/raid1/www/Hosts/bankrupt/TCRLA_Public/230103.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
Tuesday, January 3, 2023, Vol. 24, No. 3
Headlines
A R G E N T I N A
ARGENTINA: Must Avoid 'Hot Money' Pitfall, Top Economist Says
GAUCHO GROUP: Stockholders Approve 1.25M Shares Issuance
B E R M U D A
WINE ENTERPRISE: Insolvent by at Least GBP7.8 Million
B R A Z I L
BRAZIL: Accounts Register Deficit of US$2.8 Billion in November
BRAZIL: Fitch Affirms Foreign Currency IDR at 'BB-', Outlook Stable
BRAZIL: Inflation by General Market Price Index Rises 0.45% in Dec.
D O M I N I C A N R E P U B L I C
[*] DOMINICAN REPUBLIC: Economy Ends Year With 5% Growth
V I R G I N I S L A N D S
US VIRGIN ISLANDS WAPA: Fitch Lowers Issuer Default Rating to 'CC'
X X X X X X X X
LATAM: BCIC Says Some Reinsurers Leaving Caribbean Market
- - - - -
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A R G E N T I N A
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ARGENTINA: Must Avoid 'Hot Money' Pitfall, Top Economist Says
-------------------------------------------------------------
Patrick Gillespie & Juan Pablo Spinetto at Bloomberg News report
that an Argentine economist who is drafting recommendations for a
more business-friendly government that could emerge from the 2023
elections has a message for foreign investors contemplating a
possible regime change.
"We are not interested in 'hot money' in Argentina," Carlos
Melconian, director of the IERAL think tank, said in an interview
from his office in Buenos Aires, according to Bloomberg News. "A
flow of capital that generates quick profits and is confused with
the element of confidence, we are not interested."
Melconian, who previously headed the state-run Banco de la Nacion
Argentina, is drawing up an economic plan for the next government
that would address the country's many problems, which range from
100 per cent inflation and a web of exchange controls to
anti-business labour laws and poverty close to 40 per cent, the
report relays.
His plan would also attempt to avoid some of the early policy
mistakes of the last market-oriented administration of Mauricio
Macri, who lost the 2019 election to President Alberto Fernandez
after early reforms failed to avert a new crisis, the report
discloses.
Although the specific details have not yet been made public, some
key policies are laid out in Melconian's plan for the start of a
new government, the report says. Setting inflation targets and a
free-floating exchange rate -- two policy pillars of Macri's early
days in office in late 2015 -- cannot happen after the next
government takes the reins, Melconian says, calling such measures
"inadequate," the report relays.
He proposes that the new government force investors to hold
Argentine assets for a certain period of time before selling them,
to avoid the rapid fluctuations that helped fuel market volatility
during the Macri government, or the "hot money" often associated
with quick profits and speculation stemming from sharp currency
movements, the report notes. He did not define exactly how long
investors should wait, the report discloses.
After initial success in stabilizing the economy, reaching
agreement with reluctant creditors, returning to global bond
markets and removing onerous controls, Macri's government suffered
a crisis of confidence midway through its four-year term and was
forced to turn to the International Monetary Fund for a record
US$56-billion bailout, the report relays. After Macri was defeated
in the 2019 primaries, he had to re-impose some controls as
investors rapidly withdrew money from the country, the report
says.
It is worth clarifying that there is no "hot money" in Argentina at
the moment due to strict exchange controls, the report discloses.
During the pandemic, the Fernandez government defaulted and then
restructured its debt, but with current yields of around 20 percent
on dollar bonds, the country is effectively shut out of
international markets, the report relays. Investor appetite to
return to Argentine assets depends largely on the economic policies
of the next government, the report notes.
More broadly, Melconian sees a new economic era for crisis-prone
Argentina after this election cycle, the report relays.
"In politics it is said that a political cycle is ending because it
is the end of populism," said Melconian. "We say that a cycle of
economic organisation and format in the Argentine economy is coming
to an end and that it is not going to last," the report discloses.
The end of the Fernandez government and the current economic model
will not be easy, the report relays. Melconian forecasts annual
inflation of 100 percent from January until at least the primaries
in August, with more reasons to think it will rise than fall, the
report notes.
Top Candidates
Along with what he estimates to be 60 to 70 key thinkers --
economists, lawyers, tax experts -- some of whom are also
contenders for a future cabinet post, Melconian is one of the
architects behind the plan he describes as "capitalist, western and
progressive," the report discloses.
At first, "Argentina is not going to face what it does with the
cepo," he argued, referring to currency controls. "Argentina also
has to face up to what it is doing with the way it does business,
the report relays.
Melconian is often linked in the local press to Patricia Bullrich,
the conservative leader of the opposition coalition who is expected
to run for president, the report says. Buenos Aires City Mayor
Horacio Rodriguez Larreta, considered more centrist than Bullrich,
is also preparing his candidacy, the report notes. Liberal
economist Javier Milei, who presents himself as anti-establishment,
also stands out in the latest polls, the report relays.
Melconian insists that his plan is apolitical and not linked to any
opposition candidate. But with Fernandez's popularity falling and
after Vice-President Cristina Fernandez de Kirchner declared she
will not be a candidate, the economist sees an opportunity for the
opposition to win next year's elections, the report relays.
"It's an opposition that absolutely still has a penalty kick
without a goalkeeper," says Melconian, 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 in the Troubled Company Reporter-Latin America on
Nov. 18, 2022, S&P Global Ratings affirmed its 'CCC+/C' foreign
currency sovereign credit ratings on Argentina. S&P lowered the
long-term local currency sovereign credit rating to 'CCC-' from
'CCC+' and the national scale rating to 'raCCC+' from 'raBBB-'.
S&P also affirmed its 'C' short-term local currency rating.
The outlook on the long-term ratings is negative. S&P's 'CCC+'
transfer and convertibility assessment is unchanged.
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.
GAUCHO GROUP: Stockholders Approve 1.25M Shares Issuance
--------------------------------------------------------
As previously reported in Gaucho Group Holdings, Inc.'s Quarterly
Report on Form 10-Q for the period ended Sept. 30, 2022 and as
filed with the Securities and Exchange Commission on Nov. 18, 2022,
the Company commenced an offering of a series of 7% convertible
promissory notes to accredited investors in the amount of up to
$1,500,000 (inclusive of principal and interest), assuming a
conversion price of the Notes at $2.40, and an additional
$3,750,000 assuming exercise of all the warrants at $6.00.
On Dec. 19, 2022, at a special meeting of the stockholders of the
Company, the stockholders approved, for purposes of complying with
Nasdaq Listing Rule 5635(d), the issuance of up to 1,250,000 shares
of the Company's common stock upon the conversion of the Notes
without giving effect to the 19.99% cap provided under Nasdaq Rule
5635(d).
Also on Dec. 19, 2022, Notes representing a total of $1,484,000 of
principal and $13,710 of interest were mandatorily converted into
624,084 units consisting of one share of common stock and one
warrant to purchase one share of common stock at a conversion price
of $2.40 per unit. The Warrants are exercisable at a price of
$6.00 per share and carry a term of one year.
For this sale of securities, there was no general solicitation and
no commissions paid, all purchasers were accredited investors, and
the Company is relying on the exemption from registration available
under Section 4(a)(2) and/or Rule 506(b) of Regulation D
promulgated under the Securities Act with respect to transactions
by an issuer not involving any public offering. A Form D was
filed with the SEC on Oct. 19, 2022, and an amended Form D was
filed on Dec. 23, 2022.
About Gaucho Group
Headquartered in New York, NY, Gaucho Group Holdings, Inc. --
http://www.algodongroup.com --was incorporated on April 5, 1999.
Effective Oct. 1, 2018, the Company changed its name from Algodon
Wines & Luxury Development, Inc. to Algodon Group, Inc., and
effective March 11, 2019, the Company changed its name from Algodon
Group, Inc. to Gaucho Group Holdings, Inc. Through its
wholly-owned subsidiaries, GGH invests in, develops and operates
real estate projects in Argentina. GGH operates a hotel, golf
and
tennis resort, vineyard and producing winery in addition to
developing residential lots located near the resort. In 2016,
GGH
formed a new subsidiary and in 2018, established an e-commerce
platform for the manufacture and sale of high-end fashion and
accessories. The activities in Argentina are conducted through
its operating entities: InvestProperty Group, LLC, Algodon Global
Properties, LLC, The Algodon - Recoleta S.R.L, Algodon Properties
II S.R.L., and Algodon Wine Estates S.R.L. Algodon distributes its
wines in Europe through its United Kingdom entity, Algodon Europe,
LTD.
Gaucho Group reported a net loss of $2.39 million for the year
ended Dec. 31, 2021, a net loss of $5.78 million for the year
endedDec. 31, 2020, and a net loss of $6.96 million for the year
ended Dec. 31, 2019. As of Sept. 30, 2022, the Company had
$25.39
million in total assets, $6.86 million in total liabilities, and
$18.53 million in total stockholders' equity.
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B E R M U D A
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WINE ENTERPRISE: Insolvent by at Least GBP7.8 Million
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The Royal Gazette reports that a wine-based investment group, based
in Bermuda and England, has been accused of impropriety by an
investor and appeared to be insolvent by at least GBP7.8 million,
it has been reported.
But a spokesman for the group said that there was nothing untoward
in the matter and the dispute will soon be resolved, The Royal
Gazette relates.
According to The Royal Gazette, the article was published in
OffshoreAlert, which said that the group is controlled by Rodney
Birrell, a Canadian living in Bermuda, and Briton Andrew della Casa
of London.
The group is said to include British fund manager Anpero Capital
Limited and at least two Anpero-managed investment funds, The Wine
Enterprise Investment Scheme Limited, in England, and The Wine
Investment Fund Limited, in Bermuda, The Royal Gazette notes.
The Registrar of Companies for England and Wales has filed a notice
with Companies House that Anpero will be compulsorily struck off
the register and dissolved by the end of January, The Royal Gazette
discloses.
According to The Royal Gazette, the article further states: "The
Wine Enterprise Investment Scheme's Bermuda sister fund, The Wine
Investment Fund, also appears to be insolvent, with one Bermuda
investor complaining to the Bermuda Monetary Authority in a letter
dated October 5, 2022, that the fund had failed to satisfy
‘numerous requests', starting on June 30, 2021, to redeem its
investment balance of GBP164, 212."
The article also said: "The fund was "in serious breach of various
provisions" of Bermuda's Investment Funds Act, including
requirements "for a fund operator and service provider to be fit
and proper" and "for preparation of audited financial statements",
the latter of which the investor has not received since investing
in 2009, it was stated in the letter."
According to OffshoreAlert, the BMA was asked to appoint someone to
investigate the fund's activities, order it to satisfy redemptions,
and, if it failed to do so, impose penalties against the fund, its
manager, and principals, including revoking the fund's
registration. Two months after the complaint, The Wine Investment
Fund was still listed as an 'Authorised Standard Fund' on the BMA's
website.
The article states the Wine Investment Fund was incorporated in
Bermuda in 2008 and, according to its register of directors and
officers obtained by OffshoreAlert from its administrator, Krypton
Fund Services, Birrell is currently its sole director.
The fund's management shares and participating shares are all owned
by Anpero Capital, according to its register of members.
"Despite The Wine Investment Fund's apparent insolvency, it is
currently claimed in the "Performance" section of its website at
wineinvestmentfund.com that the Fund's Net Asset Value increased by
139.37 per cent since inception in March 2004 to August 2022, and
potential investors are invited to "Apply for your investment
pack".
"When contacted by OffshoreAlert, della Casa stated that The Wine
Investment Fund had been making payments, including interest, on
the amount owed to the investor, adding that 'one final payment'
was still outstanding."
"Since a formal complaint by the company to the BMA has been made,
however, it would not be appropriate to comment further until the
matter has been formally resolved," he stated.
"Once resolved we will be more than happy to answer all your
questions in full and, to this end, I shall write to you again at
such time.
"In the meantime, I can confirm that no financial crime, serious or
otherwise, is in progress."
Anpero's accounts "were not filed in time due to an internal
control issue and are due to be filed shortly", he claimed.
Regarding the liquidation of The Wine Enterprise Investment Scheme,
he claimed that "the company is an Enterprise Investment Scheme in
the UK and that it is standard practice for such companies to be
put into liquidation once the company's shares have been held for
the qualifying period, The Royal Gazette relates.
"This ensures that returns to investors are treated as capital
gains (tax free under the scheme) and not as income (which would
otherwise be taxed)."
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B R A Z I L
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BRAZIL: Accounts Register Deficit of US$2.8 Billion in November
---------------------------------------------------------------
Richard Mann at Rio Times Online, citing National Treasury, reports
that the Brazilian Government accounts recorded a deficit of
BRL14.7 billion (US$2.8 billion) in November, ending two
consecutive months of positive figures and representing the fourth
worst November since 1997.
The public accounts, which include the National Treasury, Social
Security, and the Central Bank and do not take into account
interest payments on public debt, mainly returned a negative result
due to an increase in expenses, according to Rio Times Online.
In November 2021, the Brazilian Government's public accounts
recorded a surplus of BRL4.2 billion (US$0.8 billion), the report
notes.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022
Brazilian general election. He will be sworn in on January 1, 2023,
as the 39th president of Brazil, succeeding Jair Bolsonaro.
In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign
Currency Issuer Default Rating at 'BB-' and revised the Rating
Outlook to Stable from Negative. In June 2022, S&P Global
Ratings also affirmed its 'BB-/B' long- and short-term foreign and
local currency sovereign credit ratings on Brazil. Moody's, in
April 2022, affirmed Brazil's long-term Ba2 issuer ratings and
senior unsecured bond ratings, (P)Ba2 senior unsecured shelf
ratings, and maintained the stable outlook. On the other had,
DBRS, in August 2022, confirmed Brazil's Long-Term Foreign and
Local Currency Issuer Ratings at BB (low).
BRAZIL: Fitch Affirms Foreign Currency IDR at 'BB-', Outlook Stable
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Fitch Ratings has affirmed Brazil's Long-Term Foreign Currency
Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.
KEY RATING DRIVERS
Stable Outlook Amid Uncertainties: Brazil's ratings are supported
by its large and diverse economy, high per-capita income, deep
domestic markets that enable a high share of local-currency
sovereign financing, and shock-absorption capacity underpinned by a
flexible exchange rate, low external imbalances, and robust
international reserves. The ratings are constrained by high
government indebtedness, a rigid fiscal structure, weak economic
growth potential, and a record of governability challenges that
have hampered efforts to address these fiscal and economic issues
and clouded policy predictability.
The Stable Outlook reflects Fitch's expectation that growth will
slow in the coming year and that recent fiscal improvement will
erode under a new government, but within a margin consistent with
the current rating, and from a better starting point than
previously expected. Uncertainty is elevated regarding the plans of
the incoming government and the extent to which these could ease or
aggravate fiscal and economic challenges. However, Fitch does not
expect policies that jeopardize broad economic stability.
Narrow Lula Victory: Luiz Ignacio "Lula" da Silva of the leftist
Workers Party (PT) will take office as president in January, after
his narrow victory over incumbent Jair Bolsonaro in October 2022
elections. Lula pledges a shift away from the liberal economic
agenda of recent years. But it is unclear how forceful a policy
shift he will pursue, which has been a source of market volatility
since the elections. Changes in fiscal and microeconomic policies
are likely, but concrete proposals have yet to emerge, and Fitch
expects monetary/exchange-rate policy and central bank (BCB)
autonomy to be unaffected.
A fragmented congress, in which conservative parties made gains,
could pose a constraint on Lula's agenda, but is not certain to
pose a strong force for fiscal discipline in Fitch's view, in light
of expansionary fiscal measures taken before elections and being
considered currently during the transition period.
Resilient, Cooling Growth: Fitch projects growth of 3.0% in 2022,
reflecting surprisingly strong momentum in the year supported by
the final stages of post-pandemic economic reopening, stimulus
measures, and a strong labor market. Growth is cooling, however, on
the back of the lagged effect of substantial monetary tightening,
and the expected global deceleration will be an additional drag.
Fitch expects growth to slow to 0.7% in 2023, and could be
sensitive to expansionary fiscal policies, as these could fuel
domestic demand but also adversely affect confidence and force the
BCB to prolong or intensify tight monetary policy.
Reform Agenda Yet to Take Shape: A liberal economic agenda in the
past five years (labor reform, concessions/privatizations,
regulatory changes) has helped improve the business climate as
public investment has ebbed, and investment/GDP has risen to 19%
from a low of 15%. This agenda will wane under Lula, who has
pledged to halt privatizations and has espoused a return to a
state-led growth model. But concrete plans are yet to take shape.
The government has indicated its near-term priorities could include
tax reform, to reduce complexity and potentially lift revenues, and
changes to labor laws. Details of a planned infrastructure push
remain pending, and this could face execution challenges.
It is likely the government will seek to redirect the corporate
strategies of state enterprises such as oil company Petrobras and
development bank BNDES, having been critical of their downsizing
and shift to market-based pricing policies in recent years. Fitch
expects any such shift would be gradual rather than a wholesale
return to aggressive interventionism and quasi-fiscal policy.
Fiscal Erosion Ahead: Public finances have outperformed in 2022, as
buoyant tax revenues and commodity-linked receipts have offset the
effects of large tax cuts and social spending increases enacted
mid-year to mitigate inflationary pressures. Fitch expects the
general government primary surplus will rise to 1.3% of GDP in 2022
- its best outturn since 2013. But Fitch projects it will
deteriorate sharply to a 1.0% primary deficit in 2023 as a result
of the full-year effect of the tax cuts (which are permanent or
likely to be extended), softer growth and commodity prices, and
workarounds to the spending cap to open space for greater social
and investment spending (1.7% of GDP in a proposed constitutional
amendment, though this remains subject to congressional approval).
The spending cap is being relaxed with no concrete plans to replace
it with a new fiscal anchor, heightening uncertainty around the
medium-term fiscal trajectory and adversely affecting borrowing
costs.
Debt Will Rise Again: General government debt will fall for a
second year to a projected 74.1% of GDP in 2022, recovering its
level of 2019 before a jump during the pandemic. Fitch projects it
will climb again to 80.0% by 2024, well above the 'BB' median of
55%, due to the re-emergence of primary deficits, slower growth,
and higher interest costs. This trajectory could be even steeper
should fiscal deterioration exceed expectations, as this could have
further adverse spill-overs for growth and borrowing costs.
BCB Hawkish as Inflation Subsides: Inflation fell to 5.9% yoy in
November from 12.1% in April, largely due to tax cuts on energy
items. Core inflation measures net of these items remain high
(8%-10%) but have begun to moderate. The BCB has pursued one of the
world's most aggressive and proactive monetary policy tightening
cycles, lifting its Selic rate by a cumulative 1,175 basis points
to 13.75% as of August, which has helped contain drift in
expectations. It has reinforced a hawkish bias in light of
inflation risks posed by current fiscal uncertainties, and should
these persist, the BCB could prolong the period of ultra-tight
monetary policy or even hike rates further.
Sound External Position: The current account deficit is expected to
inch up to 3.0% of GDP in 2022, higher than previously expected
given buoyant domestic demand but also methodological revisions,
and remain fully funded by robust FDI. The BRL has held up well
amid the global volatility of 2022 as tight domestic monetary
policy has offset broader risk-off sentiment, albeit with some
bouts of volatility related to domestic policy uncertainties.
International reserves have fallen 9% in the year through
mid-December to USD331 billion, but almost entirely due to
valuation effects, and continue to represent an ample buffer
(covering 8.6 months of current external payments, above the 'BB'
median of 4.5).
ESG - Governance: Brazil 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 its proprietary Sovereign
Rating Model. Brazil has a medium WBGI ranking at the 41st
percentile, reflecting a track record of political tensions but
peaceful political transitions, a moderate level of rights for
participation in the political process, moderate institutional
capacity, moderate rule of law, and a high level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Public Finances: Material policy shifts that undermine fiscal
policy credibility and threaten medium-term public debt
sustainability;
- Public Finances: A severe deterioration in the sovereign's
domestic and/or external market borrowing conditions; for example,
due to economic policy mismanagement;
- Macro: Policies that increase macroeconomic instability and or
undermine medium-term growth prospects.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Public Finances: Progress on fiscal consolidation that increases
confidence that government debt/GDP will stabilize over the medium
term;
- Macro: Evidence of an improvement in investment and economic
growth prospects in the context of macroeconomic stability and
contained inflation;
- Structural: Improved governability and policy predictability, and
timely passage of reforms that strengthen public finances and
growth prospects.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Brazil a score equivalent to a
rating of 'BBB-' on the Long-Term Foreign Currency IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM
score to arrive at the final Long-Term Foreign Currency IDR by
applying its QO, relative to SRM data and output, as follows:
- Structural: -1 notch, to reflect Brazil's fragmented congress,
periodic frictions among the different branches of the government
and corruption-related issues that have reduced policy visibility
and hampered timely progress on reforms to improve the medium-term
trajectory of public finances. In addition, high income inequality
adds to social pressures.
- Macro: -1 notch, to reflect weak growth prospects and potential,
largely held back by a low albeit increased investment rate and
structural impediments such as a difficult business environment,
which make it more challenging to consolidate public finances and
address social pressures.
- Public Finances: -1 notch, to reflect Brazil's high GG debt
burden that is projected to rise further in the medium term. In
addition, fiscal flexibility is hampered by the highly rigid
spending profile and a heavy tax burden that makes adjustment to
economic shocks difficult.
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 our criteria that are not fully quantifiable and/or
not fully reflected in the SRM.
ESG CONSIDERATIONS
Brazil has an ESG Relevance Score of '5' for Political Stability
and Rights as WBGIs have the highest weight in Fitch's SRM and a
highly fragmented congress has made timely passage of corrective
policy adjustments difficult; this is highly relevant to the rating
and a key rating driver with a high weight. As Brazil has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Brazil has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
WBGIs have the highest weight in Fitch's SRM and the corruption
related issues exposed in recent years have severely hit political
dynamics and economic activity; this is highly relevant to the
rating and a key rating driver with a high weight. As Brazil has a
percentile rank below 50 for the respective Governance Indicators,
this has a negative impact on the credit profile.
Brazil has an ESG Relevance Score of '4' [+] for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
WBGIs is relevant to the rating and a rating driver. As Brazil has
a percentile rank above 50 for the respective Governance Indicator,
this has a positive impact on the credit profile.
Brazil 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 Brazil, as for all sovereigns. As Brazil has
track record of 20+ years without a restructuring of public debt
and captured in Fitch's SRM variable, this has a positive 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).
Entity/Debt Rating Prior
----------- ------ -----
Brazil LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Country Ceiling BB Affirmed BB
senior
unsecured LT BB- Affirmed BB-
BRAZIL: Inflation by General Market Price Index Rises 0.45% in Dec.
-------------------------------------------------------------------
Rio Times Online reports that the Brazilian General Price Market
Price Index (IGP-M) changed by 0.45% in December, after falling by
0.56% in the previous month.
In the year, the index accumulated an increase of 5.45%, according
to Rio Times Online.
In December 2021, the index had changed by 0.87% and had
accumulated an increase of 17.78% in 12 months, the report notes.
"The last edition of the 2022 IGP-M shows acceleration in the
prices of important foodstuffs for producers and consumers," notes
the report.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022
Brazilian general election. He will be sworn in on January 1, 2023,
as the 39th president of Brazil, succeeding Jair Bolsonaro.
In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign
Currency Issuer Default Rating at 'BB-' and revised the Rating
Outlook to Stable from Negative. In June 2022, S&P Global
Ratings also affirmed its 'BB-/B' long- and short-term foreign and
local currency sovereign credit ratings on Brazil. Moody's, in
April 2022, affirmed Brazil's long-term Ba2 issuer ratings and
senior unsecured bond ratings, (P)Ba2 senior unsecured shelf
ratings, and maintained the stable outlook. On the other had,
DBRS, in August 2022, confirmed Brazil's Long-Term Foreign and
Local Currency Issuer Ratings at BB (low).
===================================
D O M I N I C A N R E P U B L I C
===================================
[*] DOMINICAN REPUBLIC: Economy Ends Year With 5% Growth
--------------------------------------------------------
Dominican Today reports that the Central Bank of the Dominican
Republic, in reporting the preliminary results of the economy,
reveals that the monthly indicator of economic activity (IMAE)
registered an accumulated growth of 5.0% in January-November 2022
when compared to the same period the previous year, after
incorporating the interannual variations of 3.8% in October and
2.9% in November of the current year.
The Dominican economy's trend throughout the year reflects a
moderation in its growth rate in recent months, as increases of
6.1%, 5.1%, and 5.0% were recorded in the first three quarters of
the year, respectively, according to Dominican Today.
The slowdown in domestic demand, primarily from the investment
component, is due to high raw material and construction material
costs, as well as the operation of the monetary policy transmission
mechanism aimed at reducing inflationary pressures, the report
notes.
In this regard, the results of the Central Bank forecast system
indicate that actual gross domestic product (GDP) growth will be
around 5.0% by the end of 2022, the report relays.
In terms of nominal GDP, it is expected to reach approximately
US$113 billion, contributing to the consolidated public sector debt
falling below 60% of GDP by the end of the current fiscal year, the
report discloses.
GDP per capita rises from $8,971.9 in 2021 to close to $10,600 in
2022 with this level of nominal product. Similarly, it is important
to highlight Standard & Poor's Global Ratings' recent upgrade of
the sovereign credit risk rating from 'BB-' to 'BB,' reflecting the
country's climate of stability supported by the consolidation of
the economic recovery, as well as favorable expectations regarding
GDP performance and the continuation of timely policies in the
medium term, the report notes.
It should be noted that the preceding is supported by the Dominican
Republic's strong macroeconomic fundamentals, as well as its
resilience in the face of the current adverse international
context, which highlights the slowing of global economic growth and
the restrictive monetary stance adopted by most countries to
control inflationary pressures, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the
island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis
Rodolfo
Abinader Corona is the current president of the nation.
The TCR-LA reported in April 2019 that Juan Del Rosario of the
UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
The TCR-LA reported on December 12, 2022, that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign Currency Issuer
Default Rating (IDR) at 'BB-' with a Stable Rating Outlook. Fitch
said Dominican Republic's ratings are supported by a track record
of robust economic growth, a diversified export structure, high
per-capita GDP and social indicators, and governance scores that
compare favorably to peers' after sustained improvement in the
past
decade.
Standard & Poor's, in December 2021, revised its outlook on
the Dominican Republic to stable from negative.S&P also affirmed
its 'BB-' long-term foreign and local currency sovereign credit
ratings and its 'B' short-term sovereign credit ratings. The
stable
outlook reflects S&P's expectation of continued favorable GDP
growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack
of
progress with broader tax reforms, S&P said.A rapid economic
recovery from the downturn because of the pandemic should mitigate
external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
===========================
V I R G I N I S L A N D S
===========================
US VIRGIN ISLANDS WAPA: Fitch Lowers Issuer Default Rating to 'CC'
------------------------------------------------------------------
Fitch Ratings has downgraded the following ratings for the U.S.
Virgin Islands (USVI) Water and Power Authority (WAPA) to 'CC' from
'CCC':
- Approximately $91.49 million electric system revenue bonds;
- Approximately $86.40 million electric system subordinate revenue
bonds;
- Issuer Default Rating (IDR).
The ratings have been removed from Rating Watch Negative.
ANALYTICAL CONCLUSION
The downgrade is driven by WAPA's sustained weak financial
performance and recent operating disputes that have increased its
vulnerability to default. WAPA's latest challenge relates to its
dispute with Vitol Virgin Islands Corp. (Vitol), historically one
of the authority's largest fuel suppliers and the owner of certain
assets leased by WAPA. These assets include infrastructure
necessary to import, unload, store and deliver liquified petroleum
gas (LPG) to certain of WAPA's plants.
The dispute relates to the amount of WAPA's capital lease
obligation to Vitol, which was reported at over $200 million in the
authority's fiscal 2020 audit. Vitol has threatened to stop
providing propane due to unpaid bills, and WAPA is reportedly
seeking alternate suppliers. Propane has accounted for 80% of
WAPA's fuel for generation in the past.
The 'CC' rating reflects heightened default risk as a consequence
of WAPA's weak operating fundamentals, cash flow and liquidity and
suggests default is probable. Based on unaudited information
provided by WAPA, its liquidity remains strained. Despite
reasonable cash on hand reported at June 30, 2022 ($42.8 million or
57 days), accounts payable have grown to over $200 million, and
borrowing capacity remains insufficient to service the full amount
of scheduled maturities over the long term. The rating also factors
the prospect of greater regulatory and operational oversight of the
authority by the Virgin Islands Public Services Commission (PSC).
Legislation previously approved by the U.S. Virgin Islands
legislature has provided for such oversight, as well as development
of a debt consolidation and management plan.
Fitch is also increasingly concerned about the availability of
information related to the authority's operating and financing
strategy to address these challenges. If the information necessary
for Fitch to maintain a forward-looking evaluation of WAPA's
ability to meet its obligations is not available in the coming
months, Fitch will withdraw the authority's ratings.
Fitch currently makes no distinction between the ratings on WAPA's
senior lien obligations, subordinate lien obligations and its IDR
as the relatively high probability of enterprise default does not
support distinctions between the ratings. However, given the
disparate liens supporting WAPA's rated and unrated debt
obligations, distinctions could be made in the event of selective
payment default on specific classes of debt.
Entity/Debt Rating Prior
----------- ------ -----
Virgin Islands
Water & Power
Authority (VI) LT IDR CC Downgrade CCC
Virgin Islands
Water & Power
Authority (VI)
/Electric System
Revenues –
Subordinated/1 LT LT CC Downgrade CCC
Virgin Islands
Water & Power
Authority (VI)
/Electric System
Revenues/1 LT LT CC Downgrade CCC
SECURITY
Electric system revenue bonds are secured by a pledge of net
electric revenues and certain other funds established under the
bond resolution. The electric system subordinated revenue bonds are
secured by a pledge of net revenues that are subordinate to the
pledge securing the electric system revenue bonds. Outstanding
senior and subordinate lien bonds are also secured by fully debt
service reserve funds.
KEY RATING DRIVERS
Revenue Defensibility: 'bbb'; Weak Service Area and Regulation
Limit Revenue Defensibility
The authority's revenue defensibility is constrained by the
territory's weak demographics and demand characteristics, as well
as limited rate flexibility. WAPA's rates for electric service are
extremely high contributing to low affordability. The authority's
rates are further regulated by the PSC.
Operating Risk: 'bb'; High Operating Cost Burden
Operating risk is very high due to an extremely high operating cost
burden. Costs are driven largely by the challenges of serving a
territory comprised of multiple islands including higher than
normal costs for fuel, labor and excess capacity necessary to
ensure reliability.
Financial Profile: 'bb'; Significant Liquidity Concerns
Weak liquidity and very high leverage contribute to WAPA's weak
financial profile. At June 20, 2022, the authority reported
(unaudited) $42.8 million or 57 days of unrestricted cash on hand
but also over $200 million of accounts payable, no borrowing
capacity under its working capital line of credit and $3 million of
short-term overdraft balances.
Asymmetric Additional Risk Considerations
Asymmetric risks related to WAPA's management and governance, debt
profile and the absence of audited information for fiscal years
2021 and 2022 have been factored into the current rating.
ESG - Governance: An additional oversight committee may be formed
and assume responsibility for WAPA's operations. Increased
political influence could pressure the authority toward a debt
restructuring that increases the risk of a distressed debt
exchange.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A resolution to financial and fuel-related disputes that
currently undermine the authority's operating stability;
- A resolution to prospective legislation that does not heighten
the risk of a restructuring of outstanding debt;
- Evidence of sustainable earnings and cash flow stability, as well
as an ability to meet ongoing financial obligations;
- Improved liquidity in the form of both cash on hand and future
borrowing capacity.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The inability to refinance, or negotiate a long-term resolution
to address, WAPA's scheduled debt maturities;
- Any evidence that a restructuring of outstanding debt is
probable, including the passage of enabling legislation;
- Lack of information related to WAPA's operating and financial
strategy could result in a withdrawal of the rating.
CREDIT PROFILE
WAPA is an instrumentality created by the government of USVI and is
the sole provider of electric and water service to the territory,
which includes the separate islands of St. Thomas, St. Croix and
St. John. The electric system generates, transmits and sells
electric power and energy to approximately 50,000 residential,
commercial and large power customers, including the USVI
government.
ESG CONSIDERATIONS
Virgin Islands Water & Power Authority (VI) has an ESG Relevance
Score of '5' for Governance Structure due to the possibility of
greater regulatory and operational oversight of the authority, and
the potential for the development of a debt consolidation and
management plan that could include a distressed debt exchange,
which has a negative impact on the credit profile, and is highly
relevant to the rating, and contributes to the downgrade.
Virgin Islands Water & Power Authority (VI) has an ESG Relevance
Score of '4' for Exposure to Environmental Impacts due to the
authority's exposure to extreme weather events, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Virgin Islands Water & Power Authority (VI) has an ESG Relevance
Score of '4' for Financial Transparency due to its inability to
issue timely audited financial statements, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Virgin Islands Water & Power Authority (VI) has an ESG Relevance
Score of '4' for Group Structure due to the authority's
relationship with the USVI government and historical challenges to
collecting revenue on a timely basis, which has a negative impact
on the credit profile, and is relevant to the rating[s] 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.
===============
X X X X X X X X
===============
LATAM: BCIC Says Some Reinsurers Leaving Caribbean Market
---------------------------------------------------------
RJR News reports that at least one local insurance company is
saying some reinsurers on the international market with which they
do business in the Caribbean are leaving the market.
Peter Levy, Managing Director of British Caribbean Insurance
Company (BCIC), said so far, a few have decided to either cut off
the region or reduce coverage, according to RJR News.
He said the BCIC was trying to secure the capacity to renew its
reinsurance contracts by January 1, the report notes.
"If there isn't sufficient capacity based on the reinsurance
structure that we had in 2022, then we'll have to restructure and
we might end up with more risk net to our balance sheet. That, of
course, is very much constrained by the capital requirements from
the FSC and Insurance Act," he explained, the report relays.
He said if all reinsurers leave the market, it may not affect the
company's security, however, shareholders may be forced to live
with a higher level of risk, the report discloses.
Recently, insurance players have expressed concern that global
reinsurers, which provide backing for insurance companies in the
region, are reducing their capacity to on-lend, the report relays.
Factors including increased global disasters and lower insurance
premiums in the region have been cited as issues influencing their
decision, the report notes.
The stakeholders say the cost of insurance needs to go up by more
than 20 per cent in some instances to remain attractive to
reinsurers, the report adds.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
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 2023. All rights reserved. ISSN 1529-2746.
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contact Peter A. Chapman at 215-945-7000.
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* * * End of Transmission * * *