/raid1/www/Hosts/bankrupt/TCRLA_Public/220406.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, April 6, 2022, Vol. 23, No. 63
Headlines
A R G E N T I N A
[*] ARGENTINA: Poverty Fell to 37.3% in Second Half of 2021
B R A Z I L
BRF SA: Gets OK to Export Pork from Mato Grosso to Vietnam
[*] BRAZIL: Plans to Launch Poverty Eradication Fund, Guedes Says
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Business Owners Complain of Restricted Hours
E L S A L V A D O R
BANCO AGRICOLA: Fitch Affirms and Withdraws 'B-' LT IDR
BANCO DAVIVIENDA: Fitch Affirms 'B-' LT IDR, Outlook Negative
G U A T E M A L A
CENTRAL AMERICA BOTTLING: Fitch Affirms 'BB+' IDRs, Outlook Stable
J A M A I C A
JAMAICA: BOJ Raises Policy Interest Rate
M E X I C O
AGUAS DEL MUNICIPIO DE DURANGO: Moody's Cuts Issuer Rating to B3
DURANGO MUNICIPALITY: Moody's Cuts Issuer Rating to B3, Outlook Neg
FORTALEZA MATERIALES: Moody's Affirms 'Ba3' CFR, Outlook Now Pos.
V E N E Z U E L A
PETROLEOS DE VENEZUELA: Expects Easing of Sanctions, Seeks Tankers
X X X X X X X X
[*] CARICOM: Gov't. Cooperation Needed to Tackle Food Security
- - - - -
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A R G E N T I N A
=================
[*] ARGENTINA: Poverty Fell to 37.3% in Second Half of 2021
-----------------------------------------------------------
Buenos Aires Times reports that Argentina's poverty rate stood at
37.3% in the second half of 2021, down 3.3 points compared to the
first half of the year, the INDEC national statistics bureau has
revealed.
In the case of extreme poverty - individuals and families who are
unable to cover basic basket of food expenses - the figure stood at
8.2%, a drop of 2.5 percentage points compared to the measurement
for the first half of last year, according to Buenos Aires Times.
Experts said the drop was a result of slowing food inflation in
recent months, the government's so-called 'Plan Platita' that
boosted payments to the impoverished in an election year and price
controls on essential items, the report relays.
The improvement in poverty rates also reflects the improvement in
Argentina's economy over the past year, the report discloses.
Gross domestic product improved 10.3% in 2021, after collapsing
9.9% in 2020 amid the Covid-19 pandemic, the report says. Prior to
last year, the economy had been in recession since 2018, the report
notes.
INDEC's survey, which does not cover the entire population of
around 45 million, is based on the country's 31 largest urban
conglomerates, but it offers a wider picture that can be projected
out to the whole country, the report relays.
According to the bureau, more than half (51.4%) of people aged 0-14
are poor, compared to 54.3% in the previous semester, the report
notes.
The official number of people below the poverty line identified
late 2021 was 10.8 million, of which 2.4 million were considered
indigent. Projected out to the entire population, the former
reaches more than 16 million people, the report discloses.
INDEC recently reported that Argentina's unemployment rate fell to
seven percent in the final quarter of 2021, the lowest in the last
six years, banking a year-on-year decrease of four points, the
report says. Underemployment - meaning those who do not have
enough paid work or have jobs that do not make full use of their
skills - stands at 12.1%, three points lower than in the same
quarter of 2020, the report relays.
The Economy Ministry reported that in 2021, 920,400 people were
lifted out of poverty (the figure reaches 1.5 million projected for
the country) compared to the previous semester and 1.2 million
compared to the second semester of 2020, the report notes.
Cause for Concern
Reacting to the data, economic research centers and think-tanks
said there were multiple reasons for the improved figure, while
underlining the surge in poverty over the past five years, the
report notes.
Economic research centers analyzed the latest data on poverty in
Argentina released by INDEC for 2021, the report says. While some
highlighted the slight drop in the indices in relation to 2020,
others warned that if compared to 2017 it rose by 11.7 percentage
points, the report discloses.
For the Centro de Economia Politica Argentina (CEPA), the
three-point drop in the second half of last year was mainly due to
the slowdown in food inflation, the report notes.
"From May 2021 onwards, a more moderate evolution in food inflation
was observed, with values below or close to general inflation," a
report from the organization said, the report says.
CEPA indicated that "during the first half of 2021, the average
food inflation amounted to four percent, while in the second half
it added [up to] 2.9 percent," stressing that "as the price of food
determines the levels of the food basket and the total basket, food
inflation below general [inflation] explains part of the
deceleration of poverty," the report relays.
The centre, directed by economist Hernan Letcher, also recognised
the impact of the so-called 'Plan Platita' - government-backed
improvements to social payments such as the minimum wage that
targeted the poor in an election year, the report discloses.
By contrast, the Fundacion Libertad y Progreso thank-tank observed
that "since the second half of 2017, the number of people living in
poverty [in Argentina] rose by 5.8 million," the report relays.
"As a percentage of the population, if we compare with data from
just four years ago, poverty went from affecting 25.7 percent to
37.3 percent - a rise of 11.6 percentage points," says the liberal
think tank, the report discloses.
Poverty rose to more than 35% during the Mauricio Macri
administration following the 2018 currency crisis, according to
INDEC, the report relays. It stood at around 40.9% when the
Alberto Fernández administration took office, before rising to 42%
in the second half of 2020 during the coronavirus pandemic, the
report notes.
Most experts expect poverty to rise in the coming year, given the
sharp rise in inflation seen in the first two months of this year,
the report relays. Prices rose 50.9% in Argentina last year, with
most forecasts anticipating a similar figure this year, the report
notes. Private estimates forecast an inflation rate of around 60%,
the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its 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.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Moody's credit rating for Argentina was last set at Ca on Sept.
28, 2020. Fitch's credit rating for Argentina was last reported on
Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS'
credit rating for Argentina is CCC, given on Sept. 11, 2020.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
Argentina obtained on March 25, 2022, approval from the Executive
Board of the International Monetary Fund (IMF) of a 30-month
extended arrangement under the Extended Fund Facility (EFF)
amounting to SDR 31.914 billion (equivalent to US$44 billion).
Under the new terms, Argentina secured a much-needed grace period
that postpones repayment of its debt. However, IMF warned of
exceptionally high risks to the program.
===========
B R A Z I L
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BRF SA: Gets OK to Export Pork from Mato Grosso to Vietnam
----------------------------------------------------------
Jennifer Shike at porkbusiness.com reports that Brazilian
meatpacker BRF SA, the largest producer of animal protein and
largest exporter of poultry in Brazil, was authorized by Vietnam to
export pork from a Mato Grosso plant. It plans to double its
shipments to the Asian country, according to porkbusiness.com.
Reuters said that this move will allow BRF to grow in a strategic
geographic market, according to porkbusiness.com. This is in line
with the company's plan to increase its relevance in major global
consumer centers, the report notes.
In 2021, Vietnam was the fifth main destination for Brazilian pork,
importing more than 45,000 metric tons or pork which accounts for
4% of total Brazilian exports, government data said, the report
recalls.
A BRF company executive told Reuters that the expectation is that
meat consumption in Southeast Asia will grow significantly in the
coming years and they want to be ready to meet this demand, the
report relays.
BRF currently exports pork to Vietnam from a plant in Uberlandia,
in Minas Gerais State, which received authorization last year, the
report notes.
Now, with the additional authorization of the Mato Grosso plant,
the company plans to sell pork cuts that include shoulder, ribs,
chops, loin and ham, the report says.
Reuters reported that BRF pointed out that it is advancing in the
high-value pork segment, the report relays. It's one of the
important paths in its Vision 2030 project, in which the company
intends to reach annual revenue exceeding $21 billion in the next
10 years, the report notes.
As reported in the Troubled Company Reporter-Latin America on Feb.
4, 2022, S&P Global Ratings raised its global scale issuer credit
rating on Brazil-based food company BRF S.A. to 'BB' from 'BB-' and
its national scale issuer credit rating to 'brAAA' from 'brAA+'.
S&P also raised the issue-level rating to 'BB' from 'BB-', with a
recovery rating remaining at '3'.
[*] BRAZIL: Plans to Launch Poverty Eradication Fund, Guedes Says
-----------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that Brazilian
Economy Minister Paulo Guedes said that the federal government
plans to create a poverty eradication fund that would be fed from
the sale of public assets.
Speaking at a presidential event, he mentioned plans of creating
"Fundo Brasil," comprising BRL1 trillion ($210.51 billion) in real
state assets and BRL1 trillion in shares of state-owned companies,
according to globalinsolvency.com.
"Each time we sell a property we will rebuild the investment
capacity of the Brazilian public sector", said Guedes, adding that
President Jair Bolsonaro would then have funds to build a planned
hydroelectric plant in the Roraima state. "At the same time another
part of the proceeds will feed a poverty eradication fund," the
report notes.
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.
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 2021 with stable outlook.
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 December 2021. 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).
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Business Owners Complain of Restricted Hours
----------------------------------------------------------------
Dominican Today reports that owners of bars and restaurants in
Bavaro announced the closure of their establishments and
businesses, in protests over the time restrictions that they say
the authorities are implementing as measures against Covid-19,
limiting their operations, even with the considerable drop in cases
of the illness.
In a statement, owners of these businesses expressed disgust and
called on the Government for commercial inclusion, according to
Dominican Today.
They expressed that even though the restrictive measures have been
lifted throughout the national territory, this is not the case in
the area that first overcame COVID-19, and that has reported the
most significant number of vaccinated people, and instead continues
to be the one that suffers the most from the limitation of customer
service hours until midnight, the report notes.
Katy Soto, president of the Bars and Restaurants Association of
Bavaro Punta Cana, expressed her concern about what she describes
as "what has never been seen in our area, a retaliation against
those of us who create jobs, those who stimulate tourism and those
of us who welcome the few tourists who manage to get out of the
hotels looking to get to know our culture of merengue, bachata, and
folk culture," the report relays.
Soto confessed that she has suffered as a businesswoman due to the
economic losses of the exaggerated measures and as a human being,
"because even my colleagues, other business owners, have questioned
my person for, as president of the association, allowing us to
persecute us, harass us and mistreat us as has happened to us on
this occasion," the report discloses.
In this sense, she called on the Minister of the Interior and
Police, Jesus Vasquez, to intercede and understand the situation
they were going through, 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. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCRLA 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.
Fitch Ratings, in December 2021, revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'. The
revision of the Outlook to Stable reflects the narrowing of
Dominican Republic's government deficit and financing needs since
Fitch's last review resulting in the stabilization of the
government debt/GDP ratio, as well as the investment-driven
economic momentum, reflected in the faster-than-expected economic
recovery in 2021 that Fitch expects to carry into above-potential
GDP growth during 2022 and 2023.
Standard & Poor's, also in December 2021, revised its outlook on
the Dominican Republic to stable from negative. S&P also affirmed
its 'BB-' long-term foreign and local currency sovereign credit
ratings and its 'B' short-term sovereign credit ratings. The
stable outlook reflects S&P's expectation of continued favorable
GDP growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack of
progress with broader tax reforms, S&P said. A rapid economic
recovery from the downturn because of the pandemic should mitigate
external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
=====================
E L S A L V A D O R
=====================
BANCO AGRICOLA: Fitch Affirms and Withdraws 'B-' LT IDR
-------------------------------------------------------
Fitch Ratings has affirmed and withdrawn Banco Agricola, S.A.'s
(Agricola) Long-Term (LT) Issuer Default Rating (IDR) at 'B-' with
a Negative Rating Outlook, Short-Term (ST) IDR at 'B', Viability
Rating (VR) at 'ccc', and its Shareholder Support Rating (SSR) at
'b-'. In addition, Fitch has affirmed Agricola's and its local
holding company, Inversiones Financieras Banco Agricola, S.A.'s
(IFBA), LT national ratings at 'AAA(slv)' with a Stable Outlook and
the ST national ratings at 'F1+(slv)'. Agricola's senior secured
and unsecured debt were also affirmed at 'AAA(slv)'.
Rating Withdrawals
Fitch has withdrawn the international ratings for commercial
reasons. Fitch will continue providing national ratings for this
bank.
KEY RATING DRIVERS
AGRICOLA
IDRs, SSR AND NATIONAL RATINGS
Agricola's IDRs, SSR and national ratings reflect Fitch's
assessment of the ability and propensity of the bank's ultimate
parent, Bancolombia S.A. (BB+/Stable), to provide support to
Agricola if required.
This assessment is highly influenced by Bancolombia's ability to
support as related to El Salvador's country risks, which constrains
Agricola's IDR by the country ceiling. El Salvador's 'B-' country
ceiling, which, according to Fitch's criteria, captures transfer
and convertibility risks, caps the bank's ratings to a lower level
than would be possible based solely on Bancolombia's ability and
propensity to provide support. Therefore, there could be
limitations on the subsidiary's ability to use the parent support
leading Agricola's IDR five notches below Bancolombia's IDR and two
notches above El Salvador sovereign rating of 'CCC'.
Fitch's propensity-to-support opinion is strongly influenced by the
extremely high reputational risk Bancolombia and its subsidiaries
would be exposed to if Agricola defaults. Bancolombia has a
significant footprint in Central America, and Agricola is one of
its most important subsidiaries there.
Agricola's national ratings are at the highest level of the its
respective scale given the higher credit strength of Bancolombia
relative to other issuers in El Salvador, which also sustains its
Stable Outlook.
SENIOR DEBT
Agricola's senior secured and unsecured debt national scale ratings
are at the same level as the issuer's national ratings as these
debt issuances' likelihood of default is the same as that of
Agricola.
VR
Agricola's VR is highly influenced by El Salvador's challenging
operating environment (OE), which is assessed by Fitch's at 'ccc'
with a negative trend. The negative trend reflects that there are
still downside risks in the OE for the Salvadoran banking sector
that could put pressure on the banks' financial performance in 2022
which, in the case of Agricola, would be partially mitigated by its
solid business profile.
Agricola's business profile is characterized by a historical
leading franchise in the local market and consistent business
model. Agricola's market share in terms of loans and deposits is
around 25% as of December 2021. Agricola's OE-constrained VR does
not fully reflect the benefits generated by its solid profile.
Along with the flexibility provided through the regulatory
measures, Fitch also considers Agricola's proactive credit risk
management as the asset quality deterioration has been under
control despite the pressures from the pandemic. The non-performing
loans (NPLs) to gross loans ratio increased to 1.4% as of December
2021 (December 2020: 1.2%), influenced by relatively higher charge
offs and credit growth during fiscal 2021. While the loan loss
allowances (LLA) coverage of NPLs (225%) remains ample to absorb
unexpected losses.
Agricola's profitability recovered in 2021, although it is still
below pre-pandemic levels, and benefitted from the business
expansion which compensated combined pressures from a decreasing
trend in the net interest margin and the operational efficiency as
well as the continuation of significant and prudent loan impairment
charges. As of December 2021, the operating profits to
risk-weighted assets (RWA) ratio increased to 2.1% (December 2020:
2.0%; average of the three pre-pandemic fiscal years 2017-2019:
2.7%).
Agricola's capitalization core metric increased in 2021, and stood
above the average of the three pre-pandemic fiscal years 2019-2017,
benefitted by a more dynamic internal capital generation. The Fitch
Core Capital (FCC) to RWA ratio was 16.4% (December 2020: 12.8%).
The regulatory capital adequacy ratio also increased to 16.1% in
2021 (December 2020: 14.2%; regulatory minimum: 12%); however, this
metric would be pressured if the Salvadoran sovereign debt
instruments held by the bank (69% of FCC as of December 2021) were
market-valued, which is not currently contemplated under the local
regulation. Fitch also considers the parent's ordinary support as a
positive. The bank did not distribute any dividends in 2021; and it
is resuming this distribution in 2022.
Fitch believes Agricola's liquidity risk is mitigated by its solid
franchise in deposits, its reasonable liquidity levels and the wide
access to alternative sources of funding, including synergies with
its parent. Similar to some of its closest local peers, Agricola's
deposit base decreased in fiscal year 2021 (-2.4%). The loans to
customer deposits ratio increased to 89.3% as of December 2021
(December 2020: 82.5%), a level still below pre-pandemic records.
INVERSIONES FINANCIERAS BANCO AGRICOLA
IFBA's national ratings also reflect Fitch's assessment of
Bancolombia's ability and propensity to support, if needed. The
'AAA(slv)' rating shows the relative credit strength of Bancolombia
relative to other issuers rated in El Salvador. The consolidated
financial profile of IFBA mirrors the financial performance of
Agricola, which accounted for 90% of its assets (before
eliminations) as of December 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Rating sensitivities for international ratings are not
applicable as these ratings have been withdrawn.
-- Agricola's and IFBA's national ratings could be downgraded by
a multi-notch downgrade of Bancolombia's IDRs; however, this
scenario is unlikely in the rating horizon given the parent's
LT IDR Stable Outlook;
-- Any perception by Fitch of a reduced strategic importance of
Agricola for Bancolombia may trigger a downgrade of Agricola's
national ratings. This perception would also apply to IFBA's
national ratings;
-- Agricola's senior secured and unsecured debt national ratings
would be downgraded in the event of negative rating actions on
the bank's national ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Rating sensitivities for international ratings are not
applicable as these ratings have been withdrawn.
-- The national ratings of Agricola, IFBA and Agricola's senior
secured and unsecured debt are at the highest level of the
national rating scale, and therefore have no upside potential.
VR ADJUSTMENTS
The bank's 'ccc' VR has been assigned below the 'b-' implied VR due
to the following adjustment reason: Operating Environment
(negative).
The Operating Environment score of 'ccc' has been assigned below
the implied score of 'b' due to the following adjustment reason:
Sovereign Rating (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond 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
Pre-paid expenses were reclassified as intangibles and deducted
from the bank's total equity.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Banco Agricola's ratings and Inversiones Financieras Banco
Agricola's national ratings are linked to Bancolombia's ratings.
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.
Following the withdrawal of international ratings for Agricola,
Fitch will no longer be providing the associated ESG Relevance
Scores.
DEBT RATING PRIOR
---- ------ -----
Banco Agricola, S.A.
LT IDR B- Affirmed B-
LT IDR WD Withdrawn B-
ST IDR B Affirmed B
ST IDR WD Withdrawn B
Natl LT EAAA(slv) Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
Viability ccc Affirmed ccc
Viability WD Withdrawn ccc
Shareholder Support b- Affirmed b-
Shareholder Support WD Withdrawn b-
senior unsecured Natl LT AAA(slv) Affirmed AAA(slv)
senior secured Natl LT AAA(slv) Affirmed AAA(slv)
Inversiones Financieras Banco Agricola, S.A.
Natl LT EAAA(slv) Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
BANCO DAVIVIENDA: Fitch Affirms 'B-' LT IDR, Outlook Negative
-------------------------------------------------------------
Fitch Ratings has affirmed Banco Davivienda Salvadoreno, S.A.'s
(Davivienda Sal) Long-Term Issuer Default Rating (IDR) at 'B-'. The
Rating Outlook is Negative. In addition, Fitch has affirmed
Davivienda Sal's Short-Term IDR at 'B', Viability Rating (VR) at
'ccc' and Shareholder Support Rating (SSR) at 'b-'.
Fitch has also affirmed Davivienda Sal's and its holding company,
Inversiones Financieras Davivienda, S.A.'s (IF Davivienda) Long-
and Short-Term National Ratings at 'AAA(slv)'/Stable Outlook and
'F1+(slv)', respectively. Davivienda Sal's senior secured and
unsecured debt ratings were also affirmed at 'AAA(slv)' and
'F1+(slv)'.
KEY RATING DRIVERS
Davivienda Sal
IDRs, SSR and National Ratings
Davivienda Sal's IDRs, SSR and national ratings are underpinned by
the ability and propensity of its parent Banco Davivienda S.A.
(Davivienda; BB+/Stable) to provide support to its subsidiary, if
required.
Fitch's analysis of the parent's ability to provide support is
strongly influenced by El Salvador's country risks. Under Fitch's
criteria, these risks are mirrored in El Salvador's country ceiling
of 'B-', which captures transfer and convertibility risks. This
also caps the bank's ratings at a lower level than if they were
solely based on Davivienda's ability and propensity to give support
and results in Davivienda Sal's IDR being five notches below its
parent's IDRs.
Country risks could also limit the subsidiary's ability to use
shareholder support. However, Fitch's appreciation of potential
support allows Davivienda Sal's rating to be two notches above El
Salvador's sovereign rating. The Negative Outlook indicates that
the bank's IDRs would be downgraded if the Salvadoran sovereign's
rating and Country Ceiling are downgraded.
In its assessment of the parent's willingness to support, Fitch
also weighs with high importance the extremely high reputational
risk that a potential default by Davivienda Sal would constitute to
its shareholder and subsidiaries, severely damaging the franchise
in the region given their shared brand.
Davivienda's credit strength in relation to other rated issuers in
El Salvador boosts Davivienda Sal's national ratings to the highest
point of the national rating scale. This also sustains its Stable
Outlook.
Senior Debt
The senior unsecured and secured debt is rated at the same level as
Davivienda Sal's national ratings, as according to Fitch the
likelihood of default of these issuances is equal to the bank's.
VR
Davivienda Sal's VR is extremely influenced by Fitch's assessment
of the Salvadoran banking sector's operating environment (OE; 'ccc'
/negative trend), which is also constrained by the sovereign
rating, since some of its key rating drivers could affect the
banks' operating conditions. Although Fitch expects economic growth
of 3.5% in 2022, the negative trend reflects that there are still
downside risks in the OE for El Salvador's banking system that
could pressure Davivienda Sal's financial performance and
potentially increase industry financing costs.
In addition, Fitch considers the bank's business profile in its VR.
Davivienda Sal has a solid local franchise, as the third-largest
player in the El Salvadorian banking system, registering a 15.1%
market share in terms of loans in 2021. The entity's moderate risk
appetite has benefited its asset quality performance, which in 2021
exhibited a non-performing loans (NPL)-to-gross loans ratio of 1.8%
(average 2017-2020: 2.1%; system: 1.9%).
Reserves for impaired loans reached 139.4%, which increased
prudently from 2020. Davivienda Sal's loan quality would remain
consistent with its rating category in the near future; however,
the ongoing risks in the OE could generate additional
deteriorations, which Fitch believes the bank could control.
Davivienda Sal's VR also captures its modest profitability, which
is lower than some local and regional peers. Fitch expects this
will continue into the near future, reflecting the bank's strategy,
and that potential further impairments would be manageable for the
entity. In 2021, the operating profit to risk weighted assets (RWA)
ratio was a low 0.02% (2017-2020: 0.8%; system: 1.3%), primarily
driven by relevant pandemic-related loan impairment charges. In
contrast, higher recoveries of the written-off portfolio resulted
in a ROAA of 1.2% in 2021.
In 2021, the Fitch Core Capital (FCC) to RWA metric was 13.9%,
higher than 2020 (12.9%), given better internal capital generation
in the period. Similarly, the total capital regulatory ratio grew
to 14.2% in 2021 from 13.5% in 2020 (regulatory minimum 12%),
although if the valuation of the Salvadoran sovereign debt
instruments held by the bank (2021: 81.3% of FCC) is considered,
then this ratio would face pressure. Fitch also views favorably the
parent's ordinary support.
The bank's diversified funding profile is backed by its strong
deposit franchise and good access to several financing sources.
This structure is further reinforced by the support and synergies
originated with its shareholder, giving it some flexibility in the
prevailing OE. The deposits' reduction, combined with the loans'
expansion, resulted in a loans-to-deposits ratio of 104.6% in 2021
(2020: 98.8%).
IF Davivienda
IF Davivienda's national ratings reflect Fitch's evaluation of the
support it would receive from its shareholder, Davivienda,
exhibiting the relative creditworthiness of its parent, compared to
other rated issuers in El Salvador. This results in IF Davivienda's
ratings being at the highest level on Fitch's national rating
scale. Since Davivienda Sal accounted for 89% of IF Davivienda's
assets (before eliminations) in 2021, its consolidated financial
profile mirrors the bank's.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Davivienda Sal's ratings remain sensitive to changes in El
Salvador's sovereign rating and country ceiling. Negative
changes in the bank' IDRs and SSR would mirror negative
movements in El Salvador's sovereign rating and country
ceiling;
-- Davivienda Sal's IDRs could be downgraded by a multi-notch
downgrade of Davivienda's IDRs; however, this scenario is
unlikely in the rating horizon given the parent's Stable
Rating Outlook;
-- Any perception by Fitch of a reduction of the strategic
importance of Davivienda Sal for its parent may trigger a
downgrade of its SSR, IDRs and national ratings. This
perception would also apply to IF Davivienda's national
ratings;
-- Further deterioration in the conditions could lead to a
downward revision of Fitch's assessment of the OE score for
Salvadoran banks, which would pressure Davivienda Sal's VR;
-- Davivienda Sal's VR downgrades could also come from lower
earnings, specifically if it affects the operating profit-to-
RWA ratio, resulting in consistent operating losses. A FCC-to-
RWA ratio consistently below 10% also would pressure the VR;
-- Davivienda Sal's senior secured and unsecured debt national
ratings would be downgraded in the event of any negative
rating action on the bank's national ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Negative Outlook on Davivienda Sal's IDRs indicates
positive actions in the ratings are highly unlikely in the
foreseeable future. However, over the medium term, Davivienda
Sal's IDRs, SSR and VR, could be upgraded in the event of an
upgrade of El Salvador's sovereign rating and country ceiling
also considering that Davivienda Sal's IDR is capped by the
Salvadoran country ceiling;
-- The upside potential of Davivienda Sal's VR is limited due to
the OE assessment;
-- Davivienda Sal's VR could only be upgraded over the medium
term given an improvement of the OE, accompanied by
improvement in its financial metrics, while maintaining its
good company profile;
-- Davivienda Sal's national ratings and its senior debt, as well
as IF Davivienda's national ratings, are at the highest level
of the national rating scale and therefore have no upside
potential.
VR ADJUSTMENTS
The bank's 'ccc' VR has been assigned below the 'ccc+' implied VR,
due to the following adjustment reason: Operating Environment
(negative).
The Operating Environment score of 'ccc' has been assigned below
the implied score of 'b', due to the following adjustment reason:
Sovereign Rating (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond 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 were reclassified as intangibles and deducted from
total equity to reflect their low absorption capacity.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Davivienda Sal's and IF Davivienda's ratings are based on the
potential support they would receive from their parent, Banco
Davivienda, S.A., if needed.
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.
DEBT RATING PRIOR
---- ------ -----
Banco Davivienda Salvadoreno, S.A.
LT IDR B- Affirmed B-
ST IDR B Affirmed B
Natl LT EAAA(slv) Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
Viability ccc Affirmed ccc
Shareholder Support b- Affirmed b-
senior secured Natl LT AAA(slv) Affirmed AAA(slv)
senior unsecured Natl LT AAA(slv) Affirmed AAA(slv)
senior unsecured Natl ST F1+(slv) Affirmed F1+(slv)
senior secured Natl ST F1+(slv) Affirmed F1+(slv)
Inversiones Financieras Davivienda, S.A.
Natl LT EAAA(slv) Affirmed EAAA(slv)
Natl ST F1+(slv) Affirmed F1+(slv)
=================
G U A T E M A L A
=================
CENTRAL AMERICA BOTTLING: Fitch Affirms 'BB+' IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed The Central America Bottling
Corporation's (CBC) Long-Term Foreign and Local Currency Issuer
Default Ratings (IDR), and senior unsecured notes at 'BB+'. The
Rating Outlook is Stable.
CBC's ratings reflect its business position as an anchor bottler of
the PepsiCo, Inc. system, with operations in Central America, the
Caribbean, Ecuador, Peru and Argentina, as well as exports to other
countries, and a good distribution network in key markets.
The rating incorporates the additional proceeds from the USD1.1
billion notes issued in January 2022. Fitch expects note proceeds
will be directed to profitable investments that will recover CBC's
gross leverage to levels of 4.0x or below within the next 12 to 24
months. Failure to direct these funds in sustained profitable
investments will weaken the ratings.
KEY RATING DRIVERS
Recovery in Operating Results: CBC managed to recover its volumes
and revenues in 2021 to pre-pandemic levels as consumption
normalized due to economic recovery in the countries where it
operates, and the ease of mobility restrictions and lockdowns in
its main markets. CBC's sales volume and revenues are estimated to
grow by double digits in 2021. For 2022 and going forward, the
growth in volume will normalize at 2%-3%, and revenues around
4%-5%. Profitability pressures from higher raw material prices are
manageable, with an estimated EBITDA margin (pre-IFRS 16) of around
13% in 2021-2022.
Leverage to Recover Gradually: CBC's gross leverage will end YE
2021 at 4.0x, but it will peak to almost 4.7x by YE 2022 due to the
2029 notes issuance absent any major profitable investment. This
ratio should improve to levels close to 4.0x in the following years
on gradual EBITDA growth. Fitch expects net leverage to remain
stable at around 2.0x during the next three years.
As of Sept. 30, 2021, CBC's total debt was USD945 million,
excluding USD176 million of a lender of record loan structure that
the company implemented to channel funds from previous bond
issuances to its operations. On a proforma basis after the notes
issuance in January 2022, Fitch estimates that total debt will be
around USD1.2 billion by YE 2022. For the LTM as of Sept. 30, 2021,
the company's gross and net leverage, as calculated by Fitch, were
3.8x and 2.3x, respectively.
Solid Position in Core Markets: CBC's ratings reflect its stable
market share positions across its operations. In the carbonated
soft drink (CSD) category, which represents around 53% of its total
sales volume, the company maintained a leading market share
position in Jamaica, and maintained significant positions in other
core markets, such as Guatemala, Ecuador and Puerto Rico.
CBC has a strong presence in non-CSD categories such as water,
juices and nectars, isotonics and energy drinks, where it holds
important positions in most of its markets. Non-CSD products
represent around 40% of its total sales volume. The company's brand
portfolio, distribution capabilities and management strategies to
design and execute commercial initiatives will support its business
position in the long term.
FCF Turning Neutral to Positive: Fitch forecasts CBC's FCF to be
negative in 2022 due to pressures on raw material prices; however,
the company has implemented plans to mitigate cost pressures. Fitch
expects cash flow from operations (CFFO) for 2022 to be around
USD132 million, and capex approximately USD96 million, and
dividends of USD50 million. From 2023 and going forward, FCF is
expected to be neutral to positive as EBITDA, calculated by Fitch
(pre-IFRS 16), will approach USD300 million. For 2021, Fitch
estimates CBC's FCF to be positive USD18 million after covering
capex of USD95 million and USD50 million of dividends.
Foreign Currency IDR Above Country Ceiling: CBC's Long-Term Foreign
Currency IDR is rated one notch higher than Guatemala's 'BB'
country ceiling which is the applicable country ceiling for CBC,
mainly due to the company's cash position held abroad and, to a
lesser extent, EBITDA generated in markets such as Puerto Rico,
Peru and Jamaica. Both factors contribute to cover the company's
hard currency debt service over the midterm at more than 1.0x. The
company's operating performance is more likely to depend on
Guatemala's stability and economic development, as this market
represents close to 42% of total revenues, and 27% of total
EBITDA.
DERIVATION SUMMARY
CBC's 'BB+' ratings are below those of other beverage peers in the
region, such as Arca Continental, S.A.B. de C.V. (A/Stable),
Coca-Cola FEMSA, S.A.B. de C.V. (A/Stable) and Embotelladora Andina
S.A. (BBB+/Stable), given its smaller size and scale, and weaker
brand recognition of PepsiCo and proprietary beverage brands when
compared to the stronger brand equity of Coca-Cola products.
In addition, the company's ratings reflect its lower profitability
margins and higher exposure to lower-rated countries. CBC's ratings
are above those of other beverage companies, such as Grupo Atic
(BB-/Stable), given its better operating performance, adequate
leverage metrics and ample liquidity.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Revenue growth of 16.6% in 2021 and 4.3% on average during
2022-2024;
-- EBITDA margins of around 13.5% in 2021-2024;
-- Annual capex around USD96 million in 2021-2024;
-- Dividend distributions of around USD50 million per year;
-- Positive FCF in 2021 and neutral to positive FCF thereafter.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch does not foresee positive rating actions for CBC in the
medium term unless the economic environments of Guatemala,
Honduras, Nicaragua, El Salvador and Ecuador improve;
-- Higher cash flow generation from investment-grade markets such
as Peru and Puerto Rico;
-- EBITDA margin above 16% on a sustained basis;
-- Positive FCF margin across the rating horizon;
-- Gross debt/EBITDA and Net debt/EBITDA rations below 3.0x and
2.0x, respectively, on a sustained basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade in Guatemala's Country Ceiling or sovereign
ratings;
-- Declines in volume and revenue on sustained basis;
-- An EBITDA margin below 12% on sustained basis;
-- Consistent negative FCF that deteriorates the company's
liquidity position and financial profile;
-- Use of excess cash in unprofitable investments or shareholders
distributions;
-- Gross debt to EBITDA and Net debt to EBITDA higher than 4.0x
and 3.0x, respectively, on a sustained 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
Ample Liquidity: CBC's liquidity is ample given its cash position
of close to USD500 million and USD203 million in short-term debt as
of Dec. 31, 2021. Approximately USD171 million of its cash balance
is invested in liquid short-term instruments with banks. The
company's debt amortizations are manageable for 2022, and Fitch
believes CBC has financial flexibility given its CFFO generation
capacity and access to bank loans.
With the USD1.1 billion sustainability-linked notes issued in
January 2022 and after making the prepayment of its short-term
debt, proforma cash balance for CBC will be closed to USD640
million. The sustainability-linked securities framework establishes
a goal of reducing greenhouse gas emissions and the achievement and
maintenance of a Carbon Trust Zero Waste to Landfill Certification
by 2026.
ISSUER PROFILE
CBC produces and distributes carbonated soft drinks (CSD) and
beverages in Central America, the Caribbean, Ecuador, Peru and
Argentina, and has a long-standing relationship with PepsiCo and
partnership with AmBev to distribute beer in Central America and
some countries in the Caribbean.
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.
DEBT RATING PRIOR
---- ------ -----
The Central America Bottling Corporation
LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed BB+
=============
J A M A I C A
=============
JAMAICA: BOJ Raises Policy Interest Rate
----------------------------------------
RJR News reports that the Bank of Jamaica has increased the policy
interest rate by 0.5%.
The rate offered to deposit-taking institutions on overnight
deposits will be 4.5%.
The Bank's monetary policy committee has continued to increase the
rate in a bid to curb inflation, which was 10.7% for the 12 months
to February.
As reported in the Troubled Company Reporter-Latin America on March
11, 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
===========
M E X I C O
===========
AGUAS DEL MUNICIPIO DE DURANGO: Moody's Cuts Issuer Rating to B3
----------------------------------------------------------------
Moody's de Mexico S.A. de C.V. has downgraded the issuer ratings of
Aguas del Municipio de Durango (AMD) to B3/B1.mx (Global Scale,
local currency/Mexico National Scale) from B1/Baa3.mx. The outlook
remains negative.
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADE
The rating action to downgrade AMD's issuer ratings and to maintain
the negative outlook follows the downgrade of the Municipality of
Durango's issuer ratings to B3/B1.mx and the maintenance of the
negative outlook.
AMD has strong operating and financial linkages with the
Municipality of Durango as it has a clear public mandate to provide
essential water and sewage services. Long-term debt of AMD is
guaranteed by the municipality, and a potential default would
greatly damage the support provider's reputation. Moody's believes
that the municipality of Durango would act in a timely manner to
address any liquidity pressures that the water company may face. As
such, the credit quality of AMD reflects that of the Municipality
of Durango.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook for AMD reflects the negative outlook assigned
to its supporting government, the Municipality of Durango.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental and social considerations are not material to AMD's
credit profile. AMD is exposed to prolonged periods of drought and
the water company is responsible for the basic service of supplying
drinking water and sewerage and sanitation. However, these risks
are not material for the ratings given the support from the
Municipality of Durango.
Governance considerations are material to AMD's credit profile, and
reflect the close institutional, operational and financial ties
between the water company and the municipality of Durango, in
conjunction with weak financial results and a low liquidity
position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the strong linkages between AMD and its support provider, any
upgrade or downgrade of the Municipality of Durango would likely
lead to an upgrade or downgrade of the water utility. Additionally,
given the weakening liquidity of Durango, should evidence arise
that the municipality will be unable to support AMD in a period of
acute liquidity pressure, the strength of the relationship between
Durango and AMD could weaken. This could result in a decoupling of
AMD's rating from that of Durango's.
The principal methodology used in these ratings was
Government-Related Issuers Methodology published in February 2020.
DURANGO MUNICIPALITY: Moody's Cuts Issuer Rating to B3, Outlook Neg
-------------------------------------------------------------------
Moody's de Mexico S.A. de C.V. has downgraded the baseline credit
assessment (BCA) to b3 from b1 and the issuer ratings of the
Municipality of Durango to B3/B1.mx from B1/Baa3.mx (Global Scale,
local currency/Mexico National Scale) and maintained the negative
outlook.
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADE
The downgrade of Durango's issuer ratings reflects a sharp and
continuous deterioration of the municipality's liquidity, which
leaves a very limited cushion to face shocks and significantly
increases the credit risks associated with a missed payment. The
rating action also reflects weak governance practices that have led
to negative cash financing balances and to a weakening of gross
operating balances (GOB), as well as financial pressures stemming
from upcoming payments for a factoring and a Public Private
Partnership (PPP). Together, these factors are further
deteriorating the municipality's already weak liquidity position.
In 2021, Durango's cash-to-current liabilities ratio reached a low
of 0.10 times (x), from an already weak 0.17x registered in 2020, a
value that is at the low end of Mexican municipalities rated B1 to
B3 (median 0.33x). For 2022-2023, Moody's expects that Durango's
liquidity position will further deteriorate given upcoming cash
financing needs, with an average cash-to-current liabilities ratio
of 0.01x.
As a result of the very tight liquidity position, the municipality
has made a recurrent use of short-term debt for MXN50 million in a
short-term loan and MXN30 million in a factoring, annually. Though
the current administration has not contracted the short-term loan
for MXN50 million in the first quarter of 2022, it is approved to
be acquired in the 2022 budget. However, any short-term debts,
including the factoring, must be paid no later than May 29, 2022,
given the Financial Discipline Law establishes that short-term
debts must be paid three months before the change of
administration, which will take place on August 31, 2022. Durango
faces further financial pressures stemming from payments required
of MXN73 million from March to June 2022 to fulfill its PPP
obligation, another factor that exerts negative pressure on an
already tight liquidity position.
Durango's cash financing balance and GOB deteriorated in 2021 to
-3.6% of total revenues (the lowest value since 2017) and 9.4% of
operating revenues, respectively. Despite the weak liquidity
position and weak growth in total revenues (+0.8% in 2021), the
municipality has maintained higher total expenditure growth, both
capital and operating, which increased 12.8% in 2021. For
2022-2023, Moody's expects that Durango's cash financing balance
will remain negative at an average of -1.7% of total revenues
despite a projected slowing in capital spending and a rebound in
capital revenues. Moody's also projects a continued deterioration
in the GOB to average levels of 1% in 2022-2023, as a result of a
higher projected inflation in Mexico.
RATIONALE FOR THE NEGATIVE OUTLOOK
The recommendation to maintain the negative outlook reflects the
ongoing challenges that the municipality faces due to the extremely
tight liquidity, in light of the upcoming payments of the
short-term debt and the PPP, as well as challenges in improving
their financial performance.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental and social considerations are not material to
Durango's ratings. Durango has some exposure to natural disasters,
however, Mexican RLGs benefit from the support from higher
government orders in case of natural disasters of severe magnitude.
Additionally, Durango is the capital city of the state of Durango,
where economic activity is concentrated with lower dependence on
agriculture and an adequate supply of services to its inhabitants.
Its marginalization index is very low, based on the CONAPO.
Governance considerations are material to Durango's ratings. The
municipality complies with the institutional framework for Mexican
RLGs (Mexican Financial Discipline Law and the National Accounting
Harmonization Council). However, the municipality has weak
governance, especially in terms of management practices and
transparency, reflected in inconsistencies between the income
statement and the balance sheet as well as in the deterioration of
the operating and financial balances which have led to the
extremely tight liquidity position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, a rating upgrade in the short term is
unlikely. The outlook on the ratings could be stabilized if the
municipality honors all its obligations in a full and timely
manner, in conjunction with an improvement in liquidity and
financial results.
Conversely, the ratings could be further downgraded if Durango
fails to pay in a full and timely manner its short-term debt
obligations. Also, the persistence of negative cash financing
balances in conjunction with weak liquidity levels will likely lead
to a downgrade on issuer ratings.
The principal methodology used in these ratings was Regional and
Local Governments published in January 2018.
FORTALEZA MATERIALES: Moody's Affirms 'Ba3' CFR, Outlook Now Pos.
-----------------------------------------------------------------
Moody's Investors Service affirmed Fortaleza Materiales, S.A.B. de
C.V. (formerly Elementia, S.A.B. de C.V.)'s Ba3 corporate family
rating. At the same time Moody's changed the outlook to positive
from stable.
Ratings affirmed:
Fortaleza Materiales, S.A.B. de C.V.
Corporate Family Rating: Ba3
Outlook:
Changed to positive from stable
"The positive outlook reflects the strong rebound the company had
in 2021 that strongly positions it in its Ba3 global scale rating
and increases predictability in free cash flow generation
throughout a still uncertain economic environment," said Sandra
Beltran, a Moody's VP-Senior Analyst.
The outlook also reflects Moody's consideration that pro forma for
the proposed local notes (certificados bursatiles) Fortaleza will
reduce significantly refinancing risk, but it will continue with a
liability management strategy that will strengthen its liquidity
beyond 2022. At year-end 2022, Moody's projects total
debt-to-EBITDA will be 3.4x, on a consolidated basis.
During the Q3 2021, Elementia S.A.B. de C.V. closed a spin-off that
was approved by the board of directors in 2019. After the
transaction, Elementia, S.A.B. de C.V. remained the subsisting
company but changed its name to Fortaleza Materiales, S.A.B. de
C.V. (Fortaleza) and maintained the cement business operations; a
new company was created under the name Elementia Materiales, S.A.B.
de C.V., comprising operations of the spun off Metal Products and
Building Systems divisions. By the time of the spin off, Fortaleza
maintained close to 70% of Elementia's MXN16.2 billion debt. Debt
was distributed following cash generation criteria, considering
that in the 1H 2021 cement contributed with 63% of total EBITDA. At
the outset pf the spin off, the existing bondholders and lenders
benefited from cross default provisions, essentially retaining the
same access to cash flow. Therefore, Moody's rating was still based
on consolidated information of both, Fortaleza Materiales and
Elementia Materiales. By mid-2022, guarantees from Fortaleza to
Elementia Materiles debt will no longer be outstanding. Therefore,
Moody's will only consider Fortaleza Materiales stand-alone profile
going forward. Although most of Fortaleza's outstanding debt will
continue to benefit from guarantees of Elementia Materiales, the
proposed certifcados bursatiles will not.
RATINGS RATIONALE
Fortaleza's Ba3 rating reflects high resiliency in the cement
operations in both Mexico and the US, which together account for
the majority of the company's EBITDA. During the coronavirus
pandemic, cement was deemed an essential product in Fortaleza's
main markets and demand in Mexico remained solid given its focus on
the self-construction and high level of remittances. Infrastructure
projects in Fortaleza area of influence during 2021 also supported
volumes. In the US, construction experienced a brief halt after the
pandemic irrupted, but rapidly recovered supported by stable
construction demand and accommodative Federal Reserve policy. As a
result, volumes increased 9% in Mexico and 4% in the US during
2021. Given Fortaleza's strategy to focus on pricing, consolidated
revenues increased 9% during the period and the company was able to
sustain EBITDA margins at 28% despite cost pressures due to
increases in energy and raw material prices as well as overall
higher inflation. This positive operating performance also allowed
Fortaleza to continue to de-lever to 3.0 times in 2021 from 4.2
times in 2020.
Going forward, Moody's expects Fortaleza to continue to benefit
from positive momentum in the US. Moody's projects 1.67 million new
housing starts in 2022 and increasing to 1.71 million in 2023, an
8% increase from 1.58 million in 2021. Good economic backdrop
persists with US GDP to grow 3.7% in 2022 and by 2.5% for 2023 from
a 5.7% growth rate in 2021. Unemployment to decline to 4.2% in
2022. Likewise, nonresidential construction, which has shown
long-term stability, will continue to offer growth potential.
Moody's expects a 6.5% increase in US construction spending this
year, relative to 2021, with limited effects from the recently
passed infrastructure spending law until 2023. In Mexico, economic
environment will be challenged by sluggish investment. For 2022,
Moody's forecast of 3% growth is lower than the regional median of
3.5% and the Baa-rated median of 4.8%. Moody's attribute this
relative weakness to lower investment that is weighing on the
immediate economic recovery and limiting Mexico's growth potential
in the medium term. Nevertheless, Fortaleza will continue to
benefit from strong remittances that have sustained growth over the
past three years and will continue to be fueled by economic growth
in the US. Nevertheless, main risk continues to be related to cost
pressures. While the causes vary by country, higher food and energy
prices as well as currency depreciations all affect Fortaleza's
Latin American markets. Affordability of food, electricity and fuel
comprises a higher share of household budgets in these economies
than in the US, intensifying the effects of inflation. Supply
constraints will likely ease slowly, releasing some of the cost
pressures. Still we expect Fortaleza to maintain strict cost
controls and an adequate pricing strategy that will allow it to
protect profitability. Specifically, Moody's expects EBITDA margins
to remain above 25%.
Fortaleza's liquidity and cash generation has continued to improve,
mainly driven by the operational turnaround and the discipline in
capital spending. Nevertheless, in 2022 capex will increase to
MXN700 million as Fortaleza concludes some capacity expansions in
Mexico and Central America, leading to negative free cash flow
generation in 2022. As of December 2021, cash on hand totaled
around MXN1.9 billion, but is still not enough debt maturing in the
short term amounting MXN3.2 billion. Pro forma for the local notes,
Fortaleza will be able to reduce refinancing risk but external
funding will continue to be needed due to its capex plan and to
cover delisting costs considering the public offering to acquire
its shares launched on March 22, 2022. The company does not have
committed lines but has close to MXN2 billion available under
uncommitted lines. After Elementia prepaid in full its $425 million
dollar notes in 2021, foreign-exchange exposure has declined
significantly, as only 15% of total debt is US dollar-denominated,
which is completely hedged with EBITDA generation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade will require liquidity to improve significantly,
not only through the successful placement of the proposed local
notes but by securing funding needs for 2022-23 and extending
maturities beyond 2024. Quantitatively, the rating could be
upgraded if the company's operating performance improves such that
its adjusted debt/EBITDA remains below 3.5x and EBIT/interest
expense remains above 4x on a sustained basis.
The rating could be downgraded if economic activity takes longer
than expected to recover as a result of unexpectedly severe
external conditions related to supply chain disruptions or raw
material and energy costs. Quantitatively, a downgrade could occur
if adjusted debt/EBITDA increases above 4.5x with no prospects to
de-lever or if EBIT/interest expense declines to 2.0x. Any
significant deterioration in liquidity will also pose a threat to
the current rating.
The principal methodology used in these ratings was Building
Materials published in September 2021.
=================
V E N E Z U E L A
=================
PETROLEOS DE VENEZUELA: Expects Easing of Sanctions, Seeks Tankers
------------------------------------------------------------------
Mircely Guanipa and Marianna Parraga at Reuters reports that
Venezuela's state-run energy firm Petroleos de Venezuela, S.A.
(PDVSA) is in talks to buy and lease several oil tankers amid a
possible expansion in exports, according to three sources and a
document seen by Reuters, a sign the country expects U.S. sanctions
on its petroleum sector to be eased.
Russia's invasion of Ukraine has set off a global hunt for new oil
supplies, especially the heavy oil produced by Venezuela, according
to Reuters. A high-level meeting between U.S. and Venezuelan
officials in Caracas this month opened the door for talks over
sanctions imposed on PDVSA in 2019, which were later reinforced by
former U.S. President Donald Trump as part of his "maximum
pressure" campaign to oust Venezuelan President Nicolas Maduro, the
report notes.
The Trump administration's sanctions in 2020 led to a total cut of
export authorizations covering most foreign energy firms in joint
production with PDVSA, the report relays. The suspension left
companies including Chevron Corp (CVX.N), Eni SpA (ENI.MI) and
Repsol SA (REP.MC) with billions of dollars in unpaid dividends and
debts that had been settled through Venezuelan oil cargoes, the
report discloses.
Executives from PDVSA's maritime arm, PDV Marina, and the company's
Trade and Supply division recently met with several firms offering
tankers, the report notes. All were willing to take Venezuelan
crude or refined products as payment for the vessels, according to
the document and sources who spoke on condition of anonymity, the
report relays.
"PDVSA's tanker fleet is too short for any increases in oil
production for domestic refining or exports," one of the sources
said, the report discloses.
PDVSA did not reply to a request for comment.
Dilapidated Fleet
PDVSA's aging fleet, composed of about 30 owned tankers, has been
forced to mostly remain in Venezuelan waters after underinvestment
and lack of repairs for more than a decade, according to Refinitiv
Eikon data and sources, the report relays.
The country's crude oil and petroleum exports have tumbled under
U.S. sanctions, to about 650,000 barrels per day (bpd) last year,
from more than 1.5 million bpd in 2018, the report discloses.
The report relays that U.S. sanctions stopping PDVSA from renewing
its vessels' insurance and classification, which certifies they are
seaworthy, have in recent years curtailed the firm's ability to use
the ships for exports, leading it to rely largely on a group of
third-party tankers that often lift crude at Venezuelan ports,
sources and documents from the state company showed.
In one of the proposals seen by Reuters, a company whose name was
redacted from the document, offered five Aframax tankers, each with
the capacity to transport up to 700,000 barrels of oil, under a
lease contract with an option to buy them, the report says.
It required PDVSA to pay between $22,500 to $35,000 per day for up
to 12 months to lease each vessel under a time-charter contract,
the report notes. Those ships would progressively be replaced by
new ones after the first year with payment for the new tankers
through four million barrels of Venezuelan fuel oil valued at $300
million, according to the proposal, the report discloses.
That company also proposed to blur PDVSA's ownership of the new
tankers through a chain of intermediaries, which would reduce the
risk of retentions or seizures by the United States if sanctions
remained in effect, the report says.
PDVSA in 2020 offered to ship its own oil, figuring in the costs in
crude supply deals to help customers that struggled to hire vessels
due to U.S. sanctions, but the contracts were short-lived due to
lack of enough Venezuelan vessels, the report recalls.
The company that year also lost three of four very large crude
carriers it bought from China over payment disputes, the report
notes. Earlier this year, PDVSA had to send a crew to rescue the
remaining one, which was in distress for weeks in Asia, the report
relates.
Washington between 2019 and 2020 blacklisted vessel owners and
operators that carried Venezuelan oil, but in the last year has not
enforced similar maritime sanctions, the report says. Still, many
shipping firms continue to avoid Venezuelan waters because of the
U.S. measures, forcing large price discounts on the South American
country's oil, the report adds.
About PDVSA
Founded in 1976, Petroleos de Venezuela, S.A. (PDVSA) is the
Venezuelan state-owned oil and natural gas company, which engages
in exploration, production, refining and exporting oil as well as
exploration and production of natural gas. It employs around
70,000 people and reported $48 billion in revenues in 2016.
In May 2019, Moody's Investors Service withdrew all the ratings of
Petroleos de Venezuela, S.A. including the senior unsecured and
senior secured ratings due to insufficient information. At the
time of withdrawal, the ratings were C and the outlook was stable.
Citgo Petroleum Corporation (CITGO) is Venezuela's main foreign
asset. CITGO is majority-owned by PDVSA. CITGO is a United
States-based refiner, transporter and marketer of transportation
fuels, lubricants, petrochemicals and other industrial products.
However, CITGO formally cut ties with PDVSA at about February 2019
after U.S. sanctions were imposed on PDVSA. The sanctions are
designed to curb oil revenues to the administration of President
Nicolas Maduro and support for the Juan Guaido-headed party.
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X X X X X X X X
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[*] CARICOM: Gov't. Cooperation Needed to Tackle Food Security
--------------------------------------------------------------
Ria Chaitram at Trinidad and Tobago Newsday reports that the
conversation surrounding food security has captured the attention
of many sovereign states and more so for small island developing
states in the last three years or so.
The Covid-19 pandemic has forced the conversation forward and at
the recently concluded 37th Regional Conference for Latin America
and the Caribbean of Food and Agriculture Organization in Quito,
Ecuador, several Caricom heads called for a policy to address
rising food prices. Amid the ongoing Russia-Ukraine war, food
security was paramount for the region, they added, according to at
Trinidad and Tobago Newsday.
The idea of attaining regional food security was nothing new, said
Jamaican High Commissioner Arthur HW Williams, the report notes.
Business Day sat down with him at his office in St Clair to get an
insight into his country's perspective into the topic, the report
relays.
He said the region was well equipped to grow and produce many of
the foods imported and questioned why initiatives were not put in
place to form stronger bilateral and multilateral partnerships in
this regard, the report relates.
"We have all the infrastructure, synergies, we eat mostly the same
things across the Caribbean and so our food production can be
significantly enhanced, providing we agree to trade with each
other.
"Yes, Caricom has the master plan, but every territory must have
their own plan. Food security is an age-old problem, it did not
just arise with the pandemic and we as a region, as a people, are
not doing enough. Hopefully, the pandemic would have taught us that
we need to do more," he said, the report relays.
For instance, he said there was no need to import livestock because
the sector was capable of adequately meeting the demands, with the
right investments, the report relays.
"Why are we importing lamb? Do you know how much money the hotels
in Jamaica spend importing products like lamb? Why can't we dent
that market? Even if we cannot supply for the vast majority right
now; it would be a step towards production and the more we produce
the less we import," he added, the report discloses.
Additionally, he pointed out that farmers needed to be adequately
looked after to ensure that they were not discouraged from feeding
the region's population, the report notes.
Williams said too many times farmers were given promises for
investments and infrastructure, yet they continued to be neglected,
the report says.
"There are so many areas that one could look at in terms of
reducing the region's food import bill.
"We have to guarantee our farmers that when they go out to plant
they have somewhere to sell. Too often they have gone out, taken
their savings and invested in production and when the time came for
sales there were all kinds of sad stories (from commercial
buyers)," he relays, the report discloses.
So then, how can this be achieved? The FAO has reported the
agri-sector contributed between nine and 35 per cent of the gross
domestic product in Latin America and Caribbean states and 25 per
cent of their exports, the report says.
One sure way Williams said was regional co-operation, which was
also not a new concept and to use land space in the bigger
countries Guyana, and Suriname to grow food, the report relates.
"Guyana and Suriname with vast acreage of land can significantly
expand agricultural output. It is up to the ministers of
agriculture in the region to use the initiative of Caricom to
really set out a workable programme that will bind all the Caricom
countries to ensure that we substantially increase food production,
so we can see the reduction in our import bills," he said, the
report relays.
At the 33rd Inter-Sessional Meeting of the Conference of Heads of
Government in San Pedro, Belize earlier in March, Caricom Secretary
General Dr Carla Barnett said through various initiatives it was
hoped that regional food importation would decrease by 25 per cent
by 2025, the report says.
Also at that meeting, Guyana President Dr Irfaan Ali who heads
Caricom's quasi-Cabinet on agriculture, agricultural
diversification and food security, said a fund of US$100 million in
financing for the development of the agriculture sector should be
set up. The Trinidad-based Republic Bank will be offering this
facility, the report relays.
Williams said the target was not difficult to achieve but it
required Governments commitment and change in thinking, the report
discloses.
"I don't think it is all that difficult to achieve. What it
requires is the commitment of the governments to see it as a
priority and that it is a sector that they will not compromise on,"
the report relays.
"It is also going to require a change in mindset in the same way
that every ministry of government has to recognize that climate
change affects everybody. They have to recognise that food
production everything."
Williams said as sovereign states that chose to form and be a part
of an organization such as Caricom, actions and commitments needed
to be adhered to the various decisions taken, especially in the
agricultural sector, the report relays.
"It can be difficult, in the sense that our priorities are not the
same and it is not a one-size fits all but if we are committed as a
region, we can be a powerhouse," the report notes.
The geopolitical climate, Williams pointed out was unstable and as
the Russia-Ukraine war persists food and oil prices will likely
drive inflation even higher, the report says.
He added that as households struggled to recover from the pandemic,
further price increases in basic food items could exacerbate an
already volatile system of poverty and hunger, the report adds.
*********
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