/raid1/www/Hosts/bankrupt/TCRLA_Public/220929.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
Thursday, September 29, 2022, Vol. 23, No. 189
Headlines
A R G E N T I N A
AQUA Y SANEAMIENTOS: Fitch Lowers LongTerm IDRs to 'CC'
ARGENTINA: Unemployment Dropped to 6.9% in 2Q of 2022, Says INDEC
B A R B A D O S
BARBADOS: CIBC & Credit Suisse Close $146MM Dual Currency Facility
B O L I V I A
BOLIVIA: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
B R A Z I L
BRAZIL: Central Bank Keeps Interest Rate at 13.75%
GOL LINHAS: Fitch Alters Outlook on 'B-' LongTerm IDRs to Negative
JBS SA: Names Global Chief Sustainability Officer
PARANA: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
SAO PAULO: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
J A M A I C A
JAMAICA: Member-Dealer/Broker Continues to be in Breach
M E X I C O
BANCO MONEX: Fitch Affirms 'BB+/B' Issuer Default Ratings
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Fuel Price Hike Concerns Chamber
X X X X X X X X
LATAM: CDB Gets $50-Mil. Grant to Counter Climate Change Effects
- - - - -
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A R G E N T I N A
=================
AQUA Y SANEAMIENTOS: Fitch Lowers LongTerm IDRs to 'CC'
-------------------------------------------------------
Fitch Ratings has downgraded Agua y Saneamientos Argentinos S.A.'s
(AySA) Long-Term Local and Foreign Currency Issuer Default Ratings
(IDRs) to 'CC' from 'CCC'. Fitch has also downgraded AySA's USD500
million senior unsecured 6.625% notes due 2023 to 'CC'/'RR4' from
'CCC'/'RR4'. The Standalone Credit Profile (SCP) has been revised
to 'cc' from 'ccc-'.
The downgrade to 'CC' reflects Fitch's expectation that the company
will announce some type of liability management exercise to remain
in compliance with the Central Bank of the Argentine Republic's
restrictions on a hard-currency debt refinancing that will likely
be deemed a Distressed Debt Exchange (DDE). The company's readily
available cash and cash equivalents of approximately USD714 million
as of June 30, 2022 are insufficient to support ongoing operations
and capex in 2022, and the USD500 million of debt coming due in
February 2023. It is uncertain what support, if any, the government
will offer AySA, but it is not expected to be material, given that
government support has been insufficient over the past few years.
AySA is capped at an average Recovery Rating of 'RR4' since
Argentina is characterized within Group D with a soft cap of 'RR4',
per the Country-Specific Treatment of Recovery Ratings Criteria.
This assumes a recovery in the range of 31% to 50%.
KEY RATING DRIVERS
Default of Some Kind Appears Probable: Fitch expects that AySA will
announce a liability management exercise that mirrors that of its
Argentine peers, which Fitch deemed DDEs as they were done to avoid
payment defaults and the exchange offers resulted in a material
reduction in the terms. The company faces a USD500 million bond
maturity in February 2023, that must comply with Argentina's 60/40
rule (A7230), meaning that at least USD300 million of the
outstanding principal will need to be refinanced. However, AySA may
not have adequate liquidity to repay the remaining USD200 million
in principal. Therefore, the company will likely need the support
of the government either through an equity injection or other
measures to help it fund a portion of an exchange.
Unsustainable Leverage: AySA is expected to continue reporting
negative EBITDA estimated at ARS39 billion in the 1H2022 and
projected at ARS48 billion at FYE 2022; thus, leverage is also
expected to remain negative. AySA's FCF is also expected to remain
negative, estimated at ARS143 billion in 1H2022, falling to a
projected ARS194 billion at FYE 2022 due to increasing negative
operating cash flow generation and higher capex. The base case
scenario assumes tariff growth in line with inflation rates in
2022.
Government Related Entity (GRE): AySA's ratings now reflect its
likelihood to default, but the company's GRE assessment score was
downgraded from 35 to 22.5 as a result of the downward revision of
the Support Track Record from 'very strong' to 'moderate' and
Financial Implications of a Default from 'strong' to 'moderate.'
These factors coupled with an up to three notch differential
between the SCP and that of the sovereign rating, resulted in a
'CC' IDR and rating. The downgrade of the Support Track Record
reflects the lack of financial support from the government through
either an equity injection or adjustment in tariffs and/or
subsidies to improve the company's credit profile.
The Status, Ownership and Control designation has remained as 'very
strong.' AySA is 90% government-owned and is subject to the
Argentine government's water/wastewater policy with operations and
financing activities controlled by the government, which also
validates its budget, debt issuances and investments. The
Socio-Political Implications of Default also remained 'moderate'
based on private-sector players' probable ability to provide
substitutes, and that a financial default would not materially
affect the provision of services.
Weak Regulatory Environment: The regulatory environment for AySA is
weak given a demonstrated track record of reduced enforceability,
with annual tariff increase ultimately a political decision from
the federal government, which poses uncertainty about future
regulatory mechanisms to adjust tariffs.
AySA has a score of '4' for Governance Structure (GGV), due to its
nature as a majority government-owned entity and the inherent
governance risk that arises with a dominant state shareholder,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3' - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity. For more information on Fitch's ESG Relevance Scores,
visit www.fitchratings.com/esg.
DERIVATION SUMMARY
AySA's SCP is weak as compared with its main peers in other Latin
American countries owing to its fragile operating performance, weak
regulatory environment and strong dependence on shareholders to
support its negative operating cash flow generation and debt
payments.
This condition compares unfavorably with Companhia de Saneamento
Basico do Estado de Sao Paulo (Sabesp; Local Currency IDR
BB+/Stable), a state-owned company based in Brazil with sound cash
flow generation and strong credit metrics, and Aegea Saneamento e
Participacoes S.A. (Local Currency IDR BB/Rating Watch Negative), a
privately owned company in Brazil with strong EBITDA margins and
diversified portfolio of concessions.
AySA's efficiency ratios, such as water distribution losses and
connection per employee are weak as compared with these two peers,
which also benefit from improved regulatory environment,
demonstrated financial flexibility and better corporate governance
practices.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Continued support from government through capital injections;
- Tariff increases in line with inflation estimates thereafter;
- Additional revenue growth due to increase in the number of
connections of 3.2% annually supported by higher in capex, and
due to increase of clients m² and other services (in line with
historical average);
- Average annual capex of around ARS178 billion within 2022-2024;
- Operating losses, capex and financial obligation backed by
government transfers.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrade of Argentine sovereign IDR of more than three notches;
- Improved and consistent overall government support through
capital injections or a guarantee of debt, improving the
overall credit profile of the company;
- Successful refinancing of outstanding debt without a material
reduction of the original terms, such as but not limited to, a
reduction of principal and/or interest or fees.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Inability to refinance maturity coming due in February 2023 and
a default or default-like process has begun, which would be
represented by a 'CC' or 'C' rating;
- Fitch's perception of weakening on strength of linkage and
incentive to support between AySA and the sovereign.
LIQUIDITY AND DEBT STRUCTURE
Insufficient Liquidity: AySA's liquidity fully relies on the cash
injections from the shareholder given its inability to register
internal cash generation and restricted access to debt and capital
markets on a standalone basis. The company's heightened refinancing
risk suggests a probable debt exchange towards the end of 2022 as
it approximates its bullet maturity in February 2023. The
challenging government fiscal situation may also pressure the
bond's coupon payments, scheduled for every first of February and
August each year.
ISSUE RATINGS BASED ON RECOVERY ANALYSIS
For issuers with IDRs of 'B+' or below, Fitch performs a recovery
analysis for each class of obligations of the issuer based on the
going concern enterprise value of a distressed scenario or the
company's liquidation value. In the case of AySA, Fitch has adopted
the approach to consider the average recovery given its condition
as a state-owned concessionaire, supported by the Argentine
government due to its negative EBITDA, which restricts assumptions
for ongoing concern or liquidation value exercises.
ISSUER PROFILE
Agua y Saneamientos Argentinos S.A. (AySA) is the water/wastewater
concessionaire of Buenos Aires and 28 municipalities of the
metropolitan region. The company is a service provider to an
estimated 14 million people through a 20-year, extendable
concession agreement.
ESG CONSIDERATIONS
Agua y Saneamientos Argentinos S.A. has an ESG Relevance Score of
'4' for Governance Structure due to its nature as a majority
government-owned entity and the inherent governance risk that
arises with a dominant state shareholder, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. 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 Recovery Prior
---- ------ -------- -----
Agua y Saneamientos
Argentinos S.A.
LT IDR CC Downgrade CCC
LC LT IDR CC Downgrade CCC
senior unsecured LT CC Downgrade RR4 CCC
ARGENTINA: Unemployment Dropped to 6.9% in 2Q of 2022, Says INDEC
-----------------------------------------------------------------
Buenos Aires Times reports that unemployment in Argentina fell to
6.9 percent in the second quarter from 9.6 percent in the same
period last year, the INDEC national statistics bureau reported.
But the indicator had inched down 0.1 percent from the seven
percent of the first quarter of this year, the bureau informed,
which analysts consider to be a more significant basis for
comparison since employment was still restricted by pandemic
lockdown in the first half of last year, according to Buenos Aires
Times.
Underemployment dropped to 11.1 percent in the second quarter as
against 12.4 percent in the same period last year but was up from
the first quarter of this year when it totaled the round figure of
10 percent, the report notes.
Argentina's economy will grow four percent this year, according to
the latest report of the International Monetary Fund (IMF) within
the framework of the Extended Fund Facility granted the country to
roll over a loan of US$44.5 billion, 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.
Last March 25, 2022, Argentina finalized agreement with the IMF
for a new USD44 billion Extended Funding Facility (EFF) intended
to fund USD40 billion in looming repayments of the defunct
Stand-By Arrangement (SBA), with an extra USD4 billion in up-front
net financing. This has averted the risk of a default to the IMF
and is facilitating a parallel rescheduling of Paris Club debt.
As reported by The Troubled Company Reporter - Latin America on
Aug. 12, 2022, S&P Global Ratings affirmed its foreign and
local-currency sovereign credit ratings of 'CCC+/C' on the
Republic of Argentina. The outlook remains stable. S&P also
affirmed its national scale 'raBBB-' rating and its 'CCC+' transfer
and convertibility assessment. S&P said the stable outlook reflects
the challenges in managing pronounced economic imbalances ahead of
the 2023 national elections given disagreement on policy within the
government coalition and financing pressures in the local market.
Last April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term
Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'.
Fitch said Argentina's 'CCC' ratings reflect weak external
liquidity and pronounced macroeconomic imbalances that undermine
debt repayment capacity, and uncertainty regarding how much
progress can be made on these issues under a new IMF program.
On July 19, 2022, Fitch Ratings placed Argentina's Long-Term
Foreign Currency Issuer Default Rating (IDR) and Long-Term Local
Currency IDR Under Criteria Observation (UCO) following the
conversion of the agency's Exposure Draft: Sovereign Rating
Criteria to final criteria. The UCO assignment indicates that
ratings may change as a direct result of the final criteria. It
does not indicate a change in the underlying credit profile, nor
does it affect existing Rating Outlooks.
Moody's credit rating for Argentina was last set at Ca on
Sept. 28, 2020.
DBRS has also confirmed Argentina's Long-Term Foreign Currency
Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at
CCC (high) on July 21, 2022.
===============
B A R B A D O S
===============
BARBADOS: CIBC & Credit Suisse Close $146MM Dual Currency Facility
------------------------------------------------------------------
RJR News reports that CIBC FirstCaribbean and Credit Suisse have
successfully closed the recently announced US$146.5 million
Government of Barbados Dual Currency Facility.
CIBC FirstCaribbean acted as domestic lead arranger and sole lender
for the Blue Loan portion of the transaction, while Credit Suisse
acted as global lead arranger, underwriter, and bookrunner for the
Blue Bond portion, according to RJR News.
CIBC says the transaction takes the form of a debt conversion that
will unlock significant funding of US$40-50 million for marine
conservation over the next 15 years in Barbados, the report notes.
=============
B O L I V I A
=============
BOLIVIA: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed Bolivia's Long-Term Foreign Currency
Issuer Default Rating (IDR) at 'B'. The Rating Outlook is Stable.
KEY RATING DRIVERS
Stable Outlook: Bolivia's rating reflects vulnerabilities with low
international reserves relative to the country's high commodity
dependence and a stabilized exchange-rate regime, wide fiscal
deficit, weak medium-term growth outlook, and poor governance.
These credit weaknesses are balanced against a favorable government
debt profile in terms of low interest costs and long-dated
maturities.
The Stable Outlook reflects Fitch's view that near-term repayment
capacity is supported by reduced commercial debt service following
a liability management operation despite a faster-than-expected
erosion in reserves, the sharply higher cost of external market
financing, and the heightened macroeconomic uncertainty these
developments pose.
Net Energy Importer: Fitch expects Bolivia's current account to
remain at 2.0% of GDP in 2022, supported by high international
prices for key commodity exports (minerals, gas and soy). However,
Bolivia's once-large energy trade surplus has shifted into a
deficit, as falling domestic hydrocarbon production has reduced
volumes available for export and fuel imports have increased. Large
errors-and-omissions in balance-of-payments data (2%-3% of GDP in
recent years) may signal widespread contraband activity and thus a
weaker current-account position.
Gas Production in Decline: Gas production continues to fall due to
the absence of new finds to offset declines in mature mega-fields.
Complying with gas supply contracts to Argentina and Brazil remains
a challenge, as production falls and domestic demand grows. This
trend is bound to continue in the medium-term, given the absence of
a robust exploration pipeline and little progress on plans to
modify legislation to attract greater private-sector interest.
Reserves Under Pressure: International reserves reached a new low
of USD3.8 billion at end August 2022 (down from USD4.75 billion YE
2021). Reserves have fallen despite the current-account surplus and
financial operations such as the CPVIS programme, which requires
and incentivizes banks to swap their FX liquidity with the central
bank (BCB) for subsidized local-currency liquidity (totaling USD3
billion as of June 2022).
Reserves are projected to fall to 3.2 months of coverage of current
external payments in 2022, below the 'B' median'. Reserves are low
as a share of broad money (11%) and GDP (9%), and given high
commodity dependence and limited exchange rate flexibility, thus
signaling vulnerability to terms-of-trade or confidence shocks.
External Issuance Reduces Near-Term Maturities: A liability
management operation on external bonds in February 2022 reduced
near-term repayment risks but offered little fresh financing to
alleviate external liquidity constraints. The bulk of the proceeds
of a new 2030 bond (USD850 million) were used to buy back most of
the USD1 billion in bonds due October 2022 and August 2023. Given
high external yields, the government is more likely to rely on
borrowing from official creditors going forward, including a USD400
million budget support loan from CAF.
Fiscal Consolidation Path Unclear: Bolivia's general government
deficit fell to 8.5% of GDP in 2021 from 13.1% in 2020, as revenues
recovered partially and extraordinary pandemic expenditure measures
rolled off. Fitch forecasts the deficit to narrow further to 6.4%
of GDP in 2022, below the official projection of 8.5% of GDP, as
financing and institutional bottlenecks prevent the authorities
from ramping up capex as planned. Public investment remains well
below pre-pandemic levels, and Fitch expects that relatively low
investment execution will prevent greater fiscal deterioration.
Financing Availability Could Constrain Deficit: The government
financed its fiscal deficit in 2021 primarily through much greater
reliance on borrowing from the local market (4.1% of GDP) and lower
borrowing from the BCB (3.7% of GDP) than in prior years. Fitch
expects the authorities will try to rely more on multilateral
financing going forward, given that further borrowing from the BCB
could put pressure on already low FX reserves, and further heavy
local bond issuance (primarily purchased by AFPs) could crowd-out
domestic credit.
Favorable Debt Maturity Profile: General government debt jumped to
66.7% of GDP in 2021, from 44% in 2019, and Fitch expects it will
continue to increase reaching 72% in 2024. The debt stock remains
favorable, with large shares owed to multilaterals on concessional
terms or to the BCB with negligible interest rates.
Interest/revenue is low at 4.3% in 2021 compared to the 'B' median
of 10.7%.
Credit Recovering: The BCB maintains an expansionary monetary
policy stance through its liquidity-support programs and low
interest rates to support credit growth, which has recovered to 8%
yoy as of July. Inflation remains low at 1.6% in August 2022,
although this has largely been a result of policies that have
fueled other macroeconomic imbalances, such as a freeze on fuel
prices at low levels that entail a large fiscal cost, and a
stabilized exchange rate that has entailed drawdown of FX
reserves.
Slow Growth Outlook: Bolivia's economy grew 6.1% in 2021 after an
8.7% contraction in 2020, reflecting a slow recovery relative to
regional peers amid still-depressed public investment. Fitch
forecasts real GDP growth to slow to 3.6% in 2022 and 2.5% in
coming years, due to lower public investment and the absence of an
economic agenda to lift low private investment.
Political Tensions Remain High: President Luis Arce's Movimiento al
Socialismo (MAS) party continues to dominate local politics with
majorities in both legislative chambers. The country has avoided
the major instability since the upheaval of 2019-2020, but high
political polarization and increasingly visible divisions in the
government party pose continued risks and cloud the medium-term
policy outlook.
ESG - Governance: Bolivia has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in our proprietary Sovereign
Rating Model. Bolivia has a low WBGI ranking at the 25th
percentile, reflecting recent political instability, weak
regulatory quality, weak rule of law, a high level of corruption,
and moderate voice and accountability.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Public and External Finances: Increased fiscal and external
financing pressures, for example resulting from a failure to
narrow the fiscal deficit or reduced access to official
creditor support.
- External Finances: Heightened balance of payments pressures,
including sustained reduction in international reserves, that
increase risks for macro-financial stability and/or the
sustainability of the stabilized exchange rate regime.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- External Finances: Improvement in the policy mix that underpins
a recovery in international reserve levels and the
sustainability of the stabilized exchange rate regime.
- Public Finances: Implementation of a fiscal strategy that
supports stabilization of the government debt to GDP ratio and
improves financing flexibility.
- Macro: Policies that support an improvement in private sector
investment and medium-term growth prospects while maintaining
macroeconomic stability.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Bolivia a score equivalent to a
rating of 'B' on the Long-Term Foreign Currency IDR scale.
Fitch's sovereign rating committee did not adjust the output from
the SRM to arrive at the final Long-Term Foreign Currency IDR.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a
forward-looking qualitative framework designed to allow for
adjustment to the SRM output to assign the final rating, reflecting
factors within Fitch's criteria that are not fully quantifiable
and/or not fully reflected in the SRM.
ESG CONSIDERATIONS
Bolivia has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight. As Bolivia has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Bolivia has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight. As Bolivia has a percentile rank
below 50 for the respective Governance Indicator, this has a
negative impact on the credit profile.
Bolivia has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Bolivia has a percentile rank below 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
Bolivia has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Bolivia, as for all sovereigns. As Bolivia
has a fairly recent restructuring of public debt in 2006, this has
a negative impact on the credit profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity(ies), either due to their nature or to the way in which
they are being managed by the entity(ies).
Debt Rating Prior
---- ------ -----
Bolivia
LT IDR B Affirmed B
ST IDR B Affirmed B
LC LT IDR B Affirmed B
LC ST IDR B Affirmed B
Country Ceiling B Affirmed B
senior unsecured LT B Affirmed B
===========
B R A Z I L
===========
BRAZIL: Central Bank Keeps Interest Rate at 13.75%
--------------------------------------------------
Richard Mann at Rio Times Online reports that the Monetary Policy
Committee (Copom) of Brazil's Central Bank decided to keep Selic's
key interest rate at 13.75 percent per annum, in line with
financial market expectations.
The decision was not unanimous, as two Copom members voted to raise
the rate to 14 percent yearly, according to Rio Times Online.
The move marks the end of the monetary tightening cycle initiated
in March 2021, when the Selic rate was 2 percent per year, 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.
As reported in the Troubled Company Reporter-Latin America on
July 18, 2022, Fitch Ratings has affirmed Brazil's Long-Term
Foreign Currency Issuer Default Rating at 'BB-' and revised the
Rating Outlook to Stable from Negative.
On June 17, 2022, S&P Global Ratings affirmed its 'BB-/B' long-
and short-term foreign and local currency sovereign credit
ratings on Brazil.
Moody's Investors Service also affirmed on April 15, 2022,
Brazil's long-term Ba2 issuer ratings and senior unsecured bond
ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the
stable outlook.
DBRS Inc. confirmed Brazil's Long-Term Foreign and Local Currency
Issuer Ratings at BB (low) on Aug 12, 2022. At the same time,
DBRS Morningstar confirmed the Federative Republic of Brazil's
Short-term Foreign and Local Currency Issuer Ratings.
GOL LINHAS: Fitch Alters Outlook on 'B-' LongTerm IDRs to Negative
------------------------------------------------------------------
Fitch Ratings has affirmed GOL Linhas Aereas Inteligentes S.A.'s
(GOL) Long-Term Foreign- and Local-Currency Issuer Default Ratings
(IDRs) at 'B-' and affirmed its Long-Term National Scale rating at
BB+(bra)'. Fitch has also affirmed GOL Finance Inc.'s unsecured
bonds at 'B-'/'RR4'. The Rating Outlook has been revised to
Negative from Stable.
Gol's Outlook revision is driven by the challenging environment the
company faces to restore its operating cash flow generation as fuel
costs remain material headwinds, as well as its ongoing refinancing
risks in the short to medium term.
GOL's solid market position in the Brazilian domestic market,
strong relationship with suppliers, adequate fleet, competitive
cost structure and its relatively balanced capital structure once
cash flow stabilizes are also factored into the ratings. Fitch
expects a continued recovery of passenger traffic and solid yields
in the Brazilian domestic market, which should support more
meaningful deleveraging by 2023. Fitch considers rating headroom to
be limited. Deviation from expectations of demand recovery or
higher than expected fuel prices over the next few quarters are
negative for the ratings, particularly in light of Gol's upcoming
international capital market refinancing in 2024.
KEY RATING DRIVERS
High Refinancing Risks: As of June 30 2022, GOL's short-term
maturities totaled BRL2.8 billion (BRL761 million of financial debt
and BRL2.1 billion of leasing obligations). Readily available cash,
per Fitch's criteria, was only BRL730 million. GOL continuous to
rely on short-term debt refinancing, with major maturities relating
to aircraft financing, working capital and local debentures. The
company's inability to refinance its USD425 million exchangeable
senior notes due 2024 by mid-2023 will likely have a negative
rating impact.
Some Operating Cash Flow Improvement: GOL's weaker than expected
operating performance during 2022 largely reflects the spike in
fuel prices, which was partially offset by the substantial increase
in yields. During 1Q22 and 2Q22, GOL's average fuel price rose 60%
and 80%, while yields increased 45% and 66%. The yield management
strategy has been supported by pent-up demand following the
pandemic and a strong rebound in corporate traffic demand, which is
less price sensitive than the other categories. Brazilian domestic
market demand has rebounded strongly, with the passenger traffic
during January to July 2022 only 5% lower than same period in 2019.
The more rational behavior of the three largest players in the
domestic market is likely to support healthy yields for a while.
GOL's FCF is also affected by higher lease payments due to
deferrals during the pandemic and a fleet modernization plan that
implies higher gross capex disbursements. Fitch estimates GOL's
cash flow from operations will be slightly neutral during 2022 and
BRL960 million for 2023, and capex will be around BRL1 billion and
BRL1,2 billion for 2022 and 2023, respectively, leading to negative
FCF of BRL822 billion in 2022 and BRL240 million in 2023. This
compares with BRL662 million of capex in 2020 and BRL1 billion of
negative FCF, and BRL788 million of capex and BRL1 billion of
negative FCF during 2021. During 2Q22, GOL received BRL946 million
of capital injection from American Airlines Inc (IDR
'B-'/Negative).
Limited Financial Flexibility: GOL's poor liquidity position is a
concern, per Fitch's criteria, because it continues to highly rely
on its ability to access the credit market to meet its debt
rollover needs and to fund negative FCF generation. The company has
other sources of liquidity such as investments, accounts
receivables, security and maintenance deposits. As of June 30,
2022, GOL reported its total liquidity at around BRL4 billion. The
company has access to secured credit lines using spare parts and
Smiles (GOL's mileage program) as collateral and a potential re-tap
of its 2026 secured notes.
Conservative Growth and Capacity Management: GOL's ability to
adjust its fleet capacity to the new demand level has minimized
cash flow burn but also helped it maintain relatively stable
financial debt levels compared to pre-pandemic levels. During 2Q22
the company received three 737-MAX aircraft, increasing the share
of this model to 24% of the total fleet (it expects to end the year
with 32%), which should favor its cost structure. Fitch expects
GOL's adjusted EBITDA to reach around BRL2.3 billion in 2022 and
BRL4 billion in 2023, with net leverage moving around 9.4x in 2022
and 5.4x in 2023, per the agency's criteria.
Good Market Position: GOL has a leading business position in the
Brazilian airline domestic market, which Fitch views as sustainable
over the medium term, with a market share of around 32% as measured
by RPK in 2021. As this is the company's key market, GOL's
operating results are highly correlated to the Brazilian economy.
Due to this limited geographic diversification, the company's FX
exposure is high. GOL typically generates about 85% of its revenues
in Brazilian reals, while around 60% of its total costs and 87% of
its total debt are denominated in U.S. dollars.
Fitch has not incorporated into GOL's rating any new developments
related to the creation of ABRA, the holding company recently
created to hold the shares of GOL and Avianca Holdings S.A.'s main
shareholders. Fitch believes there could be opportunities for cost
savings if the transaction is negotiated under a group framework.
There is limited information available so far on synergies, which
Fitch expects to come mostly on the revenue side. GOL and Avianca
are likely to continue to operate independently and maintain their
respective brands. The transaction is still subject to customary
closing conditions, including certain regulatory approvals. Closing
should occur by the end of 2022.
DERIVATION SUMMARY
GOL's 'B-' rating reflects its solid market position and capital
structure that will benefit from a recovery of domestic air travel
demand in Brazil. Despite having lower operating leverage than Azul
S.A (CCC+/Positive), GOL's liquidity position is weaker.
GOL has a weaker market position relative to global peers given its
limited geographic diversification. However, its important regional
market position in Brazil, high operating margins and track record
of strong liquidity ratios are key rating drivers. These positive
factors are tempered by the company's ongoing business growth and
operational volatility related to its key market, Brazil. Fitch
views FX risk exposure as a short-term negative credit factor for
GOL considering its limited geographic diversification. The company
has historically implemented a currency hedge position that
partially limits its exposure to currency fluctuation.
KEY ASSUMPTIONS
- For 2022, Fitch's base case includes a decrease in GOL's
domestic RPK by 10%-15% compared with 2019 and a 5% increase by
2023;
- WTI oil prices remaining around USD95/barrel for the remainder
of 2022 and declining towards USD81/barrel through 2023.
- Load factors around 80% during 2022 and 2023;
- Capex of BRL1 billion in 2022 and BRL1.2 billion in 2023.
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that GOL would be considered a going
concern in bankruptcy and that the company would be reorganized
rather than liquidated. Fitch has assumed a 10% administrative
claim.
Going-Concern Approach: GOL's going-concern EBITDA is based on an
average of 2015-2019 EBITDA that reflects a scenario of intense
volatility in the airline industry in Latin America and Brazil,
plus a discount of 20%. The going-concern EBITDA estimate reflects
Fitch's expectation of a sustainable, post-reorganization EBITDA
level, upon which Fitch's bases the valuation of the company. The
EV/EBITDA multiple applied is 5.0x, reflecting GOL's strong market
position in Brazil.
Fitch applies a waterfall analysis to the post-default enterprise
value (EV) based on the relative claims of the debt in the capital
structure. The agency's debt waterfall assumptions take into
account the company's total debt at June 30, 2022. These
assumptions result in a recovery rate for the unsecured bonds
within the 'RR4' range, which, per Fitch's criteria, leads to
equalization of the rating with the IDR.
RATING SENSITIVITIES
Developments that may, individually or collectively, lead to
positive rating action/upgrade:
- Continued solid rebound of the Brazilian domestic air traffic;
- Net leverage ratio below 5.0x by 2023;
- FCF generation above Fitch's base case expectations;
- Maintenance of adequate liquidity with no major refinancing
risks in the next 18-24 months.
Developments that may, individually or collectively, lead to
negative rating action/downgrade:
- Weaker than expect traffic volume rebound during 2022 and 2023
along with competitive pressures leading to yields
deterioration;
- Failure to reduce cash burn during 2H22 leading to increased
pressure on liquidity;
- Deterioration in GOL's liquidity profile or signs of financial
flexibility deterioration.
LIQUIDITY AND DEBT STRUCTURE
Weak Cash Position: As of June 30 2022, GOL's short-term maturities
totaled BRL2.8 billion (BRL761 million of financial debt and BRL2.1
billion of leasing obligations). Readily available cash, per
Fitch's criteria, was only BRL730 million. The company had BRL11.6
billion of leasing obligations, BRL9.4 billion cross-border senior
notes, BRL0.5 billion of aircraft financing and BRL1.1 billion in
local debentures. GOL considers its accounts receivable and new
secured issuance program as sources of liquidity.
ISSUER PROFILE
GOL is a leading Brazilian airline, with around 32% market share in
the domestic market, per revenue per RPK in 2021. As of YE 2022,
GOL's fleet included 144 Boeing 737 aircraft, with 110 NGs and 34
MAXs.
ESG CONSIDERATIONS
Gol Linhas Aereas Inteligentes S.A has an ESG Relevance Score of
'4' for Management Strategy due to the recent announcement of a
corruption case and charges implemented by The Securities and
Exchange Commission (SEC) and Department of Justice (DOJ), in a
total amount of USD31.9 million, after waivers of USD41.5 million.
This has a negative impact on the ratings in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. 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 Recovery Prior
---- ------ -------- -----
GOL Linhas Aereas
Inteligentes S.A.
LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
Natl LT BB+(bra) Affirmed BB+(bra)
Gol Finance Inc.
senior unsecured
LT B- Affirmed RR4 B-
GOL Linhas Aereas
S.A.
LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
Natl LT BB+(bra) Affirmed BB+(bra)
JBS SA: Names Global Chief Sustainability Officer
-------------------------------------------------
complianceweek.com reports that JBS SA disclosed the appointment of
Jason Weller as its first global chief sustainability officer.
He will join the executive leadership team and oversee
environmental, social, governance and sustainability strategies for
JBS Global, including further developing the roadmap for the
company's net zero 2040 commitment, according to
complianceweek.com.
He joins JBS from Truterra, where he helped establish one of the
largest agricultural carbon credit programs in the United States as
president of the sustainability business at Land O'Lakes, the
report notes.
Before his time at Land O'Lakes, Weller served as chief of the U.S.
Department of Agriculture's natural resources conservation service
and also worked at the U.S. House Appropriations Subcommittee on
Agriculture, the U.S. House Budget Committee, and in the White
House Office of Management and Budget, the report relays.
The hiring of Weller follows the appointment of Maurício Bauer as
corporate sustainability officer in May, the report adds.
About JBS SA
As reported in the Troubled Company Reporter-Latin America in
August 2021, S&P Global Ratings revised the global scale outlook on
JBS S.A. (JBS) and its fully owned subsidiary JBS USA Lux S.A. (JBS
USA) to positive from stable and affirmed its 'BB+' issuer credit
rating. The recovery expectations remain unchanged, and S&P
affirmed the 'BB+' ratings on the senior unsecured notes and the
'BBB' ratings on the secured term loans.
PARANA: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
---------------------------------------------------------
Fitch Ratings has affirmed the Brazilian State of Parana's (Parana)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-' with a Stable Rating Outlook, along with affirming its
Short-Term Foreign and Local Currency IDRs at 'B'. Fitch has also
affirmed Parana's National Long-Term and Short-Term Rating at
'AA(bra)' and 'F1+(bra), respectively, with a Stable Outlook. Fitch
raised Parana's standalone credit profile (SCP) to 'bbb-' from
'bb-', as debt sustainability improved to 'aaa' from 'aa'.
The state's IDRs are capped by Brazil's sovereign IDR (BB-/Stable).
Fitch has assessed Paraa's SCP at 'bbb-'. The assessment reflects
the improvement of the state´s operating margins in the last three
years, aligned with strong liquidity and prudent debt management.
KEY RATING DRIVERS
Risk Profile: 'Weaker'
The assessment reflects Fitch's view that there is a high risk of
the issuer´s ability to cover debt with operating balance
weakening unexpectedly over the scenario horizon (2022-2026) due to
lower revenue, higher expenditure or an unexpected rise in
liabilities or debt-service requirement.
Revenue Robustness: 'Midrange'
The Brazilian tax collection framework transfers to states and
municipalities a large share of the responsibility to collect
taxes. Constitutional transfers exist as a mechanism to compensate
poorer entities. For that reason, a high dependency towards
transfers is considered a weak feature for a Brazilian local and
regional governments (LRG).
The primary metric for key risk factors 1a is the transfers ratio
(transfers to operating revenues). LRGs that report a transfer
ratio above or equal to 40% are classified as weaker, while others
with a ratio below 40% are classified as 'Midrange'. The State of
Paraná reports substantial fiscal autonomy, what drives this
factor to 'midrange'. As of 2021, transfers represented 25.9% of
operating revenues.
Moreover, historically, revenue growth performed above GDP growth.
Taking the period of 2017-2021, we observe CAGR of 4.3% in real
terms for operating revenues, compared to an average annual GDP
growth of 0.9%.
Revenue Adjustability: 'Weaker'
Fitch considers Brazilian states and municipalities to have a low
capacity level for revenue increase in response to a downturn.
There is low affordability of additional taxation given that tax
tariffs are close to the constitutional national ceiling and a
small number of taxpayers represent a large share of tax
collection, driving this factor to weaker.
The most relevant tax, the Imposto sobre a Circulacao de
Mercadorias e Servicos (ICMS -- Tax on Circulation of Goods and
Services) has a concentrated taxpayer base, like for other
Brazilian states. Fitch estimated that the 10 largest tax payers
corresponded to more than 30% of total ICMS tax collection in
Parana in 2021, aligned with other Brazilian states. Moreover, the
National Congress recently set a limit for ICMS tax tariffs for
electricity, telecommunications and fuels. Such products should be
treated as essential goods and tariffs are limited to 17%, creating
further challenges for revenue adjustability.
Expenditure Sustainability: 'Midrange'
Responsibilities for states are moderately countercyclical since
they are engaged in health care, education and law enforcement.
Expenditure tends to grow with revenues as a result of earmarked
revenues. States and municipalities are required to allocate a
share of revenues in health and education. This results in a
procyclical behavior in good times, as periods of high revenue
growth result in a similar behavior for expenditures. However, due
to the big weight of personal expenditures and salary rigidity,
downturns that result in lower revenues are not followed by similar
drops in expenditures.
Paraná presents moderate control over expenditure growth, with
sound margins. Operating margins averaged 12.5% between 2017 and
2021. The state is current on its payroll bill and has no
significant delays for the payment of suppliers. Operating
expenditure CAGR registered a low figure of 0.3% between 2017 and
2021, considerably below the 4.4% CAGR observed for operating
revenues.
Expenditure Adjustability: 'Weaker'
Fitch assesses the state's ability to reduce spending in response
of shrinking revenue as weak. As per the Brazilian Constitution,
there is low affordability of expenditure reduction especially in
salaries. As a result, whenever there is an unpredictable reduction
in revenues, operating expenditure does not follow automatically.
In addition, there is high share of inflexible costs since there is
close to 90% share of mandatory and committed expenditures.
Consequently, capex represented on average 7.1% of the state's
total expenditures for the 2017-2021 period, also corroborating to
the weaker assessment.
Liabilities & Liquidity Robustness: 'Weaker'
Access to new loans is restricted as Brazilian LRGs are not allowed
to access the market through bond issuances. Lenders consist mainly
of public commercial and development banks and multilateral
organizations. Often, loans are guaranteed by the federal
government, especially for foreign currency loans. For that reason,
the federal government has strict control over new lending to
LRGs.
There is a moderate national framework for debt and liquidity
management since there are prudential borrowing limits and
restrictions on loan types. Under the Fiscal Responsibility Law
(LRF) of 2000, Brazilian LRGs have to comply with indebtedness
limits. Consolidated net debt for states cannot exceed 2x (200%) of
net current revenue. The State of Parana reported a debt ratio of
22.3% as of December 2021. The LRF also sets limits for guarantees
(22% of net current revenues). Parana reported a 1.46% ratio as of
December 2021.
As of December 2021, external debt totaled BRL3.9 billion,
corresponding to 16.5% of direct debt. Amortization of external
debt is projected around BRL327 million annually. External debt is
largely owed to multilateral organizations and counts with federal
government guarantee. Debt directly owed to the Federal Government
represented 61% of direct debt in December 2021. Intergovernmental
debt counts with more favorable terms, such as debt service relief
during periods of economic distress. Such was the case during the
2020 and early 2021. Paraná has one large bullet payment due in
2030, which corresponds to the debt with Banco Itau related to the
privatization of Banestado.
There is moderate off-balance sheet risk stemming from the pension
system. The pension system is a burden for most Brazilian LRGs,
especially for states given their mandate over education and public
security. Pension payments represent a significant share of
operating expenditures. According to the National Treasury report
"Boletim de Finanças dos Entes Subnacionais", the pension deficit
of Parana cost the state´s treasury 14.4 % of net current revenues
in the year of 2020.
Another relevant contingent liability refers to the payment of
judicial claims, the so-called "precatorios". Fitch includes the
stock of unpaid "precatorios" under contingent liabilities. The
National Congress has established that subnational governments have
to fully pay for such liabilities until 2029.
Liabilities & Liquidity Flexibility: 'Midrange'
There is a framework of providing emergency liquidity support from
the federal government via the granting of extended maturity over
the prevalent federal debt portion.
One of the metrics analyzed by the Brazilian National Treasury to
LRGs borrows with Federal Government with guarantees
(CAPAG-Capacidade de Pagamento) is the liquidity rate, measured by
LRGs' short-term financial obligation to net cash.
The trigger of Federal Government to rate this ratio as 'A' is
100%. We are setting a trigger of 100% on the average of last three
years (2019-2021 YE) together with the last YE available (December
2021) below 100% to assess this factor as 'midrange'. The State of
Parana reported a three-year average liquidity ratio of 29% and
13.7% in December 2021 (source: Relatorio de Gestão Fiscal - RGF).
Thus, corroborating with the 'midrange' assessment.
Debt Sustainability: 'aaa category'
Debt Sustainability is assessed at 'aaa', an improvement from the
previous annual review when it was assessed at 'aa'. Fitch rating
case forward looking scenario indicates that the payback ratio (net
direct risk to operating balance) - the primary metric of the debt
sustainability assessment - will reach an average of 3.3x for the
2024-2026 period, which is aligned with a 'aaa' assessment. The
actual debt service coverage ratio - the secondary metric - is
projected at 2.9x for the average of 2024-2026, aligned with an
'aa' assessment. Fiscal debt burden is projected at 32% for the
same period. Fitch has not applied an override to the primary
metric since the secondary metric is only one category below.
Fitch takes into consideration, for its rating case, the state's
historical performance and projections for main macro variables,
such as nominal GDP growth and inflation. The rating case is a
stressed scenario. Operating revenues are expected to grow 5.1% on
average between 2022 and 2026. Operating expenditure growth for
2022-2023 reflects expectations for salary adjustments after a
period of high inflation. Going forward, Fitch applies a growth
rate related to inflation plus spread.
Fitch considers new loans disbursement to follow the schedule
informed by the government. Debt amortization and interest payment
also reflect government projections.
DERIVATION SUMMARY
Parana´s SCP of 'bbb-' results from the combination of a 'Weaker'
risk profile and 'aaa' debt sustainability assessment. The SCP
factors in the state´s comparison with national and international
peers. Parana´s IDRs of 'BB-'/Stable are not affected by
asymmetric risks or extraordinary support, but are capped by the
sovereign rating.
Short-Term Ratings
Parana's Short-Term FC and LC ratings are positioned at 'B'
following the Rating Correspondence Table.
For the national scale, the correspondence table indicates an
'F1+(bra)' Short-Term rating.
National Ratings
The State of Parana's national scale rating was affirmed at
'AA(bra)' following a national peer comparison.
KEY ASSUMPTIONS
Risk Profile: 'Weaker'
Revenue Robustness: 'Midrange'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Midrange'
Debt sustainability: 'aaa'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Cap: 'BB-'
Sovereign Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2017-2021 figures and 2022-2026 projected
ratios. The key assumptions for the scenario include:
- Yoy 5.1% increase in operating revenue on average in 2022-2026;
- Yoy 5.0% increase in tax revenue on average in 2022-2026;
- Yoy 8.4% increase in operating spending on average in 2022-
2026;
- Net capital balance of BRL7,392 million on average in 2022-
2026;
- Cost of debt: 4.3% on average in 2022-2026.
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for (2021) and forecast for
(2023), respectively (no weights and changes since the last review
are included as none of these assumptions was material to the
rating action):
Liquidity and Debt Structure
Net adjusted debt considers BRL23.6 billion of direct debt and
unrestricted cash of BRL10.6 billion as of December 2021. Fitch
estimates that close to 26.6% of debt is guaranteed by the federal
government and 61% consist of intergovernmental debt with the
federal government. Guaranteed debt includes BRL3.9 billion of
foreign debt contracts with multilateral organizations. Parana has
one large bullet payment in the amount of BRL3.7 billion due in
2030, which corresponds to the debt with Banco Itau related to the
privatization of Banestado.
Parana has a history of strong liquidity, with an A score under the
National Treasury CAPAG for the last three years.
Issuer Profile
Parana is classified by Fitch as Type B LRGs, which are required to
cover debt service from their cash flow. The state is an important
commodity exporter, such as for soy, poultry and coffee, and has a
solid industrial sector with car plants, pulp and paper, food,
shale oil, among others.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade of the sovereign would result in a downgrade of
Parana's IDRs;
- The State of Parana´s SCP could be downgrade if its payback
ratio is projected above 5x and its actual debt service
coverage ratio is projected below 1.5x.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on Brazil´s IDRs would lead to a
positive rating action on the State of Parana´s IDRs given that
the ratings of the state are currently capped by the sovereign.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The State of Parana's ratings are linked to the Brazilian
sovereign.
Entity Rating Prior
---- ------ -----
Parana, State of LT IDR BB- Affirmed BB-
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)
SAO PAULO: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed the Municipality of Sao Paulo's
Long-Term Foreign Currency and Local Currency Issuer Default
Ratings (IDRs) at 'BB-'. The Rating Outlook is Stable. Fitch has
also affirmed Sao Paulo's Short-Term Foreign Currency and Local
Currency IDRs at 'B', its National Long-Term rating at 'AA(bra)',
and its National Short-Term Rating at 'F1+(bra)'. Fitch has revised
Sao Paulo's Standalone Credit Profile (SCP) to 'a-' from 'bbb-'.
Fitch raised Sao Paulo's SCP due to a sizable one-off reduction in
its debt. In August 2022, Sao Paulo's intergovernmental debt
towards the federal government was fully amortized as a
compensation for the transfer of the "Campo de Marte" Airport to
the federal government.
KEY RATING DRIVERS
Risk Profile: 'Low Midrange'
The assessment reflects Fitch's view that there is a moderately
high risk of the issuer´s ability to cover debt service with the
operating balance weakening unexpectedly over the scenario horizon
(2022-2026) due to lower revenue, higher expenditure, or an
unexpected rise in liabilities or debt-service requirements.
Revenue Robustness: 'Midrange'
The Brazilian tax collection framework transfers to states and
municipalities a large share of the responsibility to collect
taxes. Constitutional transfers exist as a mechanism to compensate
poorer entities. For that reason, Fitch views a high dependency
towards transfers as a weak feature for Brazilian LRGs.
The primary metric for revenue robustness is the transfers ratio
(transfers to operating revenues). Fitch classifies LRGs that
report a transfer ratio above or equal to 40% as 'Weaker' and those
with a ratio below 40% as 'Midrange'. Sao Paulo reports moderate
fiscal autonomy, which supports a 'Midrange' assessment. As of
2021, transfers represented 28.3% of operating revenues.
Historically, revenue growth has performed above GDP growth. During
2017-2021 CAGR was 5.7% in real terms for operating revenues,
compared to an average annual GDP growth of 0.9%. Going forward,
Fitch expects revenue performance to be aligned with GDP.
Revenue Adjustability: 'Weaker'
Brazilian states and municipalities have a low capacity for revenue
increases in response to a downturn. There is low affordability of
additional taxation given that tax tariffs are close to the
constitutional national ceiling and a small number of taxpayers
represent a large share of tax collection, driving this factor to
Weaker.
The most important municipal tax is the ISS tax on services, which
represented 53% of tax revenues in 2021. The top-10 ISS tax payers
represented 18.1% of ISS tax collection in 2021 and are from the
financial and technology sectors. The second most important tax is
the IPTU, a tax on real-estate property, which corresponded to 30%
of tax collections.
Expenditure Sustainability: 'Midrange'
Municipal responsibilities are moderately countercyclical since
they are primarily concerned with the provision of basic healthcare
and elementary education.
Expenditure tends to grow with revenues as a result of earmarked
revenues. States and municipalities are required to allocate a
share of revenues in health and education. This results in a
procyclical behavior in good times, as periods of high revenue
growth result in a similar behavior for expenditures. However, due
to the big weight of personal expenditures and salary rigidity,
downturns that result in lower revenues are not followed by similar
drops in expenditures.
Sao Paulo presents sound control over expenditure growth, with
sound margins. Operating margins averaged 11.4% between 2017 and
2021. The municipality is current on its payroll bill and has no
significant delays for the payment of suppliers. Operating
expenditure CAGR reached 2.3% between 2017 and 2021, considerably
below the 5.7% CAGR observed for operating revenues.
Expenditure Adjustability: 'Weaker'
Fitch assesses the municipality's ability to reduce spending in
response to shrinking revenue as weak. As per the Brazilian
Constitution, there is low affordability of expenditure reduction,
especially in salaries. As a result, whenever there is an
unpredictable reduction in revenues, operating expenditures do not
follow automatically. In addition, there is high share of
inflexible costs since there is close to 90% share of mandatory and
committed expenditures. Consequently, capex represented on average
3.9% of the municipality's total expenditures for the 2017-2021
period, also corroborating to the 'Weaker' assessment.
Liabilities & Liquidity Robustness: 'Midrange'
The Brazilian credit market for subnational government is rather
limited and highly controlled by the federal government. LRGs often
opt for new loans with federal guarantees, which are only granted
to subnationals rated 'A' or 'B' under the National Treasury CAPAG,
a set of criteria that assesses three indicators (indebtedness,
current savings and liquidity). Within this limited market, Sao
Paulo has relatively easier access to new loans given the strength
of its economy and sound public finances.
There is a moderate national framework for debt and liquidity
management since there are prudential borrowing limits and
restrictions on loan types. Sao Paulo does not present maturity
concentration and has moderate market access.
As of December 2021, external debt totaled BRL541million, with no
relevant maturity concentration. Debt directly owed to the federal
government represented 95% of total debt in December 2021, or BRL
24.5 billion. However, the municipality has recently entered into
an agreement with the federal government, in which the
intergovernmental debt was fully amortized against the transfer of
the "Campo de Marte" Airport to the federal government. The
transaction had no cash impact for Sao Paulo and was effective as
of Aug. 18, 2022.
Under the Fiscal Responsibility Law (LRF) of 2000, Brazilian LRGs
have to comply with indebtedness limits. Consolidated net debt for
municipalities cannot exceed 1.2x (120%) of net current revenue.
Sao Paulo reported a debt ratio of 26.4% as of December 2021,
according to national treasury calculation. The LRF also sets
limits for guarantees (for municipalities, 22% of net current
revenues). Sao Paulo reported no guarantees as of 2021.
There is some off-balance sheet risk stemming from the pension
system for Sao Paulo, which is low when compared to other Brazilian
states, given its control over education and public security. The
municipality has recently passed a pension reform, which reduced
its actuarial deficit by increasing the retirement age and
introducing contribution fees to pensioners that were previously
exempt.
Another relevant contingent liability refers to the payment of
judicial claims, the so-called "precatorios". Fitch includes the
stock of unpaid "precatorios" under contingent liabilities. The
National Congress has established that subnational governments have
to fully pay for such liabilities until 2029.
Liabilities & Liquidity Flexibility: 'Midrange'
One of the metrics analyzed by the Brazilian National Treasury for
LRGs to be able to borrow with Federal Government guarantees
(Capacidade de Pagamento) is the liquidity rate, measured by the
LRGs' short-term financial obligation to net cash.
The federal government's criteria to rate this ratio 'A' is 100%.
Based on a three-year average ratio of 100% (2019-2021 year-end)
and the last available year-end results (December 2021), which were
below 100%, Fitch assesses this factor as 'Midrange'. Sao Paulo
reported a three-year average liquidity ratio of 14.6% and 14.1% in
December 2021, which supports the "Midrange" assessment.
Debt Sustainability: 'aaa category'
Debt sustainability is assessed at 'aaa'. Fitch's rating case
forward-looking scenario indicates that the payback ratio (net
direct risk to operating balance), which is the primary metric of
the debt sustainability assessment, will reach an average of -0.1x
for the 2024-2026 period. This indicates a negative net direct debt
after the deduction of unrestricted cash, which is aligned with the
'aaa' category. The improvement in the payback ratio reflects the
sizable debt reduction. Actual debt service coverage ratio, the
secondary metric, at 12.5x for the average of 2024-2026 also
support the 'aaa' assessment. Fitch projects a fiscal debt burden
of -1% for the same period.
Sao Paulo's debt sustainability improved to 'aaa' from 'aa' on the
back of a sizable one-off reduction in the municipality's debt. In
August 2022, Sao Paulo intergovernmental debt towards the federal
government was fully amortized as a compensation for the transfer
of the "Campo de Marte" Airport to the federal government. As a
result, Sao Paulo's direct debt will drop from BRL 25.8 billion as
of December 2021 to an estimated BRL 1.6 billion by December 2022.
The transaction had no cash impact.
For its rating case takes into consideration the municipality's
historical performance and projections for main macro variables,
such as GDP growth and inflation. The rating case is inherently a
stressed scenario. Fitch considers new loans disbursement to follow
the schedule informed by the government. Debt amortization and
interest payments also reflect government projections.
DERIVATION SUMMARY
Sao Paulo's ratings reflect the combination of a 'Low Midrange'
risk profile and 'aaa' debt sustainability assessment under Fitch
rating case scenario. The 'a-' SCP and factors in the comparison
with national and international peers. Sao Paulo's 'BB-' IDRs are
capped by the sovereign ratings.
Short-Term Ratings
Sao Paulo's short-term FC and LC ratings are positioned at 'B'.
The national short-term rating is positioned at 'F1+(bra).
National Ratings
Fitch has affirmed Sao Paulo's national scale rating at 'AA(bra)'
following a national peer comparison.
KEY ASSUMPTIONS
Risk Profile: 'Low Midrange'
Revenue Robustness: 'Midrange'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Midrange'
Liabilities and Liquidity Flexibility: 'Midrange'
Debt sustainability: 'aaa'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Cap: 'BB-'
Sovereign Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2016-2020 figures and 2021-2025 projected
ratios. The key assumptions for the scenario include:
- Yoy 6.4% increase in operating revenue on average in 2022-2026;
- Yoy 6.9% increase in tax revenue on average in 2022-2026;
- Yoy 8.8% increase in operating spending on average in 2022-
2026;
- Net capital balance of - BRL 8,270 million on average in 2022-
2026;
- Cost of debt: 4.8% on average in 2022-2026.
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for 2021 and forecast for
2023, respectively. There were no weights and changes included
since the last review, as none of these assumptions were material
to the rating action.
Liquidity and Debt Structure
Net adjusted debt includes BRL 25.8 billion of direct debt and
unrestricted cash of BRL14 billion as of December 2021. Until
recently, intergovernmental debt corresponded to approximately 95%
of Sao Paolo's direct debt. The debt has now been fully amortized
as compensation granted by the federal government to the
Municipality of Sao Paulo due to the judicial process that
transferred the property of the Airport "Campo de Marte" to the
federal government. The transaction had no cash impact for the
municipality.
Sao Paulo has a history of strong liquidity, with an 'A' liquidity
score under the National Treasury CAPAG for the last three years.
Fitch expects the municipality to report negative net direct debt
in the short term given the sizable reduction in direct debt.
Issuer Profile
Fitch classifies the City of Sao Paulo, Brazil as a Type B local
and regional government (LRG), which is required to cover debt
service with cash flows on an annual basis. Sao Paulo is the most
populous and wealthy Brazilian city. Revenue sources are based on
taxation and transfers from upper tiers. Sao Paulo has the right to
borrow in the domestic market and externally, subject to national
government approval.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A negative rating action on Brazil's IDR would lead to a
negative rating action on the municipality of Sao Paulo given
that the ratings of the municipality are capped by the
sovereign.
- The Municipality of Sao Paulo IDRs could be downgraded if its
payback ratio is projected above 9x and its actual debt service
coverage ratio is projected below 1.2x, which Fitch considers
unlikely.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on Brazil's IDR would lead to a
positive rating action on the municipality of Sao Paulo given
that the ratings of the municipality are capped by the
sovereign.
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.
Entity Rating Prior
------ ------ -----
Sao Paulo,
Municipality of LT IDR BB- Affirmed BB-
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)
=============
J A M A I C A
=============
JAMAICA: Member-Dealer/Broker Continues to be in Breach
-------------------------------------------------------
Jamaica Observer reports that a member-dealer/broker of the Jamaica
Stock Exchange (JSE) continues to be in breach of the excess net
free capital (ENFC) requirement as per the June 2022 monthly
regulatory report which puts its operations in question with
regulators.
The Regulatory and Market Oversight Division (RMOD) is the
regulatory arm of the JSE which is governed by the Regulatory and
Market Oversight Committee which consists of independent directors
of the JSE's board and no broker-appointed directors, according to
Jamaica Observer.
Before COVID-19, the RMOD would publish its monthly regulatory
report for the prior month at the end of the current month, the
report relays. Thus, the August report would be published at the
end of September, the report notes. However, since the pandemic,
there's been a lag in the publication of reports especially with
companies requesting the JSE's extension to file their required
reports, the report relays. As a result, the May and June reports
were only published, the report discloses.
In the May report, a member-dealer continued to exhibit a deficit
in its ENFC as it remained below zero as of April 2022, the report
relays. The member-dealer first slipped into the regulatory breach
at the end of March compared to February when it was in the zero to
$299 million range, the report notes. The breach continued into
the June report as well for the May period, the report says. The
remaining 14 member-dealers were in compliance with the JSE
regulatory requirement and remained unchanged since the prior
report for their ENFC classification, the report relays.
Between February and March, one member-dealer's ENFC slipped below
zero, two slipped below the $300-million mark and one slipped below
the $6-billion mark, the report discloses. There was one
member-dealer addition between March and April in the zero to
$299-million band which would have likely been FHC Investments
Limited which was granted its member-dealer license to commence
operations in March and had its first trade on March 28, the report
relays.
As per the JSE's Main Market rule book (October 2020), the net free
capital before deductions is calculated by adding total active
assets, non-current liabilities under mortgages or other
enforceable agreements and subtracting total liabilities, the
report notes. After deducting for margin securities and overdue
margin accounts, the amount of $5 million or five per cent of total
liabilities, whichever is greater, is deducted to determine the
excess (deficiency) of net free capital (ENFC), the report relays.
Under the Statement B footnote, it states that on first occurrence
of a deficiency, the broker must write to the managing director
(Marlene Street Forrest) or chief regulatory officer (Andrae
Tulloch) explaining the reason for the deficiency and plans to
correct it within 30 days, the report says. With the broker
remaining in breach and showing continued deficiency as of the June
report, they would have had to submit proof that adequate capital
has been injected into the firm since the April report or they
would have been suspended from trading, the report notes. No
broker has been formally suspended by the JSE, the report relays.
A securities industry executive had described the initial breach as
a serious infringement and it potentially creating grave
implications for clients, the report notes. Based on the fact that
there has been no public notice, she indicated that it means that
the broker would have informed its regulators that it has a plan to
deal with its capital deficiency with some form of external
guarantee to remain in operation. Another executive said that the
broker would have been suspended from the company level until the
breach is rectified.
Up to the April report, only Stocks and Securities Limited (SSL)
had been cited by the RMOD in its monthly reports as a
member-dealer. In the May report, seven of the 19 citations were
related to SSL and its monthly and quarterly return reports which
were all submitted a day late past the submission deadline. Barita
Investments Limited was cited for its July 2021 monthly return
report which was incomplete on the initial submission date of
August 27, four days before the deadline. The completed report was
submitted on September 1. Proven Wealth was also cited for its
February 2022 monthly return report being submitted a day late on
April 1. These breaches fell under JSE Main Market Rules Rule 209
(A) which carries a $5,000 a day fine for late reports and (B)
which carries a $2,500 fine for incomplete reports.
As reported in the Troubled Company Reporter-Latin America in March
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
===========
BANCO MONEX: Fitch Affirms 'BB+/B' Issuer Default Ratings
---------------------------------------------------------
Fitch Ratings affirmed the Long- and Short-Term Foreign and Local
Currency IDRs of Banco Monex, S.A., Institucion de Banca Multiple,
Grupo Financiero Monex's (Banco Monex) at 'BB+' and 'B',
respectively, and its Viability Rating (VR) at 'bb+'.
Banco Monex's Government Support Rating (GSR) was affirmed at 'no
support' (ns). At the same time, Fitch affirmed the Long- and
Short-Term National Scale ratings of Banco Monex, Monex Casa de
Bolsa, S.A. de C.V., Grupo Financiero Monex (Monex CB) and Monex,
S.A.B. de C.V. (Monex SAB) at 'AA-(mex)'/'F1+(mex)', respectively.
The Rating Outlooks for Long-Term ratings are Stable.
In addition, the rating of Monex SAB's local senior unsecured debt
was affirmed at 'AA-(mex)'.
KEY RATING DRIVERS
Banco Monex's VR, IDRs and National Ratings
Solid Business and Financial Profile: Banco Monex's IDRs are driven
by its VR of 'bb+', which is one notch above its implied VR of
'bb'. This reflects the bank's high market share in the FX
wholesale trading market, which has translated into a relatively
strong business profile with consistent earnings over time. Banco
Monex's national scale ratings are relative rankings of
creditworthiness within the jurisdiction of Mexico and reflect the
bank's leadership in the FX market accompanied by a good financial
performance.
Strong FX Market Position: Banco Monex is a mid-sized Mexican
commercial bank whose business model is focused and specialized in
FX wholesale trading on behalf of third parties in the spot and
futures markets. The bank's specialization has translated to a
leading market position, which has been maintained through the
cycle. Banco Monex has the fourth largest market share in Mexico as
measured by net gains on FX forward and spot trading in 2Q22.
However, despite its FX market specialization, its market share as
a commercial bank is modest (0.8% of customers deposits of the
Mexican banking system) compared with domestic peers.
Controlled Asset Quality: Banco Monex's asset quality ratios
remained at adequate levels as of 2Q22. The bank's ample cushion of
loan loss allowances to absorb credit losses provides headroom for
a potential deterioration in asset quality. As of 2Q22, the NPL
ratio was 1.5%, in line with its 2018-2021 average of 1.8%. During
2020, the bank front-loaded MXN500 millions of loan loss allowances
to absorb potential credit costs due to coronavirus crisis. These
have yet to be released and as of 2Q22, covered 245.3% of impaired
loans. However, Banco Monex's NPL ratio could increase due to an
exposure to a defaulted Mexican NBFI and related companies (0.8% of
gross loans). Nevertheless, such potential credit costs could be
comfortably managed by the bank given its still high level of loan
loss allowances and resilient profitability.
Growing Earnings: Banco Monex's earnings and profitability profile
remains one of the strongest and most stable factors of its
financial profile. Earnings have proven to be consistent and
resilient to Mexico's challenging operating environment. As of
2Q22, the operating profit to risk weighted assets (RWA) ratio was
4.5%, the highest metric posted since 2018. Non-interest expenses
and loan impairment charges decreased relative to gross revenues
and pre-impairment operating profit, respectively, when compared
with previous years, underpinning the improvement in this core
metric. However, the bank's income base remains concentrated
compared with peers as FX trading and related income represented
56.3% of total operating income. Net gains on trading grew 26.2%
YTD on annualized terms due to high FX operating volumes, while the
RWA only grew 1.9% during this same period.
Sufficient Capital to Absorb Unexpected Losses: Banco Monex's
strong and recurrent earnings generation in conjunction with
moderate balance sheet growth have underpinned its capital metrics
over the past three years. In 2Q22, capital metrics remained
stable, with a CET1 capital ratio of 17.2%, the highest level since
year-end 2018. Fitch believes the ratio will gradually return to
its pre-pandemic level of 15% as the bank resumes its pace of
credit growth and dividend distributions. Prior to the pandemic,
the bank regularly distributed dividends; however, it has only
distributed MXN325 million since 2020. Even with the resumption of
dividend distributions, Fitch does not foresee capital pressures in
its baseline scenario and believes the bank will retain its loss
absorption capacity.
Adequate Funding and Liquidity: Banco Monex's funding structure is
good and diversified, with a limited reliance on wholesale funding.
As of 2Q22, the loans to deposits ratio was 54.9%, better than most
of Mexican commercial banks, but influenced by a low proportion of
loans on the balance sheet (14.3% of total assets). The ratio is
underpinned by Banco Monex's solid customer deposit base, which is
its main funding source, representing 93.8% of total funding
(excluding repos and securities lending) as of 2Q22. Demand
deposits accounted for 64.8% of total funding. Banco Monex's
liquidity profile is good, with limited near-term refinancing risk.
Fitch's assessment considers the bank's highly liquid balance sheet
and its LCR of 243% and NSFR of 110.6% as of 2Q22.
Monex SAB's National Ratings
Double Leverage Below 120%: The ratings of Monex SAB are at the
same level of its main operating subsidiary, Banco Monex, mainly
reflecting its double leverage ratio, which has been consistently
below 120% for several years. As of 2Q22, the ratio slightly
exceeded the 120% threshold (120.4%) as the result of two dividend
payments before the end of June 2022 that totaled MXN1,350 million.
Nonetheless, the shareholders injected capital of MXN1,000 million
in July; therefore, the net dividend payment was MXN350 million,
reducing the double leverage ratio to 109.7% by end-July 2022,
slightly below its four-year average of 112.6%. The ratio could
increase due to expected dividend payments that will be made and
the buyout of the public shares outstanding during 2023, but even
with those capital outflows, under Fitch's baseline scenario the
ratio will be maintained below 120%.
Operating Subsidiaries Provide Liquidity: The ratings also consider
the consistent liquidity that operating subsidiaries provide to
Monex SAB to service its outstanding debt. Fitch views Monex SAB's
liquidity and refinancing risk as low due to the long-term mature
of its financial obligations and adequate liquidity management.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Banco Monex - VR, IDR and National Ratings
- A sustained weakening in the bank's asset quality that
translates into a deterioration of the bank's operating profit
to RWA ratio consistently below 2.5% and a CET1 ratio
consistently below 13%, in conjunction with a weakened business
profile as reflected by a reduced market position in the FX
trading market;
- A negative rating action on the sovereign or a weaker OE would
result in a similar action on Banco Monex's IDRs and VR given
its less diversified business profile.
Monex SAB
- The national ratings would remain at the same level as Banco
Monex and would move in tandem with any rating actions on its
main operating subsidiary. However, a significant and sustained
increase of Monex SAB's double leverage ratio above 120% would
lead to a differentiation of one notch with respect to the
National Scale ratings of Banco Monex.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Banco Monex - VR, IDR and National Ratings
- An upgrade of Banco Monex's ratings is unlikely in the
foreseeable future as they are already at a relatively high
level for its moderate business model and scale. Over the
medium term, an upgrade would depend on greater business and
risk diversification, as well as a marked improvement of its
gross loan and customer deposit market shares within the
Mexican financial system.
Monex SAB
- By any positive movement in Banco Monex's national ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Monex SAB's Senior Unsecured Debt
Fitch affirmed the senior unsecured debt at the same level as Monex
SAB's LT National Scale Rating of 'AA-(mex)', as the notes'
likelihood of default is the same as the issuer's.
Banco Monex's GSR
Banco Monex's GSR is 'ns' as there is no reasonable assumption that
such support will be available since is not considered a domestic
systemically important bank (D-SIB). As of 2Q22, Banco Monex
deposits represented 0.8% of the Mexican banking system's
deposits.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Monex SAB's Senior Unsecured Debt
The debt rating would mirror any changes to the issuer's national
scale ratings.
Banco Monex's GSR
There is no downside potential for the GSR; however, upside
potential is limited and can only occur over time with a material
growth of the bank's systemic importance.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Monex CB
Important Role in Group: Monex CB's national ratings and Outlook
are aligned with those of Banco Monex due to Monex Grupo
Financiero, S.A. de C.V.'s legal obligation to provide support to
its subsidiaries, as well as Fitch's perception of Monex CB's key
and integral part to the group's overall vision and strategy.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Monex CB
Monex CB's national ratings would mirror any changes in Banco
Monex's national ratings. Additionally, a change in Fitch's
perception of the entity's lower strategic importance for the bank
and the controlling group could lead to a negative rating
action/downgrade.
VR ADJUSTMENTS
The Viability Rating of 'bb+' has been assigned above the implied
Viability Rating of 'bb' due to the following adjustment reason(s):
Business Profile (positive).
The Business Profile Score of 'bb+' has been assigned above the 'b'
category implied score due to the following adjustment reason(s):
Market Position (positive).
SUMMARY OF FINANCIAL ADJUSTMENTS
Banco Monex and Monex CB: Fitch classified pre-paid expenses and
other deferred assets as intangibles and deducted them from total
equity due to their low loss absorption capacity under stress.
Monex SAB: Fitch classified pre-paid expenses, other deferred
assets and goodwill as intangibles and deducted them from total
equity due to their low absorption capacity under stress. Fitch
re-classified the net operating leases classified as fixed assets
as other earning assets.
Financial figures are in accordance to the CNBV criteria. 2Q22
figures include recent accounting changes in the process to
converge to International Financial Reporting Standards (IFRS).
Prior years did not include this change and the agency believes
they are not directly comparable.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Monex CB: Monex CB's ratings and Outlook are aligned with those of
Banco Monex due to Monex GF's legal obligation to provide support
to its subsidiaries.
Monex SAB: Monex SAB's national ratings are aligned with those of
its main operating subsidiary, Banco Monex.
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.
Entity Rating Prior
------ ------ -----
Banco Monex, S.A.,
Institucion de Banca
Multiple, Monex Grupo
Financiero
LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Natl LT AA-(mex) Affirmed AA-(mex)
Natl ST F1+(mex) Affirmed F1+(mex)
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
Monex Casa de Bolsa,
S.A. de C.V.,
Monex Grupo Financiero
Natl LT AA-(mex) Affirmed AA-(mex)
Natl ST F1+(mex) Affirmed F1+(mex)
Monex, S.A.B. de C.V.
Natl LT AA-(mex) Affirmed AA-(mex)
Natl ST F1+(mex) Affirmed F1+(mex)
senior unsecured
Natl LT AA-(mex) Affirmed AA-(mex)
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Fuel Price Hike Concerns Chamber
---------------------------------------------------
Trinidad Express reports that while some business groups remain
optimistic about the national budget, the Trinidad and Tobago
Chamber of Industry and Commerce (T&T Chamber) remains reserved
about the significant impact of the fiscal measures on the
economy.
Responding to the 2023 budget, the T&T Chamber said given the
reasonable benchmark for energy commodity prices, several
initiatives outlined in the budget such as cashless transactions,
infrastructure projects, health, housing, information and
communication technology and education kept in line with the
budget's theme "Tenacity and stability in the face of global
challenges," according to Trinidad Express.
"Notwithstanding this, the minister announced an increase in fuel
prices. While the T&T Chamber understands the need to limit the
fuel subsidy, it is concerned about the impact that this will have
on inflation and the population at this time," the Chamber said,
the report notes.
"More importantly, the Government reiterated its intention to
support Micro, Small and Medium Enterprises (MSMEs), and with the
engagement of the private sector there can be significant and
strategic growth of several sectors. This is critical for the
growth of the economy, as MSMEs account for a major portion of the
private sector and the Chamber welcomes the new long-term loan
guarantee program," it said, the report relays.
While the Chamber is heartened with the investment in agriculture,
it questions what transformational impact the incentives would have
on the sector, the report discloses.
Additionally, the Chamber looks forward to the full operation of
the Trinidad and Tobago Revenue Authority (TTRA) which would allow
for a fair and efficient revenue collection. "In keeping with the
theme of the ease of doing business, we know that many of the
digital transformation measures are ongoing and urgent
implementation should be pursued to facilitate an enabling
environment for business," the report relays
The American Chamber of Commerce of Trinidad and Tobago (AMCHAM)
said it was clear that the Minister of Finance attempted to balance
several considerations in the budget, the report notes.
"We also think it prudent that an attempt is being made to contain
expenditure. In our opinion, the budgeted gas price is reasonable
in the current climate. We welcome reductions in the tax rates
designed to stimulate upstream oil and gas production. In addition,
the reduction in taxes for FinTechs and the Financial Services hub
are laudable initiatives," AMCHAM T&T outlined, the report
discloses.
AMCHAM T&T noted it looks forward to the operation of the Special
Economic Zones (SEZ) legislation as a means of encouraging
additional investment, the report says.
"We eagerly await the rollout of the Developers' Hub and applaud
the effort to develop software as a service for the Government
sector. This software also has the potential to be exported and the
Hub could incubate smaller technology companies. The identification
of specific initiatives to support the transition to a cashless
society and to remove the friction of transacting business with the
Government are also likely to have a positive impact. We are also
anxious to see the results of the implementation of the
restructuring of operations in the water and sewerage sector," the
report relays.
The Trinidad and Tobago Manufacturers' Association (TTMA) president
Tricia Coosal said the Ease of Doing Business, which was once again
stressed by the minister via the pledge of digitization through the
strengthening of the Single Electronic Window and implementation of
the electronic fund transfer framework to allow businesses to make
payments to the Government by the business community, was a welcome
initiative, the report discloses.
Coosal noted that TTMA has advocated for a more efficient tax
collecting mechanism, stressing the importance of widening the tax
net as opposed to further burdening the already compliant
population of the country, the report says.
"In this regard the association looks forward to operation of the
Trinidad and Tobago Revenue Authority in 2023 and anticipates that
this facility would allow for greater efficiencies in the tax
collection," she stressed, the report notes.
The TTMA president also acknowledged Government's initiative to
further the operation of the Manufacturing Apprenticeship program
and the Export Booster Initiative as well as increasing the
allotment of the Foreign Exchange facility at EXIM Bank are
pleasing deliverables, the report relays.
While Coosal noted the Government's announcement of Value-Added Tax
(VAT) payments of $4 Billion in 2022, however, she added, "The
Association hopes the disbursement of VAT refund continues rapidly
in the coming fiscal since the SME sector specifically suffers
significantly from cash flow when payments are outstanding," the
report says.
The San Juan Business Association (SJBA) has given the budget a 7.5
out of 10, but expressed concern over the projection of the Oil
price at $92.50 per barrel, the report discloses.
The association said the Government needs to be careful to not over
stretch the projection of the country's revenue, the report notes.
However, SJBA was pleased to see a reduction in deficit from 9.1
billion to 1.51 billion (7.66 billion down), Signal to bolster the
construction sector with starting new housing projects, housing
allocation increased by 59 per cent year over year, increase in
personal tax allowance for citizens by $6,000 and allocations to
increase road rehabilitation, the report relays.
"We are also pleased to see a focus on streamlining state agencies
for greater efficiency. This will go a long way. We would also like
to point out at this time and advocate that the government pay
specific attention to relevant on the job as well as practical
training in the public sector to further add to increasing
efficiency and performance within state agencies," the association
said, the report adds.
===============
X X X X X X X X
===============
LATAM: CDB Gets $50-Mil. Grant to Counter Climate Change Effects
----------------------------------------------------------------
RJR News reports that the Caribbean Development Bank (CDB) has
received a 50 million dollar grant to counter the effects of
climate change and supporting the sustainable development of
Caribbean countries.
The funds were received from an Italian National Promotional
Institution to the CDB, according to RJR News.
The CDB says the financing is earmarked through the Revolving Fund
for Development Cooperation and will expand the pool of loans that
it already makes available to its Borrowing Member Countries, 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
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *