/raid1/www/Hosts/bankrupt/TCRLA_Public/220701.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, July 1, 2022, Vol. 23, No. 125
Headlines
A R G E N T I N A
ARGENTINA: 2,800 Locals Slipping Into Poverty Every Day
ARGENTINA: IMF Completes Review of EFF Arrangement
VICENTIN SAIC: Public Opening of Bid Set July 13
B R A Z I L
BANCO BTG: Fitch Affirms 'BB-/B' Issuer Default Ratings
PETROLEO BRASILEIRO: Egan-Jones Retains BB Sr. Unsecured Ratings
TRANSPORTADORA ASSOCIADA DE GAS: Fitch Affirms BB Foreign Curr. IDR
XP INC: Fitch Affirms BB- Issuer Default Ratings, Outlook Negative
C A Y M A N I S L A N D S
VANTAGE DRILLING: COO Douglas Halkett to Step Down After 14 Years
M E X I C O
MEXICO: Central Bank Raises Benchmark Interest Rate to 7.75%
P E R U
PERU: Central Bank Cuts GDP Projection, Sees 6.4% Inflation
U R U G U A Y
URUGUAY: To Import Brazilian Meat
- - - - -
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A R G E N T I N A
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ARGENTINA: 2,800 Locals Slipping Into Poverty Every Day
-------------------------------------------------------
Gonzalo Martinez at Buenos Aires Times reports that with runaway
inflation hitting basic food prices particularly hard in Argentina,
private estimates are already warning that by midyear a further
half-million people will have fallen into poverty in 2022.
"The average in the first half of this year, despite the economic
aid provided, will push poverty up to around 39 percent [of the
population]," explains Agustín Salvia, the director of the
Observatorio de la Deuda Social ("Social Debt Observatory") of UCA
Catholic University, according to Buenos Aires Times.
The expert warns that the figure is only prevented from rising
further thanks to the various systems of social assistance that
come via money transfers, the report notes.
According to the data from the INDEC national statistics bureau,
poverty in urban centres in the second half of 2021 reached 37
percent of the population - close to 11 million people, the report
relays. A rise to 39 percent would equate to half a million more
poor people in the first half of this year, the report notes.
This means 2,800 people a day - or 83,000 every month - are
swelling the ranks of the impoverished and ceasing to belong to the
middle class historically representing social mobility in
Argentina, the report discloses.
The troubling data arrives within the framework of a country that
has suffered from double-digit annual inflation for several years
now, the report says. Last month's inflation was 5.1 percent, or
29.3 percent so far this year, with most private economists
expecting the final 2022 figure to top 70 percent, the report
notes.
'Consequence of inflation'
"The current situation marks a new increase in poverty levels as a
consequence of the impact of inflation on household incomes. This
not only means that there are probably more homes below the poverty
line but also worsens conditions for those already poor," Juan
Ignacio Bonfiglio, a researcher with the Observatorio de la Deuda
Social Argentina, said in an interview, the report notes.
In the first three months of the year alone, the income needed to
be above the poverty line rose 16.9 percent, with a further 19.7
percent needed to avoid destitution, the report says. INDEC's
total wage index, however, increased only 14.3 percent through to
March while inflation was 15.3 percent in the same period, the
report discloses.
While official wage data has not yet been updated for April, the
situation is not favorable, the report notes. During the first
four months of the year, INDEC's basic shopping-basket to stay
above the poverty line rose 23.1 percent and to avoid destitution
26.4 percent, with inflation of 21.3 percent over that period,
including a 25.5 percent rise for food and beverages, the report
relays.
Last year's encouraging reduction of poverty, due to an economic
rebound of 10.3 percent, has now been pulverized with the panorama
for the rest of the year failing to offer hope, the report
recalls.
"Nobody is projecting 2022 inflation below 70 percent. Many of us
ask ourselves whether, once the dollar starts moving and public
service billing is updated, the dynamics will not be closer to an
inflation of 100 percent than 70," said Guido Lapa, who teaches
economics at University of Buenos Aires, the report notes.
"This has a direct repercussion on poverty because it increases the
cost of living and wages, whether formal or informal, lose out
against this kind of inflation. On the other hand, the gap between
informal and formal earnings is ever wider," he added.
"With that 70 percent poverty is anyway close to 40 percent, only
prevented from reaching or topping that level, I insist, thanks to
the systems of social assistance," agreed Salvia. "In the final
balance, we will probably see a new fall in real wages with a low
creation of full employment because much of that employment has
already been generated and the economy is slowing down," the report
relays.
The expert says that "social assistance must be maintained in order
to preserve political and institutional balance," warning that
without it, Argentina could face greater social unrest, the report
notes.
"There are high levels of consumer spending due to the high
inflation but that consumption is fundamentally concentrated in the
middle class. The self-employed and informally employed are running
behind inflation so that an increase in socioeconomic inequality is
to be expected," said Salvia, the report discloses.
Worryingly, economist Eduardo Fracchia of Austral University
estimates that with these levels of inflation and economic
activity, "poverty will be close to 50 percent by next year's
elections," the report says.
Poor Workers, Little Protection
The wages of the informally employed rose 10 percent in the first
quarter of this year as against 16.9 percent for the
shopping-basket needed to stay above the poverty line, the report
notes. The sector represents 23.5 percent of the total workforce,
with the self-employed making up 25.9 percent, the report
discloses.
"It is common to link poverty to situations of unemployment and
economic inactivity, given that in these cases they do not have the
working wage which permits them to cover the economic needs of
households and thus stay above the poverty line," said Bonfiglio.
"Nevertheless, poverty is also reaching an important percentage of
workers, even if for some time the focus has been on falling real
wages and household incomes. Since this increasingly affects the
workers who are registered, it must be highlighted that this is a
key structural element for most poor workers with informal or
precarious jobs which in large measure explains the persistence of
poverty," the report relays.
Unlike other periods in an Argentina of social mobility, such
projections warn that having a job today is no guarantee against
being poor, the report notes.
According to a recent report prepared by UCA's observatory, in
conjunction with Caritas Argentinas, 60 percent of Argentines have
experienced poverty since 2010, the report says.
The document, entitled Radiografía de la pobreza Argentina, ¡es
urgente acortar distancia!, also pointed out that throughout the
last decade 30 percent of the population has never stopped being
poor. It also underlined that one out of every 10 Argentines
experience hunger daily, the report discloses.
According to its findings, around 60 percent of the population is
working in a "precarious job" or is unemployed, the report notes.
Another survey released this month, the Monitor del Clima Social
del Centro de Estudios Metropolitanos (CEM), detailed that 53
percent of the people surveyed in the Buenos Aires Metropolitan
Area (AMBA) had reduced their diets because they did not have
enough money to buy food. Just over 60 percent of respondents
affirmed that their wage or family income did not allow them to
make it to the end of the month, 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$44 billion).
Under the new terms, Argentina secured a much-needed grace period
that postpones repayment of its debt. However, IMF warned of
exceptionally high risks to the program.
ARGENTINA: IMF Completes Review of EFF Arrangement
--------------------------------------------------
The Executive Board of the International Monetary Fund (IMF)
completed the first review of the extended arrangement under the
Extended Fund Facility (EFF) for Argentina. Against the backdrop of
increased global uncertainties, the Executive Board assessed that
all end-March 2022 and continuous performance criteria and
indicative targets were met, and that initial progress was made on
the structural front. It also welcomed the authorities' commitment
to implement policies consistent with the unchanged annual program
objectives. The Executive Board's decision enables an immediate
disbursement of SDR 3 billion (about US$ 4.01 billion) and marks
the conclusion of an important initial step under the program which
aims to support Argentina's ongoing economic recovery, strengthen
macroeconomic stability, and begin to address its deep-seated
challenges.
Argentina's 30-month EFF arrangement, with access of SDR 31.914
billion (equivalent to US$44 billion, or about 1000 percent of
quota), was approved on March 25, 2022 (see Press Release No.
22/89). The authorities' IMF-supported program provides Argentina
with balance of payments and budget support that is tied to
specific measures to strengthen public finances, tackle persistent
high inflation, boost reserve accumulation, and set the basis for
more sustainable and inclusive economic growth.
Following the Executive Board discussion on Argentina, Ms.
Kristalina Georgieva, Managing Director, issued the following
statement:
"The Argentine economy is continuing its post-pandemic recovery,
but is being affected by shocks associated with the war in Ukraine
and broader global uncertainties. Higher global food and energy
prices are adding to inflation pressures and challenging fiscal and
reserve accumulation goals. Notwithstanding these shocks, the
authorities met all end-March 2022 quantitative targets and have
made progress toward implementing the structural commitments under
the program.
"The authorities recognize the importance of investing in economic
stability and maintained the end-year program objectives with some
flexibility in the quarterly paths to accommodate the shocks. To
this end, the recently modified 2022 budget reprioritizes spending
to accommodate higher energy subsidies and appropriate social
assistance to protect the vulnerable from the food price shock.
Adhering to the primary fiscal deficit target of 2.5 percent of GDP
in 2022 is essential to moderate domestic demand, limit monetary
financing of the deficit, and support reserve accumulation, and
will require steadfast implementation and monitoring of budget
commitments. Sustained efforts are also needed to improve tax
compliance, reduce energy subsidies, and strengthen public
financial management.
"The authorities remain committed to the agreed multi-pronged
strategy to tackle persistent high inflation, including by
continuing to normalize policy interest rates consistent with
achieving positive real interest rates. Steadfast implementation of
the enhanced monetary policy framework will be essential to
encourage demand for peso assets, preserve external
competitiveness, and support unchanged end-year reserve
accumulation targets.
"In the context of recent market volatility, efforts to strengthen
and deepen the peso debt market-which is an essential pillar of the
30-month EFF- remain critical, alongside steadfast implementation
of fiscal targets. In addition, ensuring the timely delivery of
financial commitments from Argentina's international partners is
vital to help boost reserve buffers and support reform efforts.
"Continued progress is needed in implementing the structural reform
agenda, including to strengthen public expenditure management,
central bank finances, the AML/CFT regime, as well as the
development of key sectors through enhancements in the
predictability and effectiveness of regulatory frameworks.
"Decisive implementation of program policies will be critical to
support Argentina's economic recovery, strengthen macroeconomic
stability, and make further progress in addressing its deep-seated
challenges to set the basis for more sustainable and inclusive
growth."
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.
VICENTIN SAIC: Public Opening of Bid Set July 13
------------------------------------------------
The opportunity to bid for Vicentin Saic's Agro-industrial complex
in Argentina is set for July 13, 2022. Bid maybe presented to
acquire the total share issue of the corporation.
Vicentin SAIC's main activity focuses on agro-industrial
activities.
===========
B R A Z I L
===========
BANCO BTG: Fitch Affirms 'BB-/B' Issuer Default Ratings
-------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign and Local Currency
Issuer Default Ratings (IDRs) of Banco BTG Pactual S.A. (BTG
Pactual) and BTG Pactual Holding S.A. (BTGH) at 'BB-'. The Outlook
on the IDRs is Negative. Fitch has also affirmed BTG Pactual and
BTGH's National Ratings at 'AA(bra)' with a Stable Outlook.
Fitch has withdrawn BTG Pactual and BTGH Support Rating of '5' and
Support Rating Floor of 'NF' as they are no longer relevant to the
agency's coverage following the publication of its updated Bank
Rating Criteria on Nov. 12, 2021. In line with the updated
criteria, Fitch has assigned a Government Support Rating of 'ns' to
both entities.
KEY RATING DRIVERS
BTG Pactual VR, IDRS, NATIONAL RATINGS
Operating Environment Revision: Fitch revised the OE mid-point to
'bb-' from 'b+', in line with the implied score as per Fitch's
criteria and despite the recent challenges of the Brazilian
economy, in consideration of the historical resilience and stable
performance of the financial system in times of stress. However,
the score remains on Negative Outlook, mirroring the country's
sovereign rating, as a marked deterioration in the sovereign rating
profile would likely be associated with economic dislocations and
weaker business prospects.
Ratings Driven by VR: The IDRs and National Ratings are driven by
BTG Pactual's standalone creditworthiness, as measured by its
Viability Rating (VR) of 'bb-'. BTG Pactual's ratings are
underpinned by its solid domestic franchise and a well-diversified
product mix that has supported a good record earnings resilience
even under a more unstable operating environment.
The affirmation of the ratings also took into consideration
management's well-succeed execution of the bank's strategy to
solidify more durable sources of revenues and meaningful
improvements towards its overall funding franchise over the past
four years. BTG Pactual's ratings further includes its solid
risk-management infrastructure and conservative lending standards,
better-than-peer capital buffers, and adequate funding and
liquidity profiles.
Growing Business Diversity: Supporting today's affirmation is the
bank's improving revenue and pre-tax profit mix. The ramp-up of BTG
Pactual's digital bank combined with selected acquisitions of
independent asset-management platforms and the continued progress
on its funding franchise have been additive for the bank's
investment management (IM, Asset and Wealth Management) and
corporate lending (CL) businesses. Management's ability to execute
on its objective of better balancing the contribution of lower-risk
sources of revenue was accompanied by strong growth of CL (+134%
since end-1Q20, to BRL111.4 billion at end-1Q22) and IM business
volumes (+143%, to BRL1.0 trillion).
Their combined revenue contribution grew by BRL2 billion in FY21
when they accounted for around 37% of total revenues (up from 27%
in FY19). Banco Pan, BTG Pactual's retail subsidiary fully
consolidated since mid-2021, further adds to BTG Pactual's overall
business diversification.
Business Profile Score Revised: The bank's strengthened commercial
franchise has supported the revision of Fitch's business profile
score on BTG Pactual to 'bb'. Relative to larger domestic peers,
BTG Pactual generates a significant proportion of non-interest
income such as fees and commission income and Sales & Trading (S&T)
income, which combined accounted for 67% of operating income at FYE
2021.
Fitch views some of the fee income, such as base fees from the IM
businesses (20% of revenues), to be reasonably stable as it is
largely tied to the volume of assets under management. Investment
banking related fee income (17%) and S&T (31%) may be more
variable, although S&T income has been profit making in all of the
previous 10 years (with the weakest year in FY18 reaching a sound
8% of total equity) and has at times performed better in periods of
high asset-price volatility.
Overall Improved Risk Profile: Fitch has also revised the bank's
risk profile score to "bb" due to improved lending diversification
and lower capital sensitivity to market-risk relative to previous
years. BTG Pactual's risk profile is assessed as moderate
reflecting the bank's conservative lending standards towards
top-tier domestic companies and a well-developed market-risk
management that has historically allowed it to avoid meaningful
revenue volatility within its S&T segment.
Exposure to trading assets and liabilities remains larger compared
to the sector average but the bank's exposure to market-risk has
materially decreased over the past 12 quarters. Market Risk
Weighted Assets (RWAs) went down to BRL39 billion (or 15% of total
RWAs) at end-1Q22 from its peak of BRL63 billion (49% of total
RWAs) at end-2Q19 driven by a larger share of client fee and
flow-based activities and BTG Pactual's active risk management.
Market-Risk remained low during crisis (average daily VaR as a
percentage of average equity of 0.29% in FY21) while maximum VaR
levels remained well below threshold limits.
BTG Pactual's lending risk profile has been resilient over the
cycles reflecting the bank's credit appetite being oriented to
large corporates within stable sectors in the context of the
domestic economy. This has helped to better defend asset-quality
during past crisis as well as to limit its equity sensitivity to
loan impairment charges fluctuations. BTG Pactual's credit risk
profile results in above peer concentration in respect to single
borrowers although these have been trending down over the past
couple of years. At end-1Q22, the bank's 10 largest debtors
represented 16% of total lending down from 25% at end-2020. BTG
Pactual's retail footprint through Banco Pan (13% of assets) has
comparably weaker impaired ratios but helps to add borrower
pulverization given its secured retail lending profile.
Asset-Quality Pressures Contained: BTG Pactual's impaired assets
ratio of 5.6% at end-March 2022 improved relative to pre-pandemic
levels (7.6% at end-2019) even considering the full consolidation
of Pan during 2021. This reflected strong loan growth, coupled with
a better lending risk composition and the write-off of legacy
loans. In Fitch's view, BTG Pactual's BRL3.1 billion in allowance
for loan losses at end-March 2022 is adequate to absorb medium term
losses without presenting a material challenge to earnings or
solvency in light of its current lending exposures.
Adequate Capitalization, Sound Internal Capital Generation: BTG
Pactual is adequately capitalized for its risk profile supported by
good earnings retention. Earnings & Profitability is rating
strength evidenced by the bank's operating profit /RWA of 4.2 % in
1Q22 (four-year average of 3.0% ended in FY21). At end-March 2022
the regulatory common equity Tier 1 (CET1) ratio of 13.1% compared
well by national standards and Fitch expects this to be maintained
in the medium term in line with the bank's presented capital plan.
The equity-to-asset ratio was also sound at around 11% at end-March
2022.
Improved Deposit Structure: Today's action is also supported by
Fitch's expectation around BTG Pactual's funding structure and
liquidity management. Although BTG Pactual continues to rely more
on wholesale funding than some higher rated peers, Fitch positively
views the way in which management has built out the bank's deposit
gathering capabilities, particularly within the wealth management
segment.
Also, the consolidation of its retail digital bank has materially
expanded the bank's deposit franchise and improved funding cost and
mix. Notably, deposits and Letras (likewise deposits) grew 3.3x
since 4Q19 and now accounts for 76% of total client funding.
Deposits from households, accessed since end-2018, represented 33%
of total funding at end-March 2022. Moreover, the bank continues to
report a robust liquidity coverage ratio over 166%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Rating downside would be primarily contingent on a downgrade of the
Brazilian sovereign rating. BTG Pactual's VR could also suffer if
regulatory capital ratios approach the minimum requirements, due to
a combination of asset quality deterioration or weakening of
profitability. Exceptionally strong performance of the bank's
capital markets business that dilutes IM and CL contribution to the
bank's results would not necessarily be viewed negatively provided
the company maintains a conservative risk appetite.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Rating upside would be contingent on an upgrade of the Brazilian
sovereign rating, but currently has a limited upside potential, as
its VR captures specific operating environment constraints.
OTHER DEBT AND ISSUER RATINGS:
KEY RATING DRIVERS
SENIOR UNSECURED, HYBRIDS
BTG Pactual's senior unsecured issuances are in line with its IDRs.
The probability of default of any senior obligation is tied to that
of the bank (reflected in the Long-Term IDR), as a default of
senior obligations would be treated by the agency as default by the
entity.
BTG Pactual's subordinated notes maturing in September 2022 are
rated two notches below its VR of 'bb-' reflecting one notch for
the characteristics of loss severity and subordination and one
notch for the moderate non-performance risk.
The subordinated notes eligible as Tier 2 capital due in 2029 are
rated two notches below BTG Pactual's VR of 'bb-'. The notching is
driven by the notes' high expected loss severity. No notching for
non-performance is applied because coupons are not deferrable and
the write-off trigger is close to the point of non-viability. As a
result, Fitch believes that the incremental non-performance risk is
not material from a rating perspective.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
BTG Pactual's senior debt ratings would move in line with the
bank's IDRs. Subordinated debt and hybrid ratings would be
sensitive to changes in the bank's VR and maintain the relativity
in respect to this anchor rating.
SUBSIDIARIES & AFFILIATES:
KEY RATING DRIVERS
BTGH - VR, IDRS, NATIONAL RATINGS
BTGH Ratings Equalized: BTGH is a pure holding company and its
Long-Term and Short-Term IDRs and National Ratings are the same as
those of BTG Pactual, its main operating subsidiary (directly
controls 76.5% of BTG), due to its moderate leverage and the
favorable regulatory framework for financial groups in Brazil. The
equalization of the ratings is based on the high correlation
between the probability of default for BTGH and the bank. Both are
incorporated in the same jurisdiction and are supervised by the
Brazilian authorities. The holding company's double-leverage ratio
was moderate.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
BTGH's IDR and National Ratings would remain at the same level as
BTG Pactual and would move in tandem with any rating actions on its
main operating subsidiary. However, a material and sustained
increase in BTGH's double-leverage metrics (above 120%), would be
negative for ratings. Additionally, a change in the dividend flows
from the operating companies or debt levels at the holding company
that affects its debt coverage ratios could also be detrimental to
its ratings.
VR ADJUSTMENTS
The Asset-Quality of 'bb-' has been assigned above the implied 'b'
Asset Quality Score due to the following adjustment reason:
Underwriting standards and growth (positive).
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.
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 BTG . LT IDR BB- Affirmed BB-
Pactual S.A
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(bra) Affirmed AA(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
Viability bb- Affirmed bb-
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government ns New Rating
Support
senior LT BB- Affirmed BB-
unsecured
subordinated LT B Affirmed B
BTG Pactual LT IDR BB- Affirmed BB-
Holding S.A.
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(bra) Affirmed AA(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government ns New Rating
Support
PETROLEO BRASILEIRO: Egan-Jones Retains BB Sr. Unsecured Ratings
----------------------------------------------------------------
Egan-Jones Ratings Company on June 24, 2022, retained 'BB' foreign
currency and local currency senior unsecured ratings on debt issued
by Petroleo Brasileiro S.A. - Petrobras. EJR also downgraded the
rating on commercial paper issued by the Company to B from A3.
Headquartered in Rio de Janeiro, State of Rio de Janeiro, Brazil,
Petroleo Brasileiro S.A. - Petrobras explores for and produces oil
and natural gas.
TRANSPORTADORA ASSOCIADA DE GAS: Fitch Affirms BB Foreign Curr. IDR
-------------------------------------------------------------------
Fitch Ratings has affirmed Transportadora Associada de Gás S.A.'s
(TAG) Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) at 'BB' and 'BBB-', respectively, and the Long-Term National
Scale Rating at 'AAA(bra)'. The Rating Outlook for the IDRs is
Negative, while the Outlook for the National Scale Rating is
Stable.
The ratings reflect TAG's solid business model, supported by
long-term contracts with no volumetric risk and the low risk
profile of the gas transportation industry in Brazil, which
provides healthy protection of company revenues, and thus, high
margins with strong and stable operating cash flows. TAG's IDRs are
restricted by the Brazilian operating environment.
Fitch expects TAG to sustain its robust credit profile, even in a
distressed economic environment, given moderate capex, high FCF and
sharp deleveraging capacity. Fitch projects TAG's conservative net
financial leverage reducing by 2023 despite relevant dividends
distributions and assumption of neutral impact from the updated
regulatory framework of the gas industry in Brazil. The Negative
Outlook for the IDRs follows the sovereign rating.
KEY RATING DRIVERS
Strategic Asset for Brazil: TAG operates a strategic pipeline
network for the country's infrastructure in the northern,
northeastern and southeastern regions of Brazil. Gas distributors
in those regions rely on TAG's infrastructure to receive natural
gas. The infrastructure is also important as it connects the
southeast gas transportation network, which is crucial for industry
operational flexibility, particularly after pending industry
regulatory updates.
Low Industry and Business Risk: TAG's operating cash generation is
sound and supported by five, inflation-indexed, long-term gas
transportation agreements (GTA) with Petroleo Brasileiro S.A.
(Petrobras; BB-/Negative), with the closest maturity in 2025. TAG
has 100% of its transportation network capacity contracted, which
excludes volumetric exposure despite a utilization rate of around
60% on average, with peak periods reaching approximately 90% of
capacity utilization.
Part of the company's tariff is also U.S. dollar-linked and updated
annually. As such, TAG is not subject to any demand exposure until
the expiration of its first contract, which accounts for
approximately 24% of its total revenues, resulting in high
predictability of performance that supports its consistent
deleveraging capacity of net debt-to-EBITDA of 1.2x by 2026 from
3.0x by the end of March 2022.
Solid Cash Flow from Operations: TAG's EBITDA grew to BRL5.98
billion (based on Fitch's calculation) in 2021 and is expected to
grow to BRL8.0 billion by 2026 with margins averaging 85% over the
forecast period. Fitch's base case scenario considers annual cash
flow from operations (CFO) at BRL4.4 billion-5.3 billion in the
next five years compared to BRL5.1 billion as of the last 12 months
(LTM) ended March 2022, which is sufficient to support the
forecasted annual average capex of BRL450 million and relevant
dividends of BRL1.6 billion. Average annual FCF is projected at
BRL2.7 billion between 2022-2026.
Guarantee Structure Mitigates Petrobras Concentration Risk: TAG is
exposed to concentration risk with Petrobras as the single
counterparty to the GTAs. The guarantee structure mitigates this
risk as it includes the receivables from Petrobras' gas
distributors and thermal power plant clients that must represent at
least 120% of the monthly payment to TAG. The credit profile of the
gas distributors is robust, which mitigates default and
concentration risk also considering the priority of gas supply
payment. The possibility of gas supply discontinuity by Petrobras
to its customers (gas distributors) is reduced, since there are
limited alternatives for the oil company to sell gas to other
buyers.
Neutral Regulatory Changes: Fitch estimates a greater opening of
the gas market in Brazil due to Petrobras' asset sales in the
industry and recent regulatory changes that stimulate gas supply
competition. The existing transportation contracts between TAG and
Petrobras remain unchanged, and TAG's business model continues to
be solid. The potential reduction of gas prices to the final
consumer should increase gas consumption and production in Brazil
in the coming years and strengthen the relevance and capacity use
of TAG's assets.
DERIVATION SUMMARY
TAG's sound business profile with robust and stable cash flows is
very similar to that of other Fitch-rated midstream companies in
the Latam region such as the Brazilian electric power transmission
company Transmissora Alianca de Energia Eletrica SA (Taesa;
BB/Negative), the gas transportation company, Transportadora de Gas
Internacional S.A. E.S.P.'s (TGI; BBB/Stable), based in Chile, and
Transportadora de Gas del Peru S.A. (TGP; BBB+/Stable), based in
Peru. All of them have low business risk profiles, predictable
revenues and robust cash flow generation, with limited demand risk
exposure given revenue based on available infrastructure capacity
under long-term contracts. These are characteristics of both power
transmission and gas transportation companies under regulated
industries. These companies also present strong credit metrics.
The main difference between the IDRs of Brazilian-owned companies,
TAG and Taesa, and their regional peers is the revenue-generating
country and assets' geographic location. Although TGP and TGI are
in investment-grade countries, TAG's and Taesa's ratings are
negatively affected by Brazil's Country Ceiling of 'BB' and its
operating environment.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
-- Revenues based on contracted amounts and adjusted annually by
inflation with part of tariffs linked to exchange rate
indices, according to GTAs;
-- Operating and maintenance costs before depreciation and
amortization representing 16% of net revenues in 2022 with a
reduction to 14.5% in 2023;
-- Average capex of BRL450 million between 2022 and 2026;
-- Dividend distribution at an annual average of BRL1.64 billion
over the 2022 to 2026 period;
-- Tax benefit use until 2023, with full tax payments assumed
thereafter.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade to the ratings of Brazil;
-- An upgrade on the National Long-Term Rating does not apply as
it is at the top of the national scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of the ratings of Brazil;
-- A weakening of Petrobras' receivables guarantee structure with
clients that deposit into a collection account;
-- A sustained increase in the net leverage ratio above 3.5x;
-- Regulatory or contractual changes affecting the fundamentals
of the gas transportation industry or TAG's business model.
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
Manageable Liquidity: TAG's liquidity profile is expected to lead
to moderate to weak ratios, as measured by cash/short term debt.
This is mitigated by its sound and resilient cash flow from
operations (CFO) generation, which supports its strong debt and
capital markets access to various sources of financing. TAG's cash
and marketable securities position was BRL1.9 billion as of March
31, 2022, low relative to BRL3.3 billion of debt coming due in
2022. TAG has a manageable debt amortization schedule and a
committed credit line of BRL500 million with Banco Bradesco S.A. to
support temporary FX mismatches between its annual tariff
adjustment and U.S.-dollar-denominated debt's semi-annual
amortization.
TAG's total debt was BRL21 billion at March 31, 2022, consisting of
debentures totaling BRL11 billion and a BRL10 billion U.S. dollar
facility. The company has a natural hedge for its FX exposure as
two of its GTAs include tariff adjustments linked to U.S. dollar
variation. The company is subject to net debt/EBITDA financial
covenants below 4.0x in 2021 and 3.5x thereafter after accounting
for around BRL1.5 billion-BRL1.9 billion of parent credit
guarantees, which cover six months of debt amortization.
ISSUER PROFILE
TAG is headquartered in Rio de Janeiro and operates the most
extensive transportation network of gas pipelines in Brazil
consisting of approximately 4,500 kilometers of pipeline,
corresponding to 47% of the country's gas transport infrastructure
primarily in the north and northeast part of Brazil. TAG's network
includes 11 gas compression stations, 14 entry points (including
two connected liquefied natural gas terminals), and 90 delivery
points to 10 natural gas distributors.
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
---- ------ -----
Transportadora LT IDR BB Affirmed BB
Associada
de Gas S.A. - TAG
LC LT IDR BBB- Affirmed BBB-
Natl LT AAA(bra) Affirmed AAA(bra)
XP INC: Fitch Affirms BB- Issuer Default Ratings, Outlook Negative
------------------------------------------------------------------
Fitch Ratings has affirmed XP Inc.'s Long-Term Local and Foreign
Currency Issuer Default Ratings (IDRs) at 'BB-' with a Negative
Rating Outlook. At the same time, Fitch has affirmed XP
lnvestimentos SA (XPI) and Banco XP SA's (Banco XP) National
Ratings at 'AA(bra)' with a Stable Outlook.
KEY RATING DRIVERS
The ratings are highly influenced by XP Inc.'s strong business
profile and leading retail brokerage franchise in Brazil, including
a well-developed open architecture distribution business. The
company's critical mass and sound pricing power continues to
translate into strong financial metrics. These factors are weighted
alongside its organizational structure, comprising several layers
of intermediate holding companies. Fitch views the less
straightforward structure as somewhat negative since, under Fitch's
criteria, it increases the complexity of the company's overall
business profile assessment.
The ratings also consider the high influence of the company's sound
profitability through the cycles. Fitch believes that the operating
environment exerts a high influence on XP Inc.'s ratings and
prospects, particularly in relation to the company's domestic
clients and operations.
XP Inc.'s Operating Environment Score (OE) is the same as the
Brazilian banking system's, given the market in which it operates
and the characteristics of Grupo XP's business profile. Fitch
revised the OE score to 'bb-' from 'b+' to reflect the banking
system's resilient performance despite recent challenges to the
Brazilian economy. The Negative Outlook for XP Inc.'s ratings is
driven by the OE, which mirrors Brazil's sovereign rating of 'BB-'
with a Negative Outlook.
XP Inc.'s solid business model has evolved into a full service
financial firm catering to the needs of mass market retail
investors. The company's robust technological platform and strong
brand reputation are key competitive advantages over domestic
banks. XP Inc.'s competitive edge easily connects bank and asset
managers financial and investment products to a large pool of
retail clients. The one-stop solution gives XP Inc. a tool to
escalate its business at a low marginal cost and should continue to
support stability of earnings.
XP Inc.'s ratings also consider with moderate influence the
"Management and Strategy" factor. The administration has
considerable depth, experience and credibility, as evidenced by the
successful execution of its rapid customer driven growth combined
with an increasing share of wallet of existing clients. The company
also managed to diversify its geographical footprint through
offices in New York, Miami and Europe supporting its distribution
capabilities. Fitch believes XP Inc.'s culture of innovation and
its relationship with the customer has reinforced its reputation
and brand in the market.
The risk profile incorporates the likelihood of operational, cyber
and reputational risk, although this has to date been well-backed
by XP Inc.'s highly sophisticated risk management framework. XP
processes are highly automated controls are sound and well
supervised by the domestic regulator. The strong risk control
framework supports the minimal operational losses to date. The risk
profile assessment also comprises XP Group's aggressive growth
appetite and levels, including inorganic expansion, which has been
key to a sustainable increase in its franchise in the context of
high liquidity and low leverage.
The financial profile is strong and continues to develop given the
company's good execution. Profitability is sound as evidenced by
company's pre-tax return on equity of 23.6% in 1Q22, 30.2% 2021 and
26.8% in 2020 (3YE average at 30.1%). Financial Intermediation,
management fees and commissions represent XP Inc.'s primary sources
of income. While this income stream is sensitive to client volumes
and to a lesser extent changes in asset prices, it has proved
resilient under most market conditions.
Fitch views the credit risk in XP Inc.'s loan portfolio as modest
but increasing due to the portfolio's rapid growth. The loan
portfolio is small relative to its equity. The company created its
bank in 2019 and is already offering credit cards and
collateralized credit, so Fitch will continue monitoring the
evolution of the entity's asset quality.
Fitch views liquidity and funding diversity as solid when compared
to other NBFIs. Liquid assets cover a large part of the company's
short-term debt. Liquid assets/short-term funding (excluding
deposits) represent 278% in 1Q22 (3YE Average at 230%). The bank
has helped the group increase its stable retail deposit base. The
deposit base was BRL14.1 billion on March, 2022, BRL9.9 billion in
2021 and BRL3.0 billion in 2020. The core metric for the bank's
criteria is loan/customer deposits, which was 125% in 2021 and 98%
in 2020.
Following the opening of the banking subsidiary, the company was
able to grow its funding sources for the retail segment. XP Inc.'s
leverage was adequate, tangible assets - repos-securities borrowed/
tangible equity was 4.9x in 1Q22. The CET1 of the prudential
conglomerate of the financial institutions on the XP Group was 16%
in December 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
XP Inc. - IDRs
-- Further changes in Brazil's ratings or Outlooks or in Fitch's
assessment of the OE;
-- Relevant losses, which bring some damage to the company's
image and/or worsen operating results, in addition to greater
leverage, with greater risk on-the-balance sheet can
negatively affect the ratings;
-- If the company starts to show volatility in earnings and
profitability metrics.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
XP Inc - IDRs
-- Further changes in Brazil's ratings or Outlooks or in Fitch's
assessment of the OE;
-- In the medium to long term, a relevant evolution of XP Inc.'s
business profile, a substantial improvement in business model
diversification, and a relevant strengthening of the franchise
with better visibility of the organization's structure that
could enable the entity to service its obligations in an event
of a sovereign default.
DEBT AND OTHER INSTRUMENT RATINGS:
KEY RATING DRIVERS
XP Inc.'s unsecured senior notes rating is equalized with the
Long-Term IDR, as the probability of default is the same as that of
the entity. The notes will also rank pari passu with other senior
unsecured obligations.
DEBT AND OTHER INSTRUMENT RATINGS:
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- XP Inc.'s senior unsecured debt ratings are sensitive to a
change in its IDR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- XP Inc.'s senior unsecured debt ratings are sensitive to a
change in its IDR.
SUBSIDIARY AND AFFILIATE RATINGS:
KEY RATING DRIVERS
XPI and Banco XP
The national ratings for XPI and Banco XP are based on XP Inc.'s
support. Fitch mainly considers as core the role in the group the
subsidiaries play for the strategy of XP Inc. It also considers
with moderate importance the high degree of operational integration
and joint management of related entities with XP Inc, among other
factors. Fitch also considers the central role played by the bank
in the group's business diversification and funding strategy to be
highly important.
XPI is an operating holding company that consolidates the group's
investments in Brazil. Fitch considers the high correlation between
the default probability of XPI and XP Inc.
Banco XP is highly integrated with XP Inc. and, despite its still
moderate representation, in the total assets (around 19%), it is
very important in the business model and group development
strategy. Its business model, fully integrated into the group, is
aimed at offering banking products, especially credit cards and
collateralized loans with investment guarantees from the XP Inc.'s
customers, in addition to being the group's funding arm in the
market.
SUBSIDIARY AND AFFILIATE RATINGS:
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
XPI and Banco XP - NATIONAL RATINGS
-- Any change in XP Inc.'s capacity or propensity to provide
support could affect XPI and Banco XP's ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
XPI and Banco XP –
NATIONAL RATINGS
-- Any change in XP Inc.'s capacity or propensity to provide
support could affect XPI and Banco XP's ratings.
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.
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 XP S.A Natl LT AA(bra) Affirmed AA(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
XP Inc. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
senior unsecured LT BB- Affirmed BB-
XP Investimentos Natl LT AA(bra) Affirmed AA(bra)
S.A.
Natl ST F1+(bra) Affirmed F1+(bra)
===========================
C A Y M A N I S L A N D S
===========================
VANTAGE DRILLING: COO Douglas Halkett to Step Down After 14 Years
-----------------------------------------------------------------
Vantage Drilling International announced that Douglas Halkett will
be stepping down from his position as chief operating officer after
more than 14 years of service, effective today. Mr. Halkett will
transition to the role of senior advisor to the chief executive
officer, effective as of July 1, 2022, and is expected to remain in
that role through the end of the year.
The Company also announced that William Thomson has been appointed
chief commercial officer and chief technical officer, effective as
of July 1, 2022. Mr. Thomson currently serves as the Company's
vice president, Marketing and Business Development. Mr. Thomson
does not have any family relationships with any of the Company's
directors or executive officers, and he is not a party to any
transactions listed in Item 404(a) of Regulation S-K.
Mr. Thomson's employment agreement with the Company will remain
unchanged other than to acknowledge the change in his duties and
responsibilities.
About Vantage
Vantage Drilling, a Cayman Islands exempted company, is an offshore
drilling contractor, with a fleet of two ultra-deepwater
drillships, and five premium jackup drilling rigs. Its primary
business is to contract drilling units, related equipment and work
crews primarily on a dayrate basis to drill oil and natural gas
wells globally for major, national and independent oil and gas
companies. the Company also markets, operates and provides
management services in respect of, drilling units owned by others.
Vantage Drilling reported a net loss of $110.25 million for the
year ended Dec. 31, 2021, compared to a net loss of $276.76 million
for the year ended Dec. 31, 2020. As of March 31, 2022, the
Company had $719.91 million in total assets, $104.51 million in
total current liabilities, $347.27 million in long-term debt (net
of discount and financing costs), $16.50 million in other long-term
liabilities, and $251.62 million in total equity.
* * *
As reported by the TCR on May 9, 2022, S&P Global Ratings affirmed
its 'CCC' issuer credit rating on Vantage Drilling International.
S&P said the 'CCC' rating reflects the refinancing risk related to
the company's $350 million senior secured notes due November 2023.
===========
M E X I C O
===========
MEXICO: Central Bank Raises Benchmark Interest Rate to 7.75%
------------------------------------------------------------
Rio Times Online the Central Bank of Mexico (Banxico) raised its
interest rate by 75 basis points to 7.75% to attenuate inflation at
a two-decade high and anticipated that it could continue to
increase it if necessary.
Analysts highlighted that the rate increase -the ninth in a row- is
the most aggressive since Banxico, the Mexican Central Bank,
adopted the interest rate as its operational target in 2008,
according to Rio Times Online.
=======
P E R U
=======
PERU: Central Bank Cuts GDP Projection, Sees 6.4% Inflation
-----------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that Peru's central
bank said it had reduced its growth projection for 2022 to 3.1%
from 3.4% previously amid global economic volatility and a recent
disruption to mining activity in the Andean nation.
The bank maintained its estimate for 3.2% GDP growth in 2023, bank
president Julio Velarde said in a presentation accompanying its
latest macroeconomic projections report, according to
globalinsolvency.com.
It saw a lower fiscal deficit for 2022 of 1.9% of GDP compared to a
previous 2.5% projected in March, principally due to higher fiscal
revenues, Velarde said, the report notes.
The bank projected annual inflation of 6.4% for 2022 and 2.5%
inflation for 2023, the report discloses.
Velarde said the bank revised its growth projections downward
because of a deceleration of local production due to persistent
conflicts in Peru's critical mining sector, in addition to the
impact of the Russia-Ukraine war, the report notes.
=============
U R U G U A Y
=============
URUGUAY: To Import Brazilian Meat
---------------------------------
Rocco Caldero at Rio Times Online reports that the Uruguayan
government authorized the importation from Brazil of meat on the
bone, the most traditional cut for Uruguayans.
The resolution seeks to lower retail costs amid inflation which in
the last 12 months to May stood at 9.37%, its highest year-on-year
level since March after an acceleration at the beginning of the
year, according to Rio Times Online.
Uruguay's government authorized the arrival of meat on the bone;
sellers of the product say that the offer will "seduce" Uruguayans,
the report notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2022. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
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* * * End of Transmission * * *