valuation, and in line with the industry's
historical multiples.
-- The Recovery Rating is capped at 'RR4', as Peru is classified
as a Group D country by Fitch and represents a recovery
prospect between 31% and 50%.
Liquidation Approach
Fitch excluded the liquidation value (LV) approach because
bankruptcy legislation tends to favor the maintenance of the
business to preserve direct and indirect jobs. Moreover, in extreme
cases where LV was necessary, the recovery of the assets has proved
very difficult for creditors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Material gains of scale, preserving EBITDA margins above 12%;
-- Substantial improvements in geographic, client, and service
diversification;
-- Liquidity improvements with cash above short-term debt
consistently;
-- Net leverage below 1.5x on a sustainable basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to issue the bond and improve liquidity;
-- Material slowdown in backlog and activities;
-- EBITDA margin below 8%;
-- Deterioration of the credit profile of its main clients;
-- Net leverage above 2.5x on a recurring basis.
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
Improving Weak Liquidity: The five-year USD100 million senior
unsecured bond issuance will substantially improve San Martin's
liquidity. The company will use 20% for overhauling Capex, 42% to
refinance existing debt, and 35% to repay operating leases; the
balance will be used for general corporate expenses including
transaction fees and expenses.
Liquidity has been historically weak with cash of USD7.5 million
covering 12% of the USD61 million short-term debt, as of March 31,
2021. San Martin's total debt of USD84 million was mainly composed
of bank loans of USD40 million (48%), direct credit from
Caterpillar of USD20 million (24%), finance leasing of USD16
million (18%) and corporate bonds of USD8 million (10%).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance 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 the way in which they are being
managed by the entity.
ISSUER PROFILE
With more than 29 years of experience, San Martin is one of the
leading E&C contractors in Peru (BBB+/Negative), dedicated in
providing services to large mining companies that operate in the
country. It also has a small presence in Colombia and Spain. San
Martin executes drilling, blasting, loading, hauling, and also
provide road and landfill maintenance for its clients.
The company manages a total fleet of 1,083 equipment, being 415
owned. For large mining services, SMCG owns most the equipment,
while as for conventional mining and cement, the machinery is
leased. Construction is another branch, dedicated to execute other
engineering services for the mining companies. These include
building leach pads, dams and dumps, and other civil works, such as
electromechanical assembly. Exposure to public clients is only 0.2%
of sales and there are no plans to diversify to traditional E&C
services.
In 2020, 82% of the revenues came from mining and 18% from
construction, with only 9% of this total were from non-mining
clients. One third of the revenues came from iron, 24% from gold
and copper each, and the remaining derived from services dedicated
to other metals such as zinc, lead, and polymetallic.
SAN MARTIN CONTRATISTAS: S&P Assigns Preliminary 'B+' ICR
---------------------------------------------------------
On July 26, 2021, S&P Global Ratings assigned its 'B+' preliminary
long-term issuer credit rating on San Martin Contratistas Generales
S.A. and 'B+' issue-level rating on the company's proposed $100
million senior unsecured notes.
S&P said, "The stable outlook assumes that San Martin will extend
its debt maturity profile and strengthen its liquidity position
through the proposed bond issuance. We also expect the company's
sales and EBITDA to rapidly recover from the pandemic. As a result,
we expect its gross adjusted leverage ratio to be about 3.0x by the
end of 2021 and slightly below that level afterward.
"Our preliminary rating reflects our expectation that the proposed
transaction will close with no significant changes from the
proposed structure. We will finalize our rating following the
completed issuance of the senior unsecured notes and successful any
other developments refinancing of a large part of San Martin's
existing debt, barring material to our analysis."
With $300 million in sales and $58 million in EBITDA expected for
2021, San Martin is a relatively small player versus other global
rated E&C entities such as CLISA - Compania Latinoamericana de
Infraestructura y Servicios S.A. (CLISA; CC/Negative/--),
Infrastructure and Energy Alternatives Inc. (B/Stable/--), and
SNC-Lavalin Group Inc. (BB+/Stable/--), for instance. It also lacks
end-market diversity because more than 95% and 80% of its revenues
currently stem from the Peruvian market and the mining division,
respectively, with no signs of broader diversification in the next
12-24 months. In addition, San Martin has a high customer
concentration because about 75% of its revenues come from five
customers, increasing its exposure to specific projects. S&P thinks
these concentration risks expose San Martin to economic and mining
industry cycles, making its sales and cash flows highly volatile.
This was illustrated in 2019, when revenues dropped about 17%,
while operating cash flow (OCF) increased about 55% compared to
2018, and more recently in 2020, when revenues and OCF decreased
26% and 77%, respectively, compared to 2019.
On the other hand, San Martin is a leading mine operator in Peru,
managing about 60% of the country's open-pit mining operations,
benefiting from its large asset base. The company has a record of
successfully completing projects, allowing it to maintain strong
and long-term relationships with key customers. S&P said, "We
believe San Martin's reputation and technology offerings will
continue to support its leading position in the Peruvian mining
sector for the next few years. Moreover, we forecast that it will
continue to focus on large mining projects--these represent about
80% of its EBITDA in the mining division because they're the most
profitable. In addition, in terms of large mining projects, we
believe some of the company's assets represent an important barrier
to entry for new and existing competitors. However, we foresee San
Martin will continue to face high competition in conventional
mining and cement projects, where technology is more
commoditized."
There is currently political uncertainty in Peru following its
highly polarized run-off election at the beginning of June. S&P
said, "We think investors will likely remain more cautious until
there is more visibility about the new administration's policies.
This will slow GDP growth in 2022, which we project at 3.5%. In our
view, policy uncertainty is a downside risk for San Martin's end
market, so we will closely monitor if there is a radical shift in
policy that could disrupt Peru's mining industry, although this
isn't in our base-case scenario."
San Martin's 2020 operating and financial performance was severely
affected by the pandemic and strict lockdown measures in Peru,
postponing about $68.8 million in revenues. This was reflected in a
large contraction in revenues, a spike in adjusted gross leverage
to 5.1x, and tight liquidity at year-end 2020.
S&P said, "For 2021, we expect Peru's economic activity to rebound
by 11% in real GDP terms, mostly driven by China's solid economic
performance and increasing demand in metals. We forecast San
Martin's revenues to rebound rapidly thanks to its large backlog of
about $1.2 billion, positive industry fundamentals in terms of
higher minerals prices, and the likelihood of signing new projects
in the coming months. On average for the next two years, we
forecast double-digit revenue growth, adjusted EBITDA margins of
about 19%, and annual operating cash flow (OCF) between $40
million-$45 million. Although the closure of new pipeline projects
will increase capex, especially in 2022, we expect San Martin to
generate positive free operating cash flow (FOCF). As a result of
our expected spike in EBITDA, positive FOCF, and stable reported
debt levels near $125 million-$150 million, we anticipate the
company to quickly deleverage, with gross adjusted debt to EBITDA
of about 3x in 2021 and slightly below that level in 2022. We also
anticipate its FOCF to debt to be above 10% in 2021 and slightly
positive in 2022.
"Starting in 2019, San Martin decided to focus on the mining
division because it is where the company has more expertise and it
has larger margins. Considering that, for the next two years, we
expect San Martin's mining division to represent more than 80% of
its EBITDA, while its construction division will represent less
than 20%. Although the shift in strategy limits the potential of a
larger revenue base and brings less diversity in end-markets, we
view the strategy as positive in terms of profitability and cash
flows.
"In addition, we believe the company's expertise and technology
offering in the mining division allows it to optimize its cost
structure and to offer competitive prices. San Martin is somewhat
able to adjust prices to customers when metal prices touch bottom
cycles, while protecting its profitability. Moreover, we believe
its mine operations control system allows it to keep strict control
of operating expenses because information per project is collected
in a timely manner, allowing the company to identify any deviation
and make necessary corrections. We believe the combination of these
factors will be key to achieving EBITDA margins of about 19% in the
next two years, which is above the average of global E&C
companies.
"In our view, San Martin's liquidity has been historically tight.
Even before the pandemic started, in 2019, short-term debt
maturities were more than 6.0x larger, on average, than its cash
balance, which in our view gives little room to maneuver,
particularly when setbacks occur. Mitigating factors include the
several uncommitted credit lines that the company has with local
banks and an average EBITDA interest coverage above 5.0x in the
last five years.
"San Martin plans to issue up to $100 million in senior unsecured
notes. It will use part of the proceeds to refinance about $47
million of existing debt, which will bolster its liquidity
position. Although we expect its cash sources over uses of cash to
be above 1.2x in the next 12 months, to revise our assessment we
would need to see a longer track record of the company maintaining
at least 20% liquidity cushion even through economic cycles and
when metal prices are at the bottom of the cycle."
*********
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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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2021. All rights reserved. ISSN 1529-2746.
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