/raid1/www/Hosts/bankrupt/TCRLA_Public/230601.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, June 1, 2023, Vol. 24, No. 110
Headlines
A R G E N T I N A
ARGENTINA: Seeks Bigger China Swap Line to Prevent Peso Sell-Off
B R A Z I L
BANCO DA AMAZONIA: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
BANCO DO BRASIL: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
BANCO DO NORDESTE: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
BNDES: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
BRAZIL: Raises GDP Growth This Year to 1.91%
INTERCEMENT BRASIL: S&P Downgrades ICR to 'CC', Outlook Negative
UNIGEL PARTICIPACOES: Fitch Cuts LongTerm IDRs to 'B', On Watch Neg
VALE SA: Makes World's Biggest Dividend Cut
C H I L E
LATAM AIRLINES: U.S. Fines $1 Million Over Delayed Ticket Refunds
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Abinader Warns Measures Will Not be Relaxed
G R E N A D A
GRENADA: Navigates Recovery From Pandemic, IMF Says
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Debt Increases But Share of GDP Drops
- - - - -
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A R G E N T I N A
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ARGENTINA: Seeks Bigger China Swap Line to Prevent Peso Sell-Off
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Buenos Aires Times reports that Argentina's government is asking
China for an expansion of its bilateral currency swap in yuan as it
seeks to build up Central Bank reserves in a bid to contain another
peso sell-off with inflation already running above 100 percent,
according to two people with direct knowledge.
Economy Minister Sergio Massa will travel to Beijing May 29 to
renew and renegotiate the swap line with his Chinese counterparts,
according to Buenos Aires Times. How much Massa seeks to expand it
by - and the amount he can freely use - remain unclear. His press
office didn't respond to a request for comment.
The trip comes as Massa, seen as a potential presidential candidate
in this year's election, is trying to contain a peso sell-off
that's part of a vicious cycle in Argentina's inflation crisis with
prices rising 108.8 percent annually through April amid a severe
shortage of dollars, the report notes. In parallel, Massa is also
renegotiating Argentina's US$44-billion programme with the
International Monetary Fund, seeking to get more IMF cash in June
than currently planned, the report relays.
For China, it's another opportunity - albeit risky lending more to
a serial defaulter in Argentina - to expand the yuan's global use
in a bid to diminish dependence on the US dollar, Buenos Aires
Times discloses.
The People's Bank of China has signed currency swap agreements with
some 40 countries since 2008 to promote the international use of
the yuan, the report notes. Activities through such swaps have
accelerated over the past two years, and global central banks
tapped a record amount of yuan through swap agreements in the first
quarter, the report relays.
Argentina and China signed a 70 billion yuan (US$9.9 billion) swap
line agreement in 2009 and expanded it to 130 billion yuan in 2020,
the report relays. It was rarely touched and viewed by investors
as a last resort option, the report says. In recent months, China
has allowed Argentina to use up to US$5 billion of the swap, known
as the "operating account," to finance imports from China or let
local companies pay off foreign currency debt in yuan, the report
relays.
Massa intends to ask Chinese leaders to increase the total amount,
according to the two people, who asked not to be named to discuss
private negotiations, the report discloses. One of them added that
Massa will also request a larger operating account too, meaning
free access to a greater portion of the swap, the report notes.
Argentina's Central Bank is increasingly offering more yuan in its
foreign exchange market to get around the dollar shortage, the
report relays. The volume of yuan in the foreign exchange market
doesn't exceed 10 percent of the total, but it is accelerating, one
of the people said, the report notes.
The PBOC is becoming an influential lender of last resort,
providing almost US$200 billion in assistance to a number of
countries in need in the period 2016-2021, according to a study
earlier this year. Much of that has been in the form of FX swaps,
of which the Central Bank had signed 3.54 trillion yuan worth of at
the end of 2021, with 109 billion of those in use at the end of
March this year, the report discloses.
With elections in October, Argentina is expected to enter recession
this year as triple-digit inflation and a record drought hitting
commodity exports are hurting wages and activity, 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.
S&P Global Ratings, on March 29, 2023, lowered its long-term
foreign currency sovereign credit rating on Argentina to 'CCC-'
from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency
sovereign credit rating and its 'CCC-/C' local currency ratings on
Argentina. The outlook on the long-term ratings is negative. S&P
also lowered the transfer and convertibility assessment to 'CCC-'
from 'CCC+'. The negative outlook on the long-term ratings
reflects risks surrounding pronounced economic imbalances and
policy uncertainties before and after the 2023 national elections.
Divisions across the political spectrum constrain the sovereign's
ability to implement timely changes in economic policy. Global
capital markets are closed to Argentina. In the local market, swaps
are being deployed to manage large maturities before placing debt
through traditional auctions. The central bank continues to play a
key role as a backstop for local debt management in the secondary
market. The ongoing severe drought has exacerbated pressures in the
already disrupted foreign exchange (FX) market.
Fitch Ratings, on the other hand, downgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'C' from 'CCC-',
and has affirmed the Long-Term Local Currency IDR at 'CCC-' on
March 24, 2023. Fitch's downgrade of Argentina's rating to 'C' from
'CCC-' follows an executive decree that forces domestic
public-sector entities into operations involving their holdings of
sovereign debt securities, which would involve unilateral exchanges
and forced currency conversion that constitute default events under
Fitch's criteria. The 'C' rating reflects Fitch's view that default
is thus imminent. Fitch said the rating would be downgraded to
'Restricted Default' (RD) upon execution of the exchanges.
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
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B R A Z I L
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BANCO DA AMAZONIA: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
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Fitch Ratings has affirmed Banco da Amazonia SA's (BASA) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'.
The Rating Outlook is Stable. In addition, Fitch has affirmed
BASA's Long-Term National Rating at 'AA(bra)'/Stable.
KEY RATING DRIVERS
Ratings Equalized with Sovereign: BASA's 'BB-' Long-Term IDRs and
'bb-' Government Support Rating (GSR) are equalized with those of
Brazil, reflecting a moderate probability of support from the
Brazilian government. This considers Brazil's high propensity to
support BASA, but its moderate ability to do so. The Brazilian
government's high propensity to support the bank reflects BASA's
important policy role and majority state ownership.
The sovereign's ability to provide support is moderate as reflected
in its 'BB-' Long-Term IDRs. As is the case for development banks,
Fitch does not assign BASA a Viability Rating. This is because its
business model is strongly influenced by its role as one of the
government's main regional policy banks that implements its
development plans and countercyclical policies in the Northern
Region of Brazil.
BASA's 'AA(bra)' Long-Term National Rating is based on potential
support and reflects the bank's creditworthiness relative to other
issuers in Brazil.
Key Regional Policy Bank: BASA is a federal owned bank with a clear
mandate to execute Brazil's government policy in the Amazon Region
by channeling credit for economic and social development. At
end-March 2023, BASA had total assets of BRL38.1 billion, but its
policy role is further reinforced by its status as the exclusive
agent of Constitutional Fund of the North (FNO). FNO is the main
financial instrument for the economic development of the Northern
region consisting of public funds and lending assets of BRL26.1
billion at end-March 2023.
FNO Agent: BASA is the sole manager of FNO, one of the bank's
largest funding sources and a key revenue contributor for the
entity. As fund administrator, BASA receives a monthly fee based on
the fund's equity in addition to a del-credere fee for assuming
partial or full risks on operations carried-out with FNO resources.
These amounted to around 53% of the bank's operating income in
2022.
Risk Profile Sensitive to Policy Role: Given its policy role,
BASA's risk profile is more sensitive to economic downturns than
local commercial banks. This is a consequence of the bank's role in
financing emerging sectors and industries, as well as customer
segments that are underserved by commercial banks and the long-term
nature of its lending. Although there has not been any structural
change in the bank's overall strategy thus far, Fitch will continue
to monitor the potential for political interference from the
federal government that could materially affect BASA's role and
financial metrics.
High Loan Expansion: BASA's impaired loans ratio of 5.6% at
end-2022 materially improved from the four-year average between
2018-2022, reflecting the active management of vulnerable
exposures, as well as strong loan expansion. The ratio is likely to
weaken over the next two years as higher interest rates and
inflation reduce the borrowers' debt-service capacity. Enforcing
loan collections remains one of the bank's top priorities to reduce
charge-off levels and support revenues.
Strong Profitability: BASA's performance over the past two years
has materially improved from historical levels reflecting primarily
increased business volumes, high yields on government bonds and
well-controlled expenses stemming from the implementation of cost
efficiency measures. The bank's operating profit/risk-weighted
assets ratio reached 5.0% in 2022 (2021: 3.7%; 2020: 1.5%). Fitch
expects loan impairment charges to continue to increase in 2023 and
2024 as asset-quality pressures materialize. However, the operating
profit/risk-weighted assets ratio will remain close to 4% in 2023,
driven by the high interest rates and growth environment.
Moderate Capital Buffers: BASA's regulatory capital ratios are
adequate, as indicated by its common equity Tier 1 (CET1) ratio of
12.8% at end-March 2023. BASA managed to improve its CET1 ratio by
70bps since end-2020 despite high balance-sheet expansion,
reflecting the bank's stronger internal capital generation and
prudent dividend distribution.
BASA also managed to negotiate a capital injection of BRL1.0
billion from Brazil's federal government, approved in September
2022. This had a neutral impact on capital, as it was accompanied
by the repayment of hybrid notes held by the treasury, but adds to
greater predictability of the bank's capital structure. BASA aims
to maintain regulatory capital ratios in line with current levels,
which Fitch considers prudent in view of its risk profile. Fitch is
also monitoring the potential risk of capital pressures due to an
impending court ruling, which will require BASA to provision the
actuarial deficit of its proprietary pension plan for employees.
Stable Funding profile: BASA's funding profile benefits from the
ample and longer-term sources of FNO (63% of total funding at
end-2022), underpinned by a fairly resilient and granular customer
deposit base (34%, including letras), in addition to BNDES
on-lending funding. These funding sources were more than enough to
cover BASA's gross loan book of BRL19.7 billion.
BASA's liquid assets is ample, as indicated by its adjusted loan to
deposit ratios (adjusted for FNO funds) of 76% at end-22.
Unencumbered sovereign securities amounted BRL8.3 billion, or 24%
of total assets, all accounted at their fair value and adequate
duration in light of BASA's funding needs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- BASA's Long-term IDRs and GSR would be downgraded if Brazil's
sovereign rating is downgraded, though this is not Fitch's base
case given the Stable Outlook on Brazil's Long-Term IDRs;
- BASA's ratings are also sensitive to a reduced propensity of the
authorities to support the bank. This could be indicated by an
adverse change in BASA's policy role or a material reduction in
government ownership, which Fitch views as unlikely;
- BASA's National Long-Term Rating is sensitive to a negative
change in Fitch's opinion of the bank's creditworthiness relative
to other Brazilian issuers. A downgrade of the National Short-term
Rating is not likely as this would require a downgrade of the
National Long-Term Rating to at least 'A(bra)'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of the Long-Term IDRs would require a sovereign
upgrade;
- BASA's National Long-Term Rating is at the highest level on
Fitch's Brazilian national rating scale for entities with
international ratings equalized with the sovereign and therefore
cannot be upgraded.
ESG CONSIDERATIONS
Banco da Amazonia SA has an ESG Relevance Score for Governance
Structure (GGV) of '4'. A GGV score of '3' is the standard score
assigned to all banks rated by Fitch. Given BASA's ownership and a
track record of the Brazilian federal government's ability to
influence and interfere in the policies of the banks it controls,
Fitch believes that an increase of government influence in the
bank's management and strategy could negatively affect creditors'
rights. This has a moderately negative effect on the bank's rating
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.
Entity/Debt Rating Prior
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Banco da
Amazonia S.A. 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)
Government Support bb- Affirmed bb-
BANCO DO BRASIL: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
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Fitch Ratings has affirmed Banco do Brasil S.A. (BdB)'s Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'
and National Rating at 'AA(bra)'. The Rating Outlooks are Stable.
In addition, Fitch has affirmed BdB's Viability Rating (VR) at
'bb-'.
KEY RATING DRIVERS
Government Support Drives Ratings: BdB's IDRs are driven by
potential government support and equalized with those of Brazil's
sovereign (BB-/Stable), which is reflected in the banks' Government
Support Rating (GSR) of 'bb-'. Fitch believes there is a moderate
propensity of government support, if the need arises. This
assessment balances Fitch's view that the Brazilian government's
willingness to support BdB if needed is high given BdB's ownership
structure, its key policy role in rural lending and BdB's systemic
importance. However, the sovereign has limited financial
flexibility and capacity to provide support as indicated by its
'BB-' IDRs.
Despite BdB's high linkage with the sovereign rating, substantive
enhancements to the company's governance structure and efforts to
isolate itself from government intervention have materially
improved BdB's business and financial profile in recent years.
While Fitch's base case assumes no structural change of the bank's
overall strategy in the near term, Fitch will continue to monitor
the potential for federal government interference that could
materially affect BdB's role and financial metrics.
The National Ratings reflect the entities' creditworthiness in
local currency relative to that of other Brazilian issuers.
Sound Standalone Profile: BdB's VR is driven by its leading and
diversified banking franchise in Brazil, supporting consistently
healthy profitability and a granular and stable funding franchise.
The ratings also consider BdB's adequate capitalization and a
well-balanced lending mix that results in good asset quality
relative to industry averages.
However, the VR is one notch below the implied VR of 'bb' as the
rating remains highly linked to the sovereign, given BdB's majority
federal ownership, and could be constrained in the future if a
change in its business model negatively affects the bank's risk
profile.
Diversified Business Profile: BdB's strong and diversified
franchise is a key rating strength and results in resilient
structural profitability and access to large, stable deposit bases.
BdB is the leading domestic bank, accounting for 15% and 16% of
Brazilian banking system assets and deposits, respectively, and is
particularly strong in the agricultural segment (56% market share).
Revenue diversification is strong by income stream and has allowed
the bank to generate capital consistently across economic cycles.
Adequate Asset Quality: BdB has maintained stable and stronger
asset-quality indicators than domestic peers due to its improved
underwriting standards, lower exposure to unsecured lending
relative to its main peers and a large share of rural loans that
benefits from better economic fundamentals than the national
average. At end-March 2023, the 90-day nonperforming loan (NPL)
ratio was a low 2.6% and its impaired loan ratio was 8%, roughly in
line with the bank's four-year average despite macroeconomic
challenges. Maintenance of high reserves support an NPL coverage of
above 200% (impaired loan coverage of 70%) and provides a sound
buffer against downside risks from asset quality deterioration.
Fitch expects some asset-quality deterioration in 2023 as the
effects of high interest rates and high inflation will become more
evident on borrowers' repayment capacity, in particular for some
SMEs and unsecured lending. However, Fitch expects moderate
deterioration, with BdB's impaired loan ratio remaining closely in
line with current levels over the next two years, aided by a large
share of well-performing rural and secured payroll loans.
Earnings Resilience: BdB's domestic franchise and diversified
business model have led to resilient income through the cycle
despite revenue pressures. Revenue quality is good, with
significant contributions from fee and insurance income. The
acceleration of efficiency and commercial measures has supported
strong revenue growth and led to profitability metrics above
historical averages.
The bank's operating profit/risk-weighted assets ratio of 4.0% in
1Q23 (2022: 2.9%) reflected higher lending revenues and business
volumes, as well as higher yields on government bonds. Fitch
expects the operating profit/risk-weighted assets ratio to remain
above 3.5% in 2023, driven by the higher interest rate and growth
environment.
Capitalization Commensurate with VR: BdB's common equity Tier 1
(CET1) ratio of 12.0% at end-March 2023 was in line with the
previous year despite high balance-sheet growth, and was supported
by BdB's sound capacity to generate earnings and the maintenance of
adequate buffers above regulatory requirements. Fitch expects the
bank to operate with a CET1 ratio at around or just above 12% over
the rating horizon, including the repayment schedule of BRL8.1
billion in hybrid instruments that are currently accounted as CET1
capital and will be repaid in roughly equal eight instalments until
2029.
Furthermore, part of the resources provided by the Fundo
Constitucional de Financiamento do Centro-Oeste - (FCO), which
comprises the bank's entire Tier 2 capital, are subject to a 10%
annual phase out between 2021 and 2029. Given the bank's good
internal capital generation prospects, these reductions are likely
to be manageable from a capital adequacy point of view.
Diversified Funding, Stable Liquidity: Fitch views BdB's funding
and liquidity as stable and a positive driver for its VR, supported
by its large deposit franchise with frequent access to secured and
unsecured wholesale markets. The bank's liquidity position is sound
and supported by large buffers of high-quality liquid securities.
The core metric of loans to deposits of 118% increased slightly at
YE22 from YE20 pre-pandemic level of 113% as loan growth
accelerated and deposit growth moderated, but Fitch expected the
ratio to stabilize as loan growth decelerates in the coming years.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
IDRs, GSR and VR
- Rating downside is primarily contingent on a downgrade of
Brazil's IDRs, though this is not Fitch's base case given the
Stable Outlook on the sovereign's Long-Term IDRs. BdB's ratings are
also sensitive to changes in its strategic importance to the
Brazilian government, which is not expected to change;
BdB's VR would be negatively affected if its CET1 ratio falls below
10% and/or its regulatory capital ratios approach the minimum
requirements, due to a combination of asset quality deterioration,
weakening of profitability or higher than expected growth.
National Ratings
- BdB's National Long-Term Rating is also sensitive to a negative
change in Fitch's opinion of the bank's creditworthiness relative
to other Brazilian issuers'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
IDRs, GSR and VR
- An upgrade of the GSR and Long-Term IDRs would require a
sovereign upgrade. In addition to a sovereign upgrade, the bank
would have to maintain healthy financial metrics to upgrade the
VR.
National Ratings
BdB's National ratings may be affected by a change in Fitch's
perception of the bank's local relativities with respect to other
Brazilian entities.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BdB's 'BB-' senior debt rating is in line with the bank's Long-Term
Foreign Currency IDR, as default on senior obligations is equal to
the default of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade
- BdB's senior unsecured debt ratings are sensitive to a change in
its IDR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade
- BdB's senior unsecured debt ratings are sensitive to a change in
its IDR.
VR ADJUSTMENTS
- The VR of 'bb-' has been assigned below the 'bb' implied VR due
to the following adjustment reason: Risk Profile (negative)
- The Asset Quality score of 'bb-' has been assigned above the 'b'
category implied score due to the following adjustment reason:
Collateral and Reserves.
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/Debt Rating Prior
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Banco do
Brasil S.A. 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)
Viability bb- Affirmed bb-
Government Support bb- Affirmed bb-
senior
unsecured LT BB- Affirmed BB-
BANCO DO NORDESTE: Fitch Affirms BB- LongTerm IDRs, Outlook Stable
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Fitch Ratings has affirmed Banco do Nordeste do Brasil SA's (BNB)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-'. The Rating Outlook is Stable. In addition, Fitch has
affirmed BNB's Long-Term National Rating at 'AA(bra)'/Stable.
KEY RATING DRIVERS
Ratings Equalized with Sovereign: BNB's 'BB-' Long-Term IDR and
'bb-' Government Support Rating is equalized with Brazil's
Long-term IDR, reflecting a moderate probability of support from
the Brazilian sovereign. The rating considers Brazil's high
propensity to support BNB but moderate ability to do so. BNB's
'AA(bra)' Long-Term National Rating also reflects Brazil's
potential support, as well as the bank's creditworthiness relative
to that of other Brazilian issuers. BNB's Stable Outlook reflects
the sovereign's Outlook.
No VR Assigned: As is the case for development banks, Fitch does
not assign a Viability Rating to BNB. The bank's business model is
strongly influenced by its role as one of the government's main
regional policy banks that implements its development plans and
countercyclical policies in the Northeast Region of Brazil.
Important Policy Role: BNB is Brazil's largest regional policy bank
and contributes to the country's economic growth and social
development. Its strategy is aligned with national development
objectives and is highly influenced by Brazilian government policy.
BNB focuses on financing infrastructure, agricultural loans,
micro-lending to small entrepreneurs and to a lesser degree,
commercial financing to small and medium-sized enterprises (SMEs)
and retail. Although there has not been any structural change in
the bank's overall strategy thus far, Fitch will continue to
monitor the potential for political interference from the federal
government that could materially affect BNB's role and financial
metrics.
Key Agent for State Support Transmission: By law, the bank manages
the Fundo Constitucional de Financiamento do Nordeste (FNE), and
its operations are largely guided by its policy role. FNE is
comprised of public funds and is the main source of funding for
long-term projects in the northeast of Brazil. The fund's lending
assets increased 20.8% annually, to BRL 103.4 billion, while equity
increased 15.3%, to BRL 124.3 billion, at end-2022. FNE's resources
provided the main funding to promote production of all segments and
sizes, in urban and rural areas, and primarily in the Brazilian
semi-arid region, which, for natural characteristics, demands
greater investment to reduce inequality.
Well-Managed Asset Quality: Despite BNB's weaker risk profile than
domestic commercial banks, the bank's asset-quality metrics
remained adequate despite pressures arising from its microcredit
portfolio. The bank's impaired loans (D-H under defined local
resolution) ratio of 7.1% at end-2022, stable relative to 2021 7.2%
ratio. BNB's expanded credit risk includes FNE loans on which the
bank bears a risk sharing agreement of 50%, and are accounted off
balance-sheet. At YE 2023, this amounted to BRL47.8 billion and was
covered by reserves of BRL 3.1 billion. Fitch expects BNB to
maintain stable delinquency and provisioning levels in 2023 for
both its own portfolio and FNE's lending book, considering BNB's
strategy to create provisions for all past-due microcredit loans
and FNE's long-term lending profile.
Performance Linked to Policy Role: BNB's profitability metrics have
been strong through multiple economic cycles, with an operating
profits/risk-weighted assets (RWA) ratio of 3.9% in 2022 and a
four-year average of 3.5% (ROAE of 24.5% and 24.8%, respectively).
Lower funding costs, sizeable revenues stemming from its FNE
manager and well controlled credit costs underpinned the bank's
profitability.
As the exclusive FNE administrator, BNB receives a management fee
as a percent of FNE's equity (16% of BNB's gross revenues), and
charges an additional yearly fee (del credere) relative to the
FNE's on-lending operations with shared risk (20% of BNB's gross
revenues). In recent years BNB's FNE management fee has been
gradually reduced, reaching 1.5% of equity in 2023, compared with
1.8% in 2022 and 2.1% in 2021. Despite that, FNE's growth has
partially offset this reduction and as a result Fitch expects BNB
profitability to remain close to its historical levels in 2023,
reflecting already strong reserve coverage of impaired loans and
sound pre-impairment profitability.
Improved Capital Buffers: BNB has an adequate buffer over minimum
regulatory requirements, as its Common Equity Tier 1 (CET 1) ratio
has improved in recent year as a result of higher capital
generation and its policy dividend policy to sustain growth. The
bank's CET1 ratio increased to 10.75% at end-2022 from 10.29% at
end-2021 and 8.8% at end-2020. BNB's capitalization metrics are
complemented by a residual legacy hybrid debt, perpetual bonds
issued in the local market, in addition to Tier II instruments,
subject to a 10% phase out chronogram started in 2021 up to 2029.
In Fitch's view, BNB's good internal capital generation prospects
will likely be sufficient to manage the gradual reduction of those
instruments in the upcoming years.
Stable Liquidity: Fitch views BNB's funding and liquidity as
stable, despite lower diversification compared to commercial banks.
BNB's funding structure is mainly comprised of FNE's resources,
customer deposits and funding lines from foreign and national
development entities. Its liquidity remains strong due to FNE's
current position of available resources (accounted on BNB's own
balance sheet), that must be invested in government securities,
which are highly liquid instruments. Due to its current structure
and business model, Fitch does not expect material changes in BNB's
funding and liquidity profiles in the foreseeable future.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
BNB's Long-term IDRs and GSR would be downgraded if Brazil's
sovereign rating is downgraded, though this is not its base case
given the Stable Outlook on Brazil's Long-term IDRs.
BNB's ratings are also sensitive to a reduced propensity of
support, which could indicate an adverse change in BNB's policy
role or a material reduction in government ownership, which Fitch
views as unlikely.
BNB's National Long-Term Rating is also sensitive to a negative
change in Fitch's opinion of the bank's creditworthiness relative
to other Brazilian issuers. A downgrade of the National Short-term
Rating is not likely as this would require the NLTR to be
downgraded to at least 'A(bra).
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Any upside of BNB's Long-term IDRs and GSR is contingent on an
upgrade of Brazil's Long-term IDRs.
BNB's National Long-Term Rating is at the highest level on Fitch's
Brazilian national rating scale for entities with international
ratings equalized with the sovereign and therefore cannot be
upgraded.
ESG CONSIDERATIONS
Banco do Nordeste do Brasil S.A. has an ESG Relevance Score of '4'
for 'Governance Structure' (GGV). A GGV score of '3' is the
standard score assigned to all banks rated by Fitch. Due to BNB's
ownership and a track record of the Brazilian federal government's
ability to influence and interfere in the policies of the banks it
controls, Fitch believes that an increase of government influence
on BNB's management and strategy could negatively impact creditors'
rights. This 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.
Entity/Debt Rating Prior
----------- ------ -----
Banco do
Nordeste do
Brasil S.A. 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)
Government Support bb- Affirmed bb-
BNDES: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
--------------------------------------------------------
Fitch Ratings has affirmed Banco Nacional de Desenvolvimento
Economico e Social's (BNDES) Long-Term Foreign and Local Currency
Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook is
Stable. In addition, Fitch has affirmed BNDES's Long-Term National
Rating at 'AA(bra)'/Stable.
KEY RATING DRIVERS
BNDES' IDRs and Government Support Rating (GSR) are equalized with
Brazil's IDRs (BB-/Stable/B). The Brazilian government is the sole
shareholder of BNDES. The Stable Rating Outlook on BNDES's
Long-Term IDRs is in line with those of the sovereign.
Government Support: BNDES' ratings reflect Fitch's view of the
Brazilian authorities' high propensity to support the country's
leading development bank, if required, as well as its limited
financial flexibility to do so, as indicated by the level of the
sovereign's Long-Term IDR. The equalization of the rating reflects
the full federal government ownership, BNDES' policy bank status
and its role in the implementation of government economic
policies.
Key Policy Role: BNDES is Brazil's largest development bank and
contributes to supporting and fostering economic activities that
contribute to the Brazilian economy's growth and promotes the
country's economic and social development. On behalf of the
Brazilian government, BNDES was the main agent managing several
emergency programs that provided liquidity lines to SMEs and
self-employed workers during the pandemic.
New Administration: BNDES' current executive team has been in
office since early 2023 and has been critical of its downsizing in
recent years. BNDES' current management team plans to reinforce the
bank's development agenda by accelerating loan growth after strong
balance-sheet deleveraging over the past five years. However, Fitch
expects this to be gradual rather than a wholesale return to
aggressive interventionism and quasi-fiscal policy of the past and,
although there has not been any structural change in the bank's
overall strategy thus far, Fitch will continue to monitor the
potential for political interference from the federal government
that could materially affect BNDES's role and financial metrics.
Reduced Market-Risk: BNDES's exposure to market-risk has come down
substantially in recent years following equity divestments of
around BRL88.5 billion between end-December 2018 to end-December
2022, in line with the bank's revised business plan implemented by
the former administration. This includes BNDES's goal to reduce
market-risk volatility from its equity holdings, prioritizing
capital allocation aligned to its policy agenda, while partnering
with private agents on infrastructure projects.
Resilient Asset-Quality: BNDES's impaired loans remain better than
sector averages at 6.4% end-December 2022 (8.7% end-December 2021).
Fitch expects asset-quality ratios to continue to remain resilient
in the near term despite the challenging operating environment.
This primarily reflects BNDES's adequate underwriting standards, as
well as the bank's large exposure to financial institutions (around
37% of its loan book) and where the historical default rate is very
low.
One-off Gains Relevant for Earnings, Capital: BNDES generated
sizeable profits over the past years due to one-off earnings from
equity divestments. Operating profit in 2022 amounted BRL54.2
billion (operating profit/RWA of 10.7%), and BRL33.3 billion (6.5%)
adjusted for extraordinary dividends and capital gains due from
divestments. Capitalization remains strong and capital levels have
benefited from asset de-risking in past years.
The bank's common equity capital (CET1) ratio was 25.3% at
end-March 2023 from 27.9% at end-March 2022. For the calculation of
BDNES's CET1 ratio, Fitch excludes hybrid instruments that are
accounted as core equity and are subject to a repayment schedule in
the near term as part of BNDES's repayment agreement with the
National Treasury.
Ample Liquidity amid Debt Pre-Payments: Since 2015, BNDES agreed to
pay the full portion of its funding with the National Treasury from
previous years. In 2022, BNDES pre-paid around BRL72.3 billion;
however, pre-payments have not yet pressured on the bank's
liquidity (LCR at 184%), as the bank deleveraged significantly
since it started paying back the National Treasury. BNDES's funding
and liquidity profile is largely underpinned by a large and
relatively low-cost funding, but management plans to accelerate
market funding access in the context of accelerating loan growth
and of lower availability from BNDES's main funding source FAT
(Fundo de Amparo ao Trabalhador) given its growth targets.
No Viability Rating Assigned: As is usual for development banks,
Fitch does not assign BNDES a Viability Rating. This is because the
bank's business model depends on state support and concessional
funding, which Fitch believes represents BNDES's unique policy
role, which cannot be carried out on a commercial basis.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Rating downside for the bank's IDRs and GSR would be primarily
contingent on a downgrade of Brazil's IDRs, though this is not
Fitch's base case given the sovereign's Long-Term IDRs Stable
Outlook.
- BNDES's ratings are also sensitive to changes in its strategic
importance to the Brazilian government.
- BNDES's National Long-Term Rating is sensitive to a negative
change in Fitch's opinion of the bank's creditworthiness relative
to other Brazilian issuers'. A downgrade of the National Short-Term
Rating is not likely as this would require a downgrade of the
National Long-Term Rating to at least 'A(bra)'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- BNDES's National Long-Term Rating is at the highest level on
Fitch's Brazilian national rating scale for entities with
international ratings equalized with the sovereign and therefore
cannot be upgraded.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BNDES's senior debt rating is in line with the bank's IDRs. The
probability of default of any senior obligation is tied to that of
the bank (reflected in the Long-Term IDR), as a default of senior
obligations would be treated by the agency as default by the
entity.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
BNDES's senior debt ratings would move in line with the bank's
IDRs. The probability of default of any senior obligation is tied
to that of the bank (reflected in the Long-Term IDR), as a default
of senior obligations would be treated by the agency as default by
the entity.
ESG CONSIDERATIONS
Banco Nacional de Desenvolvimento Economico e Social's ESG
Relevance Score for 'Governance Structure' (GGV) is '4'. A GGV
score of '3' is the standard score assigned to all banks rated by
Fitch. Given BNDES's ownership and a track record of the Brazilian
federal government's ability to influence and interfere in the
policies of the banks it controls, Fitch believes that an increase
of government influence on BNDES's management and strategy could
negatively impact creditors' rights. This has a moderately negative
impact on the bank's rating 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.
Entity/Debt Rating Prior
----------- ------ -----
Banco Nacional de
Desenvolvimento
Economico e
Social (BNDES) 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)
Government Support bb- Affirmed bb-
senior
unsecured LT BB- Affirmed BB-
BRAZIL: Raises GDP Growth This Year to 1.91%
--------------------------------------------
Richard Mann at Rio Times Online reports that the Brazilian
government raised its forecast for Gross Domestic Product (GDP)
growth this year from 1.61 to 1.91 percent, official sources
informed.
The Ministry of Planning released the new macroeconomic parameters
used in the budget execution calculations, in which, in addition to
higher economic growth, the inflation projection was also increased
from 5.31 to 5.58 percent, according to Rio Times Online.
Brazil's economic growth forecast this year is lower than in 2022,
when GDP expanded by 2.9 percent, while inflation should be lower
than last year when it was 5.79 percent, 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 was sworn in on January 1, 2023, as
the 39th president of Brazil, succeeding Jair Bolsonaro.
As recently reported in the Troubled Company Reporter-Latin
America, Fitch Ratings, in December 2022, affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Outlook. 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.
Standard & Poor's affirmed its 'BB-/B' long- and short-term
foreign and local currency sovereign credit ratings on Brazil, and
the outlook remains stable (June 2022). The stable outlook
reflects S&P's base-case assumption that Brazil will maintain its
fiscal anchors over the next two years despite an increasing
interest burden, preventing significant fiscal slippage and
limiting the rise in its already high debt burden.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS's credit rating for Brazil is BB (low) with stable outlook
(March 2018).
INTERCEMENT BRASIL: S&P Downgrades ICR to 'CC', Outlook Negative
----------------------------------------------------------------
S&P Global Ratings lowered its ratings on InterCement Brasil S.A.
and the senior notes issued by InterCement Financial Operations
B.V., to 'CC' from 'CCC-'. S&P also lowered its national scale
rating to 'brCC' from 'brCCC-'. The recovery rating on the notes
remains unchanged at '3'.
The negative outlook indicates that S&P could lower the ratings on
InterCement Brasil to 'SD' (selective default) or 'D' (default) if
the company misses principal or interest payments on its debt.
InterCement Brasil is facing imminent risk of non-payment, since
the group is working on a debt restructuring.
S&P believes InterCement Brasil and its parent, InterCement
Participacoes, won't make its next principal and interest payments
before it concludes a plan of debt restructuring, which in its view
will constitute an event of default. The parent has a bilateral
bank loan amounting to $19.2 million due this month and, on June 8,
a total R$650 million of payments are due. These comprise interest
and principal on the debentures of both the parent and Brazilian
subsidiary. The next interest payment date for the senior notes is
July 17.
ESG credit indicators: E-3, S-2, G-3 (climate transition risks,
other governments factors)
UNIGEL PARTICIPACOES: Fitch Cuts LongTerm IDRs to 'B', On Watch Neg
-------------------------------------------------------------------
Fitch Ratings has downgraded Unigel Participacoes S.A.'s (Unigel)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
to 'B' from 'BB-' and its Long-Term National Scale rating to
'BB+(bra)' from 'AA-(bra)'. Fitch has also downgraded Unigel
Luxembourg S.A.'s senior unsecured bond due 2026 to 'B'/'RR4' from
'BB-'. Fitch has placed all the ratings on Rating Watch Negative
(RWN).
The downgrades reflect sharp and simultaneous downturns in both of
Unigel's business chemical and fertilizer (agro) segments while
Brazilian lending conditions have tightened following the default
of Americanas. Fitch expects the company's cash flow to remain
pressured during the next six months. The timing for a recovery by
either or both segments remains highly uncertain.
The RWN reflects the challenges Unigel will face to refinance
short-term debt over the next three to six months coupled with a
need for additional funding due to expected negative free cash
flow. Proactive measures may be required for Unigel to shore up
liquidity including some combination of shareholder support or
asset sales, in the absence of additional funding being supplied by
lenders or a sharp recovery of one of its business divisions.
KEY RATING DRIVERS
Elevated Leverage: Deteriorating market conditions in both the
chemicals and agro segments lowered EBITDA to BRL104 million
(~USD21 million USD) in 1Q23 from BRL568 million in 1Q22 and BRL226
million in 4Q22 due to weak prices and higher feedstock prices.
Fitch expects net leverage of 7.1x in 2023, 4.2x in 2024 and 3.1x
in 2025. Unigel has a maintenance covenant on its debentures of
3.5x net leverage and will need to obtain a waiver if it exceeds
this amount, as well as an incurrence covenant of the same amount
on its 2026 bond.
High Refinancing Risk: Unigel faces significant refinancing risk as
a result of the confluence of weak market conditions for both of
its business units amidst difficult financing conditions. The
company faces USD46 million of interest expense on its 2026 notes
and USD40 million of debt maturity principal through the end of
2023, followed by USD29 million of debt due in 2024.
Limited Flexibility: Unigel will not generate enough cash flow to
cover either interest expense and its debt maturities; Fitch
estimates the company will need BRL740 million (~USD150 million) of
total financing between 2023-2024 to be able to fulfil its debt
obligations. Unigel has only BRL100 million of committed credit
lines and BRL1 billion in available uncommitted credit facilities.
Fitch expects Unigel to halt construction of its green hydrogen
plant until its liquidity improves.
Intermediate Player in Cyclical Industry: The cyclical nature of
the commodity chemicals sector means Unigel is subject to feedstock
and end-product price volatility, driven by prevailing market
conditions and demand/supply drivers. The company is a medium-scale
chemical producer operating in the midstream of the petrochemical
industry value chain, meaning the company holds a weak position
against much larger single-product suppliers and large
manufacturing groups. The EBITDA margin is expected to be around
6%-12% during 2023-2025, lower than the company's chemical peers.
Growth Plans: Unigel was in the process of diversifying its assets
and business profile through the construction of a new sulfuric
acid plant, which would have lessened its need to import sulfuric
acid to make ammonia-based fertilizer and is also important in its
acrylics business. The plant is estimated to have capex of USD44
million in 2023 and USD10 million in 2024; completion of the
project is highly uncertain. If completed, Fitch estimates the
plant would have added USD30 million of EBITDA in 2024 and beyond,
at which point the company's agro business is estimated to
represent 32% of EBITDA compared to 68% from its acrylics and
styrenics segments.
DERIVATION SUMMARY
Despite Unigel's solid market share in Latin America, the company
is a price-taker and is medium-to-smaller sized relative to the
global chemical industry, with EBITDA generation between
USD100-USD200 million, including the agro segment. Product
diversification and some business integration help to reduce profit
margin volatility, although cash generation is still affected by
commodity price movements and any change in the supply/demand
dynamics of its end products.
Compared with other Latin America petrochemical peers, Unigel is
smaller than Braskem S.A. (BBB-/Stable), Alpek S.A (BBB-/Positive)
and Orbia Advance Corporation, S.A.B. de C.V. (BBB/Stable).
Unigel's EBITDA and leverage ratios are volatile compared with
higher-rated Latin American peers in the 'BB' category and with
Cydsa S.A.B. de C.V. (BB+/Stable).
KEY ASSUMPTIONS
- Spreads of USD335 per ton and USD430 per ton in acyrlics, USD125
and USD160 in styrenics and USD27 and USD25 per ton in the agro
segment in 2023 and 2024, respectively;
- Average capex of around BRL300 million (~USD58 million) over
2023-2025;
- No dividends paid over the rating horizon;
- New financing is obtained of BRL600 million in 2023, and BRL140
million in 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Fitch would view positively expected net debt/EBITDA below 3.0x
through growth cycles combined with sustainable performance of the
agro segment and total EBITDA margin near 15%.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Operating EBITDA margin consistently below 5% on a sustained
basis;
- Further deterioration in liquidity, leading to recurring
refinancing risks;
- Net debt/EBITDA moving above 4.5x on sustainable basis;
- Change in imports tariffs in Brazil that could allow increased
competition.
LIQUIDITY AND DEBT STRUCTURE
Pressured Liquidity: Due to challenging market conditions, Unigel's
liquidity will come under pressure in 2023 and 2024. As of March
31, 2023, Unigel reported total financial debt of BRL3.8 billion,
BRL198 million of which was due in 2023, and had a readily
available cash position of about BRL685 million. The company has
uncommitted credit lines of roughly BRL1 billion and Fitch
estimates the company will need additional borrowing by 2024 in
order to maintain its stated cash balance objective of USD100
million. Total debt as of March 31, 2023 consisted of senior notes
(74%) with debentures and working capital lines making up the
remainder.
ISSUER PROFILE
Unigel is a medium-size chemical producer operating in the chemical
and fertilizer businesses, with facilities in Brazil and Mexico.
ESG CONSIDERATIONS
Unigel Participacoes S.A. has an ESG Relevance Score of '4' for
Governance Structure due to ownership concentration and key person
risk, 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.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Unigel Luxembourg S.A.
senior
unsecured LT B Downgrade RR4 BB-
Unigel Participacoes S.A.
LT IDR B Downgrade BB-
LC LT IDR B Downgrade BB-
Natl LT BB+(bra)Downgrade AA-(bra)
VALE SA: Makes World's Biggest Dividend Cut
-------------------------------------------
Richard Mann at Rio Times Online reports that the concentration of
dividends on the Brazilian stock exchange became apparent in the
first quarter of 2023.
Vale made the most significant dividend cut in the world in this
period, of US$1.8 billion compared to the first quarter of 2022,
and left the ranking of the twenty best payers in the world - where
it came to occupy the ninth and 15th places in the past, according
to Rio Times Online.
The data are from the 38th edition of the Janus Henderson Global
Dividend Index, published first-hand by InfoMoney, the report
notes.
About Vale SA
Vale S.A. is a Brazilian multinational corporation engaged in
metals and mining and one of the largest logistics operators in
Brazil.
As reported in the Troubled Company Reporter-Latin America in
September 2019, Moody's Investors Service affirmed Vale S.A.'s Ba1
senior unsecured ratings and the ratings on the debt issues of
Vale Overseas Limited, fully and unconditionally guaranteed by Vale
S.A. Moody's also affirmed the Ba2 senior unsecured ratings of Vale
Canada Ltd. The outlook changed to stable from negative. At the
same time, Moody's America Latina Ltda. affirmed Vale's
Ba1/Aaa.br corporate family rating and the Ba1/Aaa.br ratings on
its senior unsecured notes. The outlook changed to stable from
negative.
=========
C H I L E
=========
LATAM AIRLINES: U.S. Fines $1 Million Over Delayed Ticket Refunds
-----------------------------------------------------------------
David Shepardson at Reuters reports that the U.S. Transportation
Department (USDOT) said it fined LATAM Airlines Group SA (LTM.SN)
$1 million after the airline and affiliates routinely failed to
provide timely refunds to passengers for U.S. flights.
The department said since March 2020, it received more than 750
complaints alleging LATAM, the biggest carrier in Latin America,
failed to provide timely refunds after cancelling flights to or
from the United States, according to Reuters. USDOT said it took
LATAM more than 100 days to process thousands of refund requests to
payment, the report notes.
LATAM said in a statement it agreed to the $1 million fine as part
of a consent order, the report relays. It added the fine was "part
of an ongoing USDOT audit of numerous airlines that operate into or
within the U.S. that have been fined for the same reason, delays in
refunds for unused tickets on flights canceled during the
pandemic," the report discloses.
LATAM invested $2 million in a new digital platform to process
refunds faster and is investing another $2 million this year on
refund processing efforts, the report says.
Because of COVID-19, LATAM had to cancel more than 1,100 flights
daily and saw refund requests quadrupled, the airline told USDOT
noting it filed for Chapter 11 bankruptcy and radically downsized
the company, resulting in layoffs of thousands of employees, the
report notes.
LATAM issued more than $62 million in refunds since the beginning
of the pandemic for canceled flights, the company told USDOT, the
reprot discloses.
In January, USDOT said it planned to seek higher penalties for
airlines violating consumer protection rules, saying they were
necessary to deter future violations. USDOT vowed to "deter future
misconduct by seeking higher penalties that would not be viewed as
simply a cost of doing business," the report relates.
USDOT fines for airline consumer violations have often been a
fraction of potential penalties. Last year, Air Canada (AC.TO)
agreed to a $4.5 million settlement to resolve a USDOT
investigation into claims thousands of air passenger refunds had
been delayed. USDOT initially sought a $25.5 million penalty, the
report says.
Air Canada got $2.5 million credited for passenger refunds and paid
$2 million in fines, the report notes.
In November, USDOT imposed penalties on another six airlines
totaling just $7.25 million after they agreed to issue $622 million
in passenger refunds, the report adds.
About LATAM Airlines Group
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise. It is the largest passenger airline in South
America.
Before the onset of the COVID-19 pandemic, LATAM offered passenger
transport services to 145 different destinations in 26 countries,
including domestic flights in Argentina, Brazil, Chile, Colombia,
Ecuador and Peru, and international services within Latin America
as well as to Europe, the United States, the Caribbean, Oceania,
Asia and Africa.
LATAM and its 28 affiliates sought Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in
Chile, Peru, Colombia, Ecuador and the United States are part of
the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as
bankruptcy counsel, FTI Consulting as restructuring advisor, Lee
Brock Camargo Advogados as local Brazilian litigation counsel, and
Togut, Segal & Segal LLP and Claro & Cia in Chile as special
counsel. The Boston Consulting Group, Inc. and The Boston
Consulting Group UK LLP serve as the Debtors' strategic advisors.
Prime Clerk LLC is the claims agent.
The official committee of unsecured creditors formed in the case
tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters
Jureller Southard & Stevens, LLP as conflicts counsel, UBS
Securities LLC as investment banker, and Conway MacKenzie, LLC as
financial advisor. Ferro Castro Neves Daltro & Gomide Advogados is
the committee's Brazilian counsel.
The ad hoc group of LATAM bondholders tapped White & Case, LLP as
counsel.
Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew
Glenn and partner Shai Schmidt, has been retained as counsel to the
ad hoc committee of shareholders.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Abinader Warns Measures Will Not be Relaxed
---------------------------------------------------------------
Dominican Today reports that President Luis Abinader headed the
launching of the Single Payment Management System (Sugep) and the
Internal Control Index of the Comptroller General of the Republic,
where he warned that the Government would not relax the
transparency measures that must be exhausted by the entities.
He said that although in the country, traditionally, with the
approach of elections and political activities, the government
would "become more flexible," in this case of his administration,
it will do the opposite, according to Dominican Today.
"The institutions of the government and the president are going to
be more and more attentive so that at this time there is a greater
guarantee, in what comes between now and the elections and
transparency, control and audits are guaranteed to a much greater
extent," he said during the activity, the report notes.
President Luis Abinader at the launching ceremony of the Single
Payment Management System (Sugep), together with Comptroller Felix
Santana and other officials, the report relays.
In an energetic tone, he said, "Transparency and ethics is
non-negotiable in this Government, and it is the best policy that
can be made. So I want that to be very clear in each of the
government institutions," the report relays.
He emphasized that launching these new systems is a step in favor
of Transparency and efficiency, facilitating government control and
Transparency, which is fundamental and a hallmark, "and that has to
be a hallmark of this administration," the report says.
"We are returning to the Comptroller's Office its original function
of control, auditing and prevention as an internal government
agency," Abinader added.
He said that the best letter of presentation that can be shown to
the Dominican people is "honesty accompanied by efficiency," the
report notes.
He informed that they already have an "important list" of the
audits of the public administration and that the Comptroller's
Office has interacted with the different officials so that they can
correct the control or system failures and that in each of the
cases, the proper measures have been appropriate directly
proportional to the findings, the report relays.
Felix Santana, Comptroller General of the Republic.
He added that they are already coordinating with the different
institutions so that they can publish how they invested in each of
the institutions in the coming months, the report notes.
Comptroller
The Comptroller in the coming months general of the Republic, Felix
Santana, gave details about the new system before representatives
of more than 150 public institutions, which, from now on, will be
able to follow in real time the route of their proposed payment
orders from the beginning of the process in the respective Internal
Audit Units of the Comptroller's Office until its approval,
rejection or request for information, the report notes.
The Sugep is a unique tool for processing and validating payment
orders in all its modalities, reducing the process by lowering the
day, the report relays.
Santana said that Sugep would facilitate the auditors' work,
allowing auditors to work and reducing irregularities, and
guaranteeing the fulfillment of the main objectives of this
administration, the report discloses.
He explained that this new system would facilitate the work of
auditors, allowing auditors' creation and reduction of
irregularities and ensuring compliance with the primary objectives
of this management, the report relays.
He emphasized that this robust and user-friendly platform makes it
possible to make changes according to the needs of the moment, such
as the moment's needs verification of the balance of contracts, the
release of funds, and purchase orders, the report says.
In addition, it will facilitate the interconnection with other
government agencies, such as the General Directorate of Internal
Taxes (DGII), Purchasing and Contracting, the Social Security
Treasury (TSS), and the Financial Management Information System
(SIGEF), the report relays.
At the same time, the Internal Control Index (ICI) was launched, a
metric that allows the evaluation of a set of dimensions associated
with the level of compliance with the internal control of the
institutions under the scope of the Organic Law of the
Comptroller's Office (10-07), the report notes.
As explained by Comptroller Santana, the ICI makes it possible to
monitor and promote compliance with the most relevant regulations,
the report relays.
Processes
With these systems, the State institutions will be able to carry
out the processes of contract registration and the signing of bills
of exchange with high quality, in an automated manner, in less
time, the report discloses.
Compliance
The Internal Control Index will enable monitoring and promoting
compliance with the most relevant regulations related to internal
controls in the management of public resources, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCRLA reported in April 2019 that the Dominican To related that
Juan Del Rosario of the UASD Economic Faculty cited a current
economic slowdown for the Dominican Republic and cautioned that if
the trend continues, growth would reach only 4% by 2023. Mr. Del
Rosario said that if that happens, "we'll face difficulties in
meeting international commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Fitch Ratings, in December 2021, revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'.The
revision of the Outlook to Stable reflects the narrowing of
Dominican Republic's government deficit and financing needs since
Fitch's last review resulting in the stabilization of the
government debt/GDP ratio, as well as the investment-driven
economic momentum, reflected in the faster-than-expected economic
recovery in 2021 that Fitch expects to carry into above-potential
GDP growth during 2022 and 2023.
Standard & Poor's, also in December 2021, revised its outlook on
the Dominican Republic to stable from negative.S&P also
affirmed its 'BB-' long-term foreign and local currency sovereign
credit ratings and its 'B' short-term sovereign credit ratings. The
stable outlook reflects S&P's expectation of continued favorable
GDP growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack of
progress with broader tax reforms, S&P said.A rapid economic
recovery from the downturn because of the pandemic should mitigate
external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
=============
G R E N A D A
=============
GRENADA: Navigates Recovery From Pandemic, IMF Says
---------------------------------------------------
The International Monetary Fund issued a Concluding Statement of
the 2023 Article IV Mission on Grenada.
IMF Staff stated: Grenada is navigating the recovery from the twin
shocks of the pandemic and a rise in energy and food prices. The
authorities' decisive policy response-supported by the policy space
that was created from past fiscal prudence-provided space to
cushion the impact of these shocks. As the recovery takes hold, the
immediate policy priorities are to return to the fiscal rules to
preserve credibility and to deepen structural reforms to promote
robust, inclusive, and sustainable growth. Enhancing the fiscal
framework and increasing public expenditure efficiency will help
create fiscal buffers against future shocks and make space for the
country's development and resilience building needs. Measures to
increase competitiveness, such as promoting gender equality,
investing in skills development, and expanding digitalization,
would help boost economic growth.
* The economic recovery is taking hold. Real GDP is estimated to
have expanded by 6.4 percent in 2022. Tourism activity has
rebounded strongly, with stay-over tourist arrivals reaching 80
percent of their pre-crisis levels, and private and public
construction projects also contributed to the growth. There was a
sharp fall in agricultural production, however, largely due to
adverse weather. Inflation rose modestly to 2.6 percent on average
in 2022 despite the surge in global food and energy prices, as the
authorities' policy response, such as the temporary removal of the
petrol tax and of the VAT on basic food items, helped dampen the
inflation pressure from higher global prices. The fiscal balance
excluding interest payments is estimated to have maintained a
surplus of 2.6 percent of GDP, while central government and
government guaranteed debt declined to 64.6 percent of GDP in 2022.
The real economy is projected to continue expanding in 2023, but at
a slower pace of 3.9 percent as the tourism recovery matures and
public investment scales back from a very high level.
* Important near-term downside risks remain. A key downside risk
to the outlook is an economic slowdown of key tourist source
markets such as the U.S. and the U.K., especially if global
inflation remains high and global financial conditions continue
tightening. High import costs for construction materials could
weigh on activity in the sector, while a renewed upswing in
commodity prices would drag on growth and weaken the fiscal
position. Grenada also remains highly vulnerable to natural
disasters. Upside risks include stronger-than-expected tourism
activity, larger domestic spillovers from public investment
projects, the implementation of reforms to improve competitiveness,
and an accelerated transition to renewable energy.
Enhancing the Fiscal Framework
* Supporting the vulnerable more effectively and efficiently.
Fiscal relief measures have helped mitigate the impact of rising
living costs on households. As the initial food and fuel price
spike dissipates and the economy continues to recover, price
controls on petroleum products and the reduction in the petroleum
tax should be rolled back gradually. Continued focus must be on
improving the effectiveness and targeting of social assistance
programs. This can include improving the determination of
eligibility, strengthening the central beneficiary management
system, and moving to cashless payments. Any saving as a result
should be used to increase transfers to the vulnerable.
* Upgrading the fiscal framework. The 2023 budget appropriately
commits to returning to the fiscal rules to preserve the
hard-earned credibility. Maintaining the framework's current focus
on debt reduction will continue to underpin debt sustainability.
The planned amendment of the Fiscal Responsibility Framework should
simplify the fiscal rules and make the medium‑term fiscal
framework more effective as a forward guidance to the annual budget
exercises. To enhance the oversight of the government's fiscal
management, the Fiscal Responsibility Oversight Committee can carry
out additional tasks such as evaluating the government's
macroeconomic assumptions and providing assessments of fiscal
risks. Greater clarity is needed for how fast debt should return to
the medium-term path following a shock.
* Making the government more efficient. The efficiency of the tax
system can be improved through an update to the tax incentive
framework and increased risk-based internal auditing of the customs
administration. Public investment management should be strengthened
to increase the efficiency of public spending. The focus should be
on improving the implementation rate of projects, increasing
project oversight, and strengthening the transparency and
accountability of the procurement system.
* Improving the sustainability of public finances. Reforms to the
National Insurance Scheme through phased increases in the
contributory rate and pensionable age will help improve its
financial position and should be implemented robustly. There is an
urgent need to establish one new pension scheme-that ensures the
sustainability of the pension system-for new entrants to the public
service. The ongoing regularization of public sector workers should
be guided by a thorough review of job functionality. A
comprehensive wage review is needed to ensure the wage grid
reflects current labor market conditions.
Safeguarding Financial Stability
* Financial stability risks are moderate amid the tightening of
global financial conditions. Bank loans remain sluggish, due to
the scarcity of profitable projects and lingering economic
uncertainty. Asset quality has deteriorated because of the hardship
from the pandemic, notably in credit unions whose nonperforming
loans have risen to 8.4 percent of total loans. While banks have
recognized more than 60 percent of their nonperforming loans,
credit unions have done much less. The level of liquid assets
(relative to total assets) remains high in banks but has declined
somewhat among credit unions.
* The regulation and supervision of credit unions should be
strengthened. Despite being smaller than banks in asset size,
credit unions have grown rapidly and are critical to financial
inclusion. The recent increase in nonperforming loans necessitates
credit unions to recognize loan losses, devise a strategy to reduce
legacy nonperforming loans, and bolster their risk management
practices. Achieving an effective risk-based and forward-looking
supervisory approach by GARFIN, the regulator for nonbank financial
institutions, would boost confidence in the soundness of credit
unions and allow for risks to be detected and addressed at an early
stage. Such an approach requires more granular information, better
analytical capacity, and well-designed stress testing.
* Efforts are needed to improve the financial intermediation. The
financial literacy of the public can be increased through school
curricula and community outreach. Financial institutions should be
encouraged to leverage the regional credit bureau, once it comes
into operation, that will help them know better the credit history
of their borrowers. To facilitate smaller firms' access to finance,
training can be provided on developing a business plan and
preparing financial statements. The authorities should continue
strengthening the anti-money laundering/combating the financing of
terrorism (AML/CFT) framework and the vetting and approval process
used for the Citizenship-by-Investment program.
Enhancing Competitiveness and Building Resilience
* Grenada should increase the domestic value-added of tourism,
promote gender equality, and improve labor skills. Strengthening
linkages with agriculture and fisheries will help increase the
domestic value-added of tourism. Measures to boost agricultural
productivity and build resilience to adverse weather events will be
critical to securing future production. Efforts are needed to
expand digitalization, address the identified gender gaps, and
incentivize female labor force participation. Training and
apprenticeship programs should focus on increasing technical and
entrepreneurial skills, better integrating academic institutions
and employers, as well as facilitating the transition to
employment.
* The resolute implementation of Grenada's Disaster Resilience
Strategy should remain a key priority. The government has made
progress in the implementation of the Strategy. Regulations should
be updated following the recent approval of the National Disaster
Management Bill (2023), which can improve policy response to
disasters and strengthen the technical and operational capacity of
the National Disaster Management Agency.
* Grenada can reduce its carbon emissions and strengthen its
external position by transitioning to renewables and investing in
energy conservation. The smooth absorption of renewable energy can
be assisted by the recently approved National Energy Policy and
Grenada Electricity Sector Grid Code. Continued improvement of the
regulatory environment will help incentivize and accelerate
investments in renewables and climate adaptation. Concessional
financing from multilaterals and climate funds can help catalyze
private financing for these investments. Greater awareness building
about the environmental impact of drilling for geothermal
generation would help foster public support and attract private
capital.
Data Issues
* Continued improvement of data collection would support
evidence-based policymaking. The publication of the 2022 census
and the resumption of the labor force survey will help the
assessment of social and economic development. Transparency should
be enhanced by the timely publication of public sector and SOE
audited financial statements as well as CBI flows and their usage.
The collection and dissemination of high frequency indicators would
improve the accurate recording of data. Institutional strengthening
of the Central Statistics Office (including appointing a new
Director) should be a priority.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Debt Increases But Share of GDP Drops
--------------------------------------------------------
Joel Julien at Trinidad Express reports that if Trinidad & Tobago's
debt were to be divided equally among the population, then each of
its people now owes approximately $102,000.
The Central Bank in its Annual Economic Survey 2022, which was
published, stated that Trinidad & Tobago's General Government debt
stood at $139.4 billion at the end of last September, according to
Trinidad Express.
This was an increase from the $137.2 billion recorded at the end of
September 2021, the report notes.
According to the Central statistical office, at the end of June 30
last year this country's population was estimated to be 1,365,805
people, the report relays.
Despite the $2.2 billion increase in the general government debt
between the two fiscal years however, the Central Bank stated that
the debt as a share of the country's gross domestic product fell
from 86.1 per cent to 71.5 per cent of GDP over the same period,
the report says.
"Adjusted General Government debt (which excludes sterilized debt)
increased by 2.4 per cent to reach $129.7 billion (66.5 per cent of
GDP) at the end of September 2022 compared to $126.7 billion (79.5
per cent of GDP) at the end of September 2021, the report notes.
This compares with an average annual increase of 12.6 per cent
during the previous two fiscal years at the height of the Covid-19
pandemic," the Central Bank stated, the report says.
The Annual Economic Survey 2022 stated that Central Government
domestic debt outstanding rose by 2.7 per cent or $1.8 billion over
the 12-month period to reach $66.2 billion at the end of September
2022, the report relays.
"This increase in domestic debt resulted from borrowings
outstripping repayments over the 12-month period. However, new
Central Government borrowings of $4.6 billion on the domestic
capital market in FY2021/22 were significantly less than the $13.3
billion contracted in FY2020/2118," it stated, the report
discloses.
The new borrowings last year comprised mainly of three bonds with
multiple tranches issued at an average interest rate of 5.0 per
cent and an average tenor of 12 years, the report says.
"The bonds were private placements arranged by First Citizens Bank
and Republic Bank Ltd. In addition, other disbursements to the
Central Government included $1 billion from a bond contracted in
the previous fiscal year, $140 million from an ongoing
Build-Own-Lease-Transfer (BOLT) facility for the construction of
the Ministry of Health Administrative Building and additional Debt
Management Bills of $500 million," it stated, the report relays.
"With the inclusion of new borrowings, Debt Management Bills
outstanding increased to $6.6 billion at the end of September 2022,
representing 94.8 per cent of the statutory limit. Overall, the
proceeds were used for budget support ($5.8 billion) and debt
refinancing ($3.2 billion)," the Central Bank stated, the report
notes.
According to the Annual Economic Survey debt service on Central
Government domestic bonds and loans was recorded at $7.2 billion
during the fiscal year, lower than payments recorded in the
previous fiscal year ($7.8 billion), the report relates.
"Principal repayments amounted to $4.6 billion, of which a total of
$4.1 billion was repaid on bonds and loans contracted under the
Development Loans Act, while repayments on CLICO and HCU
zero-coupon bonds amounted to $469.3 million and $18.5 million,
respectively," it stated, the report notes.
Central Government domestic interest payments (excluding interest
paid on sterlised debt) amounted to $2.6 billion during the last
fiscal year, the report notes.
"Central Government external debt outstanding stood at US$4.7
billion (16.4 per cent of GDP) at the end of September 2022,
reflecting a marginal increase of 2.9 per cent from the end of
September 2021. During FY2021/22, one new loan from the
Corporación Andina de Fomento (CAF) in the amount of US$175
million, was disbursed for the modernisation of transportation
infrastructure," it stated, the report discloses.
Loan disbursements from previously contracted facilities totalling
US$114.8 million comprised inflows from the Inter-American
Development Bank (US$54.4 million) for various projects, including
support for vulnerable persons affected by the COVID-19 pandemic,
the Multi-phase Wastewater Rehabilitation Programme, the Single
Electronic Window for Trade and Business Facilitation and the
Health Services Support Programme; the Export-Import Bank of China
(US$30.9 million) for the Phoenix Park Industrial Project; and CAF
(US$24.5 million) for the Covid-19 pandemic, the report relays.
Central Government's external debt service totalled US$313.7
million for the year, of which US$169.9 million was earmarked for
principal repayments, the report notes.
"For the year ending September 2022, non-self-serviced guaranteed
debt, which comprise borrowings by state-owned enterprises and
statutory bodies, amounted to $3.9 billion," it stated, the report
discloses.
Disbursements during the year mainly comprised $1.4 billion to the
National Insurance Property Development Company Limited (NIPDEC),
$1.1 billion to the Housing Development Corporation (HDC), $500
million to the Urban Development Corporation of Trinidad and Tobago
(UDeCOTT) and $457.7 million to the Water and Sewerage Authority of
Trinidad and Tobago (WASA), the report says.
"Approximately $1.5 billion of total borrowings was used to
refinance maturing obligations. Total debt service by state
enterprises and statutory boards amounted to $4.7 billion, of which
$3.3 billion represented principal repayments," it stated, 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
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