/raid1/www/Hosts/bankrupt/TCRLA_Public/230614.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, June 14, 2023, Vol. 24, No. 119
Headlines
A R G E N T I N A
PAMPA ENERGIA: Fitch Affirms LongTerm IDRs at 'B-', Outlook Stable
B A R B A D O S
BARBADOS: Gov't. to Eliminate Duty & VAT on Boat Registration
B E L I Z E
BELIZE: IDB OKs $10.64M-Loan to Expand Access to Drinking Water
B R A Z I L
AMERICANAS SA: Regulator Files Charges vs Rial & Duarte Neto
BRAZIL: Central Bank Did Not Participate in Consumer Debt Program
COMPASS GAS: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
COSAN SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
MARFRIG GLOBAL: Fitch Affirms LongTerm IDRs at BB+, Outlook Stable
UNIGEL PARTICIPACOES: Fitch Lowers LongTerm IDRs to 'CCC'
C A Y M A N I S L A N D S
GRIFFIN GLOBAL: Fitch Assigns Final 'BB' IDR, Outlook Stable
C H I L E
CHILE: IDB OKs $400MM Loan to Boost Green Hydrogen Industry
J A M A I C A
JAMAICA DIVERSIFIED: Fitch Affirms 'BB+' Rating on 2020-1 Notes
JAMAICA: JMEA Joins the Jamaica Energy Resilience Alliance
P U E R T O R I C O
FIRSTBANK PUERTO RICO: Fitch Affirms 'BB/B' Issuer Default Ratings
X X X X X X X X
LATAM: Sharp Slowdown Recorded in Exports From Region, IDB Finds
- - - - -
=================
A R G E N T I N A
=================
PAMPA ENERGIA: Fitch Affirms LongTerm IDRs at 'B-', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Pampa Energia S.A.'s Long-Term (LT)
Foreign Currency (FC) and Local Currency (LC) Issuer Default
Ratings (IDRs) at 'B-'. Fitch also affirmed Pampa's senior
unsecured notes at 'B'/'RR3'. The Rating Outlook is Stable for both
FC and LC IDRs.
Pampa's 'B-' LT FC IDR is constrained by Argentina's Country
Ceiling of 'B-', which limits the foreign currency rating by
incorporating transfer and convertibility risk. The ratings reflect
Pampa's strong operating performance in a challenging macroeconomic
and uncertain regulatory environment.
Per Fitch's 'Country-Specific Treatment of Recovery Ratings
Criteria,' Argentina is categorized in Group D, capping it at
'RR4'. Nevertheless, based on precedent in Argentina where issuers
have launched direct debt exchanges (DDEs) that did not result in a
reduction in principal and the recoveries were above the implied
recovery of an 'RR3' (51% to 70%), Pampa's recovery rating is
'RR3'.
KEY RATING DRIVERS
Strong Operator, Weak Operating Environment: Pampa Energia is an
integrated energy company in Argentina with a significant market
share in each of its business segments: upstream, power generation,
and gas transportation. Pampa operates exclusively in Argentina and
has maintained a conservative leverage profile and strong liquidity
despite a difficult macroeconomic environment plagued with high
inflation, unemployment, high cost of capital, capital controls,
and an unstable regulatory environment, which continuously requires
the company to adjust financial policies to maintain its strong
credit profile.
Solid Leverage Profile: Fitch's base case forecasts that total debt
to EBITDA will be 2.0x in 2023, compared with 1.9x in 2022, largely
driven by increased debt to fund Pampa's growing commitments under
Plan Gas and expansion projects in renewable power generation.
Fitch estimates total debt to EBITDA will decline annually
thereafter and range between 1.7x to 1.9x over the 2024-2026
period; net debt to EBITDA is expected to be 1.0x in 2023 and below
1.0x thereafter. EBITDA interest coverage is projected to remain
solid, averaging 3.7x over the forecast period. Having just
redeemed its outstanding series T notes, Pampa does not face any
major maturities until December 2026.
Plan Gas Supports Liquidity: In December 2022, Pampa was awarded
contracts under Plan Gas for a daily volume of 4.8 million cubic
meters per day (m3d) of gas at a guaranteed average price of
USD3.50 per MMBtu through 2024, in addition to the extension of its
9 million m3d of production commitment until December of 2028.
Fitch estimates incremental revenues from these awards could amount
to roughly USD55 million in 2023, helping to maintain the company's
solid financial position.
Gas and Renewables Expansion Affects Cash Flow: Fitch estimates FCF
to be roughly negative USD400 million in 2023, as Pampa boosts
capital investment to increase gas production and advance expansion
of two wind farms (PEPE IV and PEPE VI). Over the rated horizon,
the company's total capex is estimated at USD1.8 billion. Fitch
notes, however, that the company has a predictable cash flow
profile due to a majority of Pampa's EBITDA coming from
U.S.-dollar-denominated contracts with government-related entities.
Pampa's two main business segments (upstream and power generation)
comprised roughly 84% of total EBITDA in 2022, with generation
representing 46% of total consolidated EBITDA.
Manageable Working Capital Despite Payment Delays: Fitch estimates
Pampa's working capital needs have not been affected by Compañía
Administradora del Mercado Mayorista Eléctrico Sociedad Anónima's
(CAMMESA) payment delays, which averaged 55 days from its
contracted 42 days. In fact, the company has been able to
strengthen overall liquidity during this time period. Pampa's
recently awarded contracts under Plan Gas are expected to further
strengthen its cash flow profile and help offset further payment
delays given CAMMESA's high reliance on federal government
subsidies.
DERIVATION SUMMARY
Pampa Energia S.A.'s ratings are constrained by Argentina's Country
Ceiling of 'B-'. Its generation business compares best with AES
Argentina Generacion S.A. (CCC-), Genneia S.A. (CCC-), Generacion
Mediterranea S.A. (GEMSA; CCC-), and MSU Energy (CCC-). Its gas
production business compares best with Compania General de
Combustibles S.A., (CGC; B-/Stable) and Canacol Energy (BB/Stable).
As an integrated energy company, its best peer is Capex S.A.
(CCC+).
Pampa and Central Puerto S.A. (not rated) are tied as power
producers with the largest market share in the country by installed
capacity in 2022 with 13% each, followed AES Argentina at 7%. In
addition, Pampa is a leading developer in the sector and has added
1.2GW of new installed capacity since 2018, and is expected to add
another 139MW by 2024.
Pampa is expected to have the lowest gross leverage ratios, defined
as total debt/EBITDA, amongst GenCos in the country, averaging 1.7x
over the rating horizon compared with AES Argentina's 2.2x,
Genneia's 2.6x, GEMSA at 4.8x and MSU Energy 3.6x. Argentina's
closest peer is Capex S.A, which is also an integrated gas producer
and generation company. Capex's gross leverage is expected to be
higher than Pampa's, averaging 2.6x over the rated horizon.
Pampa's upstream segment compares favorably with other gas
concentrated production companies. These peers include Canacol
(BB/Stable) and Compania General de Combustibles (B-). Pampa's
expected production is expected to average 76,500 boed over the
2023-2026 period, which is higher than Canacol's at 30,000boed and
CGC at 34,000boe/d. Pampa's PDP and 1P Reserve life in 2022 of 3.0
years and 7.8 years, respectively, is aligned to Canacol at 5.7
years and 6.3 years and higher than CGC at 2.0 years and 4.6
years.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Upstream
- Daily oil production average of 5,204bbld between 2023-2026;
- Daily gas production average of 57,700boed between 2023-2026;
- Average realized natural gas price of USD3.5mmBTU flat over the
rated horizon under Plan Gas;
- Average realized Brent price of $85bbl in 2023, $75bbl in 2024,
$65bbl in 2025, and $53bbl in 2026.
GenCo
- Installed capacity at year-end is 5,087MW in 2022, 5,103MW in
2023, and then 5,243MW each year thereafter;
- Average monomic price of USD35.24 per MWh in 2023, and USD36.45
per MWh from 2024-2026;
- Load factor across entire portfolio average of 40% in 2022 and
39% thereafter;
- CAMMESA payments received within 80 days.
Financial
- Fitch average and EOP ARS/USD exchange rates;
- Average annual capex of USD447.5 million over 2023-2026 period;
- No dividends;
- Debt issuances issued through the end of April 2023 (AR18.3
billion, USD48.2 million, AR6 billion, USD56 million, AR36
billion).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade in Argentina's Country Ceiling;
- Contracted exports with high quality off-takers with a long-term
tenure with adequate legal protections to avoid interference from
the federal government.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade of Argentina's Country-Ceiling ratings;
- Amendments to capital control rules that weaken the company's
ability to access its capital and refinance debt;
- Significant delays in payments that negatively affect working
capital, liquidity and leverage, and/or revision of existing
contracts (PG4 and PPA) with CAMMESA;
- Significant deterioration of credit metrics of total debt to
EBITDA of 4.5x or more;
- A downgrade may occur if, in Fitch's judgment, a default of some
kind appears probable or a default or default-like process has
begun, which would be represented by a 'CC' or 'C' rating.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Pampa reported a consolidated cash position of
USD126 million and marketable securities of USD626 million in 1Q23.
The combined USD752 million in cash and equivalents provides the
company with liquidity to cover nearly three years of interest
expense, but the company is affected by capital controls and
crippling inflation that limits its financial flexibility and could
affect the repayment of debt. The company's debt and interest
expenses are predominately in U.S. dollars, and Fitch's rating case
assumes the company will continue to access the official exchange
to service its debt.
ISSUER PROFILE
Pampa is the largest independent energy integrated company in
Argentina. Pampa and its subsidiaries are engaged in generation and
transmission of electricity in Argentina, and oil and gas
exploration and production, refining, petrochemicals and
hydrocarbon commercialization and transportation in Argentina.
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 Recovery Prior
----------- ------ -------- -----
Pampa Energia S.A. LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
senior unsecured LT B Affirmed RR3 B
===============
B A R B A D O S
===============
BARBADOS: Gov't. to Eliminate Duty & VAT on Boat Registration
-------------------------------------------------------------
RJR News reports that Bahamas Prime Minister Philip Davis has
announced plans to eliminate duty and value-added tax on boat
registrations.
Mr. Davis, who is also the Minister of Finance, says the duty and
VAT will be replaced with a schedule of fees for registration in an
effort to get more pleasure vessels flying the Bahamian flag,
according to RJR News.
He says the combined duty and VAT rate is too onerous in comparison
to registering the vessel in the United States, Jamaica, or the
Cayman Islands, the report notes.
===========
B E L I Z E
===========
BELIZE: IDB OKs $10.64M-Loan to Expand Access to Drinking Water
---------------------------------------------------------------
The Inter-American Development Bank (IDB) approved two
complementary programs to enhance the quality of water services in
rural and peri-urban areas of Belize. The two operations, totaling
$10.64 million, will bring safe drinking water to over 20,000
households in 44 rural communities in the country's six districts
and nearly 400 households in peri-urban areas. Program
beneficiaries include vulnerable populations such as migrants and
Indigenous people.
In addition to expanding and improving water services, the programs
include energy efficiency, smart micro-metering, and renovation
initiatives, as well as the installation of disinfection equipment,
especially in rural areas.
The two operations help strengthen Belize's water and sanitation
sector. Among other objectives, they aim to improve the operational
and financial performance of service providers in both urban and
rural areas.
To ensure high-quality services and drinkable water for 44 rural
communities throughout Belize, the project will fund innovative
disinfection technologies, as well as capacity building for village
water boards on how to operate and maintain water services and
manage their finances. It will also finance minor system
renovations to replace pipes, electromechanical equipment, and
storage tanks, in addition to a pilot project to test how
micro-metering effects water consumption and water bill payments.
Importantly, the program will work to increase the share of women
on water boards. It will also launch a campaign to change household
behaviors around conserving water, using and consuming tap water,
and paying water bills, so water resources can be used more
efficiently. The program will also finance policy proposals to
change how the rural water sector is managed and incorporate gender
and diversity considerations into service delivery.
The program will help increase access in peri-urban areas through
the beneficiary Belize Water Services Limited (BWSL), the national
water utility. The operation is also designed to enhance BWSL's
operational and financial performance by installing new
disinfection equipment, implementing an energy efficiency program,
and installing smart micro-meters in San Pedro, Caye Caulker, and
Placencia. Additionally, the program will finance an informational
campaign to support implementation of the new disinfection
technologies and installation of meters.
The loans will have a 4-year disbursement period, a 25-year
repayment term, a 5.5-year grace period, and an interest rate based
on the Secured Overnight Financing Rate (SOFR). The IDB will also
provide a $1.64 million grant component to finance these programs
from the IDB's migration facility.
===========
B R A Z I L
===========
AMERICANAS SA: Regulator Files Charges vs Rial & Duarte Neto
------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Brazil's
securities regulator filed the first charges involving the
accounting scandal and bankruptcy at retail giant Americanas SA.
The CVM, as the regulator is known, accused the company's ex-chief
executive officer Sergio Rial over "inconsistencies" in the
disclosure of a 20 billion reais (US$4 billion) accounting hole to
the market, according to globalinsolvency.com.
Rial and Joao Guerra Duarte Neto, who replaced Rial on an interim
basis, are accused of having violated the Brazilian corporation
law, which imposes the need for secrecy on any information that has
not yet been disclosed for market knowledge and may significantly
influence investors' decisions to sell or buy securities issued by
a company, the report discloses.
They're also charged for having violated a CVM resolution on the
disclosure of a material fact, according to public information on
the regulator's website, the report notes.
If convicted, both can be punished with fines or even
disqualification from holding company management positions for up
to 20 years, the report discloses.
The probe was first reported by O Globo newspaper.
About Americanas SA
Americanas was one of the largest diversified retail chains in
Brazil, with a wide platform of physical stores, robust e-commerce,
fintech, and has just entered into the niche food retail. It is
listed on B3, being indirectly controlled by billionaire Jorge
Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles.
The retailer nosedived in January 2023 after becoming mired in an
accounting scandal. The firm filed for bankruptcy at a court in Rio
de Janeiro on Jan. 19, 2023, citing liabilities of 43 billion reias
(US$8.26 billion).
Americanas sought protection under Chapter 15 of the U.S.
Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25,
2023. White & Case LLP, led by John K. Cunningham, is the U.S.
counsel.
BRAZIL: Central Bank Did Not Participate in Consumer Debt Program
-----------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that Brazil's central
bank abstained from involvement in developing the government's
comprehensive consumer debt renegotiation program unveiled, two
central bank directors said.
Speaking at a news conference, Renato Gomes, the director of the
financial system organization, said that policymakers solely
furnished information without actively contributing to the
program's design, according to globalinsolvency.co.
Diogo Guillen, the economic policy director, also announced that
updated assessments regarding the initiative's potential effects on
default rates and credit volume would be disclosed through the
bank's customary publications, the report notes.
In line with a campaign promise, the administration of President
Luiz Inacio Lula da Silva has unveiled a program designed to
renegotiate consumer debt for individuals earning up to two minimum
wages and with a total debt of up to 5,000 reais (US$1,015), the
report relays.
The program is scheduled to begin in July.
Following the central bank's earlier emphasis in its 2022 Banking
Economy Report on the outflows from savings accounts in Brazil,
while most funding instruments exhibited positive performances,
Guillen stated that the bank continues to study potential changes
in savings remuneration, considering the overall impacts involved.,
the report adds,
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).
COMPASS GAS: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Compass Gas e Energia S.A.'s (Compass)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB' and its National Scale Long-Term Rating at 'AAA(bra)'. The
Rating Outlook is Stable.
Compass' ratings reflect its linkage with parent Cosan S.A. (Cosan
- Foreign Currency IDR BB/Stable; Local Currency IDR BB/Stable; and
Long-Term National Scale Rating AAA(bra)/Stable) as per application
of Fitch' Parent and Subsidiary Linkage Rating Criteria that
resulted in equalizing their ratings. Fitch believes that, due to
Cosan's 67.6% ownership and shareholder structure, the parent has
control on Compass' decisions and unlimited ability to influence
Compass' financial policies, including prioritizing dividends.
Fitch views Compass' Standalone Credit Profile (SCP) for its Local
Currency IDR as 'bb+' based on its robust business profile in the
natural gas industry, primarily supported by its control of
Companhia de Gas de Sao Paulo - COMGAS (Foreign Currency IDR
BB/Stable; Local Currency IDR BBB-/Stable and Long-Term National
Scale Rating AAA(bra)/Stable). Compass benefits from a strong flow
of dividends from COMGAS, with a low net debt-to-dividends ratio.
KEY RATING DRIVERS
Linkage to Cosan: Fitch equalizes Compass and Cosan's ratings based
on the Parent and Subsidiary Linkage Criteria. Compass is an
intermediate holding company between Cosan and COMGAS that is
controlled by Cosan through its 67.6% indirect stake on the
company. There is also limited legal ring-fencing to protect
Compass from its weaker parent. Cosan has unlimited ability to
influence Compass' financial policies such as dividends, capex and
leverage.
Strong Gas Distribution Subsidiary: Compass' key subsidiary,
COMGAS, provides robust dividends upstream to the company, which
supports its low leverage. Compass also benefits from asset
diversification due to recent acquisitions and project
developments. Fitch views Compass' SCP as weaker than COMGAS's, as
the latter is a natural gas distributor with solid credit profile
and subject to regulatory and debt restrictions that could limit
Compass' access to its cash. COMGAS's business profile is solid
given its condition as the largest company in this sector in
Brazil, with operations in the state of Sao Paulo, which is
economically the most important state in the country.
Manageable Industry Risk: Compass' exposure to the natural gas
distribution industry with manageable business risk and relevant
growth potential is a positive credit consideration. Natural gas
distributors operate under long-term concession contracts with cost
pass-through mechanisms that protect their cash flows and improve
predictability, despite moderate demand volatility. Gas supply
risks are likely to be manageable as Petroleo Brasileiro S.A.
(Petrobras; BB-/Stable) reduces its position as the main supplier
in Brazil. Natural gas distribution operations should contribute to
around 90%-95% of Compass' consolidated EBITDA through 2025, with
around 85% from COMGAS.
Sound Financial Structure: Compass' consolidated financial profile
should remain conservative in the next three years with net
leverage below 2.0x under assumption of no asset sale nor
acquisitions. Fitch estimates Compass' consolidated EBITDA in 2023
at BRL3.9 billion, with gradual increase to BRL4.7 billion by 2025,
underpinned by development of operations on the subsidiaries Commit
Gas S.A. (former Gaspetro), Sulgas and on the start of activities
in the natural gas commercialization and regasification by the end
of 2023. At the holding level, the net debt-to-dividends received
should be low at 0.8x in 2023 and 0.5x in 2024.
Strong Cash Flow Generation: Fitch forecasts consolidated cash flow
from operations (CFFO) in 2023 of BRL2.6 billion, resulting in
negative free cash flow (FCF) of BRL345 million, that incorporates
estimated dividend payment of BRL1.0 billion and capex of BRL1.9
billion, mainly at COMGAS. Compass' consolidated CFFO is expected
to average BRL3.2 billion annually in 2024-2025, and capex should
average BRL2.0 billion annually. At the holding level, Fitch's base
case assumes that dividends coming from COMGAS, Commit and Sulgas
will service debt at Compass and all excess cash upstreamed to
Cosan.
DERIVATION SUMMARY
Compass' ratings are influenced by its ownership structure and
operating environment when compared to Latin America peers in the
power and natural gas sectors. The company's SCP for the Local
Currency is equal to Energisa S.A.'s 'BB+' Long-Term Local Currency
IDR and Stable Outlook, a holding company with diverse operating
subsidiaries in the power distribution segment in Brazil. Energisa
has solid growth potential through its subsidiaries and above
average performance compared with its main peers in the segment,
and should maintain a moderate leverage. Fitch expects Compass to
gradually increase its portfolio diversification while maintaining
a conservative financial profile.
Compass' ratings are influenced by its ownership condition and by
Brazil's operating environment as compared with GNL Quintero S.A.'s
(GNLQ; A-/Stable), which owns and operates the largest liquefied
natural gas regasification terminal in Chile, despite GNLQ
operating a single asset under expectation of higher leverage
metrics through the rating horizon. Compass also compares
unfavorably with Promigas S.A. E.S.P. (BBB-/Stable), which benefits
from a strong business position within the Colombian and Peruvian
natural gas transportation and distribution segments, despite
expectation of sustaining higher leverage than Compass.
KEY ASSUMPTIONS
- COMGAS's total volume billed (excluding the thermo power
generation segment) decline by 3% in 2023, with an annual average
increase of 1.8% thereafter;
- COMGAS's annual contribution margin increases in line with
Fitch's inflation estimates;
- Compass's annual dividend distribution to Cosan of BRL1.6 billion
on average in 2023-2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of Cosan's ratings;
- A change of Fitch's perception about Access and Control and Legal
Ring Fencing between the company and its shareholder.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade of Cosan's ratings;
- A downgrade of COMGAS's ratings by more than two notches;
- A downgrade of the sovereign rating may also trigger a downgrade
of Compass' Foreign Currency IDR.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Compass' sound consolidated cash balance of
BRL4.4 billion at March 31, 2023 should moderately decline after
expected dividend payments of BRL1.0 billion during 2023. Fitch
estimates the company to distribute dividends of around BRL1.8
billion on average annually thereafter and sustain strong liquidity
balance of around BRL2.0- BRL3.0 billion going forward. Total debt
at the holding by March 31, 2023 was BRL414 million with a bullet
maturity by December 2026.
Compass also guarantees BRL859 million debt at a subsidiary level.
Its consolidated adjusted debt registered lengthened amortization
schedule and totaled BRL8.6 billion, with BR4.2 billion in
debentures and BRL2.7 billion of Brazilian Development Bank loans,
mostly allocated to COMGAS.
ISSUER PROFILE
Compass is a non-operating subsidiary controlled by Cosan group and
responsible for developing the group's activities within natural
gas and energy sectors in Brazil. Compass is strategically focused
on natural gas distribution, liquified natural gas regasification
infrastructure, gas trading and gas-powered thermal generation.
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
----------- ------ -----
Compass Gas e
Energia S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra) Affirmed AAA(bra)
COSAN SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Cosan S.A.'s (Cosan) Long-Term Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs)
at 'BB', and National Scale Long-Term Rating (NSLTR) at 'AAA(bra)'.
Fitch has also affirmed the ratings on all cross border debts at
'BB', unconditionally and irrevocably guaranteed by Cosan. The
ratings of Cosan's unsecured debentures have been affirmed at
'AAA(bra)'. The corporate Rating Outlook is Stable.
Cosan's credit profile benefits from its strong and diversified
asset portfolio, underpinned by leading positions in key business
segments. The ratings incorporate the continued strengthening of
cash generation by its subsidiaries.
The recent 4.9% stake acquisition of Vale S.A. (Vale -
BBB/BBB/AAA(bra)/Stable), improved the company's geographic and
product diversification, as Vale is a leader in the mining sector
and generates most of its revenues outside Brazil. This
debt-financed acquisition weakened Cosan's credit metrics with
lower dividends estimates from subsidiaries to service its debt,
which limits its LC IDR. Cosan heavily depends on significant
divestments to reduce its high indebtedness. Higher pressure on
debt amortization starting in 2025 allows time to materialize
potential sales.
KEY RATING DRIVERS
Positive Asset Diversification: Vale's share acquisition further
enhanced Cosan's asset portfolio diversification and consolidated
business profile. It also reduced the company's risk of generating
almost all of its cash flow in Brazil. Cosan's operating assets are
leaders in the sugar and ethanol businesses, distribuition of fuel
and lubricant, railroad operations and natural gas distribution.
Raízen S.A. (Raízen - BBB/BBB/AAA(bra)/Stable) is the leading
global producer of sugar and ethanol and energy from sugar cane
bagasse and currently accounts for more than 15% of Brazil's sugar
cane crushing capacity. The company is also the second-largest fuel
distributor in Brazil, with over 20% market share by volume in 2022
operating under the Shell brand.
Cosan's stake in Compass Gás e Energia S.A. (Compass -
BB/BB/AAA(bra)/Stable) provides access to the natural gas
distribution sector, considered a low-to-moderate risk industry.
Compass' key asset is Companhia de Gas de Sao Paulo - COMGAS
(BB/BBB-/AAA(bra)/Stable), the largest company in this sector in
Brazil, with operations in the state of Sao Paulo and robust credit
metrics and a solid business profile. COMGAS' ratings benefit from
its long-term concession contract with pass-through mechanisms of
non-manageable costs, mitigated supply risks, and robust operating
cash flow.
Cosan's stake into Rumo S.A. (Rumo - BB/BB+/AAA(bra)/Stable) adds
to the group's cash flow visibility in an economically resilient
industry. Rumo benefits from its market position as the sole
railroad transportation company in Brazil's South and Midwest
regions through five concessions that operate more than 14,000
kilometers of tracks, with access to Brazil's three main ports. Due
to a low-cost structure and solid presence in transportation of
agricultural goods, the company enjoys solid competitive advantages
over truck transportation, which limits volume volatilities over
different economic cycles.
Asset Sales to Reduce Leverage: Cosan heavily depends on asset
sales to reduce its high leverage on standalone and consolidated
basis. The holding had around BRL27 billion in adjusted debt at the
end of March 2023, compared with an expected flow of dividends of
BRL2.7 billion in 2023 and BRL3.4 billion on average in 2024 and
2025. Vale's acquisition weakened the flow of dividends to the
holding company, given the sale of preferred shares in Compass and
Raízen used to amortize BRL8 billion bridge loan of the BRL17.1
billion raised to finance the transaction. Fitch also forecasts the
group's consolidated adjusted net leverage at 5.4x by the end of
2023 and 4.8x in 2024.
Cash Flow Generation to Moderate: Fitch expects Cosan group to
report consolidated adjusted EBITDA of BRL5.1 billion in 2023 and
BRL6.1 billion in 2024, including dividends from Raízen and
COMGAS, according to Fitch adjustments. High interest payments due
to the substantial debt volume and high interest rates in Brazil
should contribute to pressure cash flow from operations (CFFO),
estimated at around BRL100 million in 2023 and BRL1.8 billion in
2024. Total capex of approximately BRL4.0 billion and dividends of
BRL1.0 billion in 2023 and 2024 should pressure FCF. Fitch
forecasts negative FCF of around BRL2.6 billion this year and
BRL600 million in 2024.
Adjusted Consolidated Financials: Fitch's analysis is based on
Cosan's adjusted consolidated financials, which exclude 70% of
Rumo's and 100% of COMGAS's results, and includes dividends
received from COMGAS, Raizen and Vale in adjusted EBITDA. The
proportional consolidation of 30% of Rumo recognizes economic
rather than voting control of the subsidiary as per Fitch's
Corporate Rating Criteria. COMGAS is deconsolidated due to its
insulated and ring-fenced structure. Raizen, a joint venture with
Royal Dutch Shell plc, has its own financing and investing
strategies, and Cosan's access to its cash is also only through
dividends received.
DERIVATION SUMMARY
Cosan's ratings compare unfavorably with Votorantim S.A.'s (VSA; FC
and LC IDRs BBB-/Stable and National Scale Rating AAA(bra)/Stable),
also one of Latin America's largest industrial conglomerates. VSA
has a diversified business portfolio, strong market position in the
industries it participates in and geographic diversification with
strong operations in the Americas, while Cosan's assets are still
primarily located in Brazil and with a representative share of its
cash flow generation capacity in the more volatile S&E business.
Cosan is in a weaker position in terms of cash flow generation and
leverage compared with VSA.
Cosan similarly compares with Grupo KUO, S.A.B. de C.V.'s (KUO; FC
and LC IDRs BB/Positive), a Mexican Group with diversified business
portfolio in the consumer, automotive and chemical industries. KUO
is exposed to volatility in product demand and input costs across
its business units, and Fitch expects its net leverage level to be
moderately lower as compared with expectations for Cosan's.
KEY ASSUMPTIONS
- Adjusted consolidated revenues of BRL16.9 billion and BRL18.5
billion in 2023 and 2024, respectively;
- Average EBITDA margin, including dividends received, of 31% in
2023 and 2024;
- Cosan's payment of loan amortization and retention of Vale's
shares.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade is unlikely in the near term given the sizable
indebtedness and net leverage level.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Adjusted consolidated net leverage sustained above 6.0x;
- Inability to sell assets in timely manner.
LIQUIDITY AND DEBT STRUCTURE
High Financial Flexibility: Cosan's debt at the holding level of
BRL27 billion as of March 2023 is high compared with the expected
flow of dividends to the holding company. . Its financial
flexibility to dispose of assets and access debt and capital
markets is crucial to support estimated refinancing needs and
collar obligations. The holding debt amortization schedule brings
lower pressure in 2023 and 2024, with BRL1.1 billion and BRL2.6
billion, respectively, which gives time to address the BRL7.5
billion amortization in the following two years. By the end of
March 2023, its cash and equivalents totaled BRL2.3 billion.
Fitch estimates that Cosan will maintain an adequate liquidity
profile on adjusted consolidated basis over the next three years,
with pro forma adjusted liquidity of around BRL10 billion during
this period. Cosan's group's consolidated adjusted net debt should
reach BRL41 billion by the end of 2023 and BRL44 billion in 2024.
Fitch considers 50% of Cosan group's BRL8.1 billion outstanding
issued preferred shares as debt, according to the agency's
criteria.
ISSUER PROFILE
Cosan is the holding company of a Brazilian conglomerate with
presence in sugar, ethanol and energy production, natural gas
distribution, railroad operations and distribution of fuels &
lubricants. The group is controlled by Mr. Rubens Ometto with 35.9%
ownership.
SUMMARY OF FINANCIAL ADJUSTMENTS
Net derivative balances for FX risk management have been added to
Cosan's adjusted debt figures.
Cosan's Fitch-adjusted consolidated financials for 2021 onward
depart from published consolidated financials minus 70% of Rumo and
100% of Comgas. Cosan's adjusted consolidated EBITDA includes
dividends paid out by Raizen and Comgas.
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
----------- ------ -----
Cosan S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra) Affirmed AAA(bra)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT AAA(bra) Affirmed AAA(bra)
MARFRIG GLOBAL: Fitch Affirms LongTerm IDRs at BB+, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Marfrig Global Foods S.A.'s Long-Term
Foreign Currency (FC) and Local Currency (LC) Issuer Default
Ratings (IDRs) at 'BB+' and MARB BondCo PLC and NBM US Holdings,
Inc.'s senior unsecured notes at 'BB+'. Fitch has also affirmed
Marfrig's National Scale rating and debentures at 'AAA (bra)'. The
Rating Outlook is Stable.
The affirmation reflects Marfrig's expected positive FCF, good
liquidity and debt amortization, and an expectation of a gradual
deleveraging over the next two years. Fitch considers Marfrig's
operations on a stand-alone basis despite the consolidation of BRF
S.A. (BRF; BB) as these two entities operate separately, with no
cross-default or guarantees provided, and the presence of
significant minority interests.
KEY RATING DRIVERS
Leverage Peaking in 2023: Fitch forecasts Marfrig's net stand-alone
leverage to peak at about 4x in 2023, compared with 3.2x in 2022,
due to a lower EBITDA margin as a result of weaker profitability at
National Beef in the U.S. Net leverage is projected to gradually
decline over the next two years with the gradual improvement of the
US division. The cyclicality of the U.S. beef division is leading
to a forecasted decline in the company's operating EBITDA
(excluding BRF) to approximately BRL6 billion in 2023 from BRL8.9
billion in 2022. Fitch forecasts positive FCF and lower net debt
due to cash preservation measures such as a reduction of capex,
improved working capital, and no dividends in 2023. Fitch projects
capex at about BRL1.5 billion down from BRL2.6 billion in 2022.
Geographical Diversification: Marfrig's cash flow benefits from
geographical diversification as it lowers profit volatility, with
an EBITDA margin projected to trend toward 5% in the U.S., compared
to 9%-10% in South America in 2023. Fitch estimates that National
Beef will represent about 54% of the group's EBITDA (excluding
BRF), with the remaining 46% represented by its South American
units (mainly in Brazil) in 2023. This geographical diversification
enables the group to mitigate cattle cycles, sanitary, social,
deforestation in the Amazon Biome and other environmental risks due
to the complexity in the monitoring of the supply chain.
Weaker US Beef Production: USDA forecasts U.S. beef production to
decline by about 5% yoy due to lower cattle availability in 2023,
with cattle prices expected to be up by about 15% yoy, which will
pressure companies' operating margins in the sector. In contrast,
Brazilian beef production is projected to increase by about 2% yoy
in 2023 and cattle is projected to remain abundant, which should
enable Marfrig to maintain an EBITDA margin in the mid-single digit
in 2023 despite price pressure in the export market.
Neutral Capital Injection: The recent announcement of a capital
injection by Marfrig will be neutral for its stand-alone credit
profile as cash proceeds will be reinvested in BRF's owned capital
increase. BRF announced a capital increase for a maximum amount of
BRL4.5billion, and Marfrig aims to participate in the public
offering for a maximum amount of up to BRL2.25 billion (depending
on the final allocation of shares) to maintain its control and not
be diluted (Marfrig owns 33.27% stake in BRF S.A as of May 2023).
Fitch will incorporate any dividends paid by BRF to Marfrig in
Marfrig's debt ratio, which is not expected to occur in 2023 as BRF
intends to accelerate its deleveraging. The prospect of BRF paying
dividends to Marfrig beyond 2023 increases as a result of this
transaction.
DERIVATION SUMMARY
Marfrig's ratings reflect its solid business profile and geographic
diversification as a pure player in the beef industry, with a large
presence in South America (notably in Brazil) and the U.S. through
National Beef. It also reflects its stake in BRF. Regarding size,
the business compares favorably with its regional peer Minerva S.A.
(BB/Stable), which is mainly a beef processor in South America. JBS
S.A. (BBB-/Stable) and Tyson Foods (BBB/Stable) enjoy a larger
scale of operations, stronger FCF, and higher product and
geographical diversification than Marfrig.
KEY ASSUMPTIONS
- Lower EBITDA margin due to lower profitably from National Beef;
- Positive FCF;
- Adjusted stand-alone net leverage close to 4x as of YE 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Sustainable and positive FCF;
- Net leverage to below 2.5x, respectively, on a sustained basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative FCF on a sustained basis;
- Net leverage above 3.5x on a sustainable basis.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Marfrig had USD2.1 billion of cash and cash
equivalents compared with USD1.1 billion and USD720 million due in
2023 and 2024, respectively as of 1Q23. The company's short-term
debt is mainly related to trade finance lines.
ISSUER PROFILE
Marfrig Global Foods S.A. (Marfrig) is a multinational corporation
and the world's second largest beef company in terms of production
capacity. The company operates slaughter and processing facilities,
distribution centers and offices located in North America, South
America, Europe and Asia.
ESG CONSIDERATIONS
Marfrig has an ESG Relevance Score of '4' on Waste & hazardous
Materials Management, Ecological due to supply chain management and
its exposure to cattle sourcing from the Amazon biome. The
company's exposure to land use and ecological impact could result
in decisions being made to the detrimental to the company's
creditors, which would have a negative impact on the credit profile
and is relevant to the rating in conjunction with other factors.
Marfrig has an ESG Relevance Score of '4' on Governance as a result
of ownership concentration due to the control of the company by the
Molina's family and the lack of a detailed succession plan. Also,
Marfrig has pursued multiple strategies in the past decade, buying
and selling companies, and it remains key credit consideration. The
shareholder's strong influence upon management could result in
decisions being made to the detriment of the company's creditors.
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
----------- ------ -----
NBM US Holdings, Inc.
senior
unsecured LT BB+ Affirmed BB+
MARB BondCo PLC
senior
unsecured LT BB+ Affirmed BB+
Marfrig Global
Foods S.A. LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra) Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra) Affirmed AAA(bra)
UNIGEL PARTICIPACOES: Fitch Lowers LongTerm IDRs to 'CCC'
---------------------------------------------------------
Fitch Ratings has downgraded Unigel Participacoes S.A.'s (Unigel)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
to 'CCC' from 'B' and the long-term national scale rating to
'CCC(bra)' from 'BB+(bra)'. Fitch has also downgraded the rating on
Unigel Luxembourg S.A.'s senior unsecured bond due 2026 to
'CCC'/'RR4' from 'B'/'RR4'. Fitch has removed the IDRs and bond
rating from Rating Watch Negative.
The downgrade reflects substantial credit risk for Unigel in making
timely payment of principal and interest on its obligations
following the announcement that it had hired Moelis with the
purpose to improve its capital structure. Fitch believes that is
highly unlikely that Unigel will receive support from its
shareholder or sell its assets in a time frame that would support
its liquidity.
The confluence of these factors substantially reduces the company's
ability to raise the financing it needs to support its expected
negative FCF and debt amortization. Prior to these recent
developments, Fitch had expected the company to access credit lines
of up to BRL600 million in 2023 to maintain adequate liquidity.
KEY RATING DRIVERS
Potential Debt Restructuring: To avoid a restructuring in the midst
of a challenging backdrop, Unigel will need to maintain access to
funding. In the absence of additional funding, the company will
need some combination of asset sales, an equity injection from its
shareholder or a renegotiation of its natural gas supply contracts.
Fitch believes that the engagement of Moelis, which has been an
advisor for several companies that have restructured debt in
Brazil, materially reduces creditors' willingness to provide new
financings to the group to cover its 2023 and 2024 funding needs.
Americanas' recent judicial recovery may also affect the group's
ability to raise debt, as several lenders suffered material
losses.
Elevated Leverage; Covenant Breach: Fitch expects Unigel will
violate its 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. Failure to obtain a waiver would constitute an event of
default leading to an acceleration of the debt, which would occur
30 days from its announced 2Q23 results. Unigel's financial
performance is the result of deteriorating market conditions in
both the chemical and agro segments. EBITDA in these segments
decreased 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
9.1x in 2023, 5.5x in 2024 and 4.7x in 2025.
High Refinancing Risk: Unigel faces significant refinancing risk
due to 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 expenses or its debt maturities; Fitch
estimates the company will need BRL970 million (~USD195 million) of
total financing between 2023-2024 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.
DERIVATION SUMMARY
Despite Unigel's solid market share in Latin America, the company
is a price-taker and is medium-sized relative to the global
chemical industry. Its EBITDA generation is between USD100-USD150
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 acrylics, USD125
and USD160 in styrenics and USD45 and USD58 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 BRL670 million in 2023 and BRL300
million in 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Unigel maintains its ability to receive funding from banks or the
capital market;
- The company sells assets or receives an equity injection from its
shareholder;
- The company significantly improves its cost structure by
renegotiating its natural gas supply contracts.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The announcement of a debt restructuring plan;
- Insufficient liquidity to cover funding requirements over the
next 12 months.
ISSUER PROFILE
Unigel is a medium-size chemical producer operating in the
midstream of the petrochemical industry value chain (acrylics and
styrenics), 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 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 Recovery Prior
----------- ------ -------- -----
Unigel
Luxembourg S.A.
senior
unsecured LT CCC Downgrade RR4 B
Unigel
Participacoes
S.A. LT IDR CCC Downgrade B
LC LT IDR CCC Downgrade B
Natl LT CCC(bra)Downgrade BB+(bra)
===========================
C A Y M A N I S L A N D S
===========================
GRIFFIN GLOBAL: Fitch Assigns Final 'BB' IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has assigned final Issuer Default Ratings (IDRs) of
'BB' to Griffin Global Asset Management Holdings, Ltd. (Griffin)
and its rated subsidiary, GGAM Finance Ltd. The Rating Outlook is
Stable. Fitch has also assigned final ratings of 'BB' to GGAM
Finance Ltd.'s issuance of $400 million of 7.75% senior unsecured
notes due 2026 and $600 million of 8% senior unsecured notes due
2028.
The assignment of the final ratings follows the completion of the
debt issuances, in which the proceeds were used to repay
outstanding amounts under the company's secured warehouse facility,
and for general corporate purposes. The final ratings are the same
as the expected ratings assigned on May 22, 2023.
KEY RATING DRIVERS
Griffin's ratings are supported by its young fleet, one of the
longest weighted average remaining lease terms amongst peers,
appropriate targeted leverage, the absence of order book purchase
commitments, the lack of near-term debt maturities and solid
expected liquidity metrics. The ratings also consider the senior
management team's depth, experience, and track record in managing
aviation assets and ownership benefits from Bain Capital Credit,
LP, one of the largest alternative investment managers, that
provided the initial capital commitment to Griffin, and brings
aviation investment expertise and banking relationships to support
the Griffin's growth.
The primary rating constraint relates to execution risks associated
with the company's aggressive growth targets and accompanying
financing objectives. Additional rating constraints include a
modest franchise position, a smaller and significantly concentrated
portfolio by customer and geography, weaker projected profitability
metrics over the next two years and key man risk associated with
founder and CEO, Ryan McKenna. Fitch also notes potential
governance and conflict of interest risks associated with Griffin's
externally managed business model, limited number of independent
board members, and ownership by fixed-life funds.
Rating constraints applicable to the aircraft leasing industry more
broadly include the monoline nature of the business, vulnerability
to exogenous shocks, sensitivity to higher oil prices, inflation
and unemployment, which negatively impact travel demand, potential
exposure to residual value risks, reliance on wholesale funding
sources, and increased competition.
Griffin's initial contracted fleet, as of March 31, 2023, consisted
of 41 aircraft leased to 15 airlines across 11 countries, with a
weighted average age of 1.1 years and a weighted average remaining
lease term of 10.3 years. This represents a young portfolio with
one of the longest remaining lease terms among Fitch-rated aircraft
lessors, which could translate to strong asset quality performance
relative to peers over time. The portfolio had net book value of
approximately $2.5 billion as of March 31, 2023.
Fitch anticipates the firm's lack of scale and aggressive growth
strategy amid increased competition will have a negative impact on
near-term profitability. Fitch expects the company's net spread
(lease yields, less funding costs) to be 2.3% and 3.1% in 2023 and
2024, respectively, which is commensurate with Fitch's 'bb'
category earnings and profitability benchmark of 1%-5% for aircraft
lessors with a sector risk operating environment score in the 'bbb'
category.
The company has articulated a leverage target on a gross debt to
tangible equity basis of 2.75x. Pro forma for the debt issuance,
Griffin's leverage would have been 1.9x, as of March 31, 2023,
which Fitch believes is appropriate in the context of current
customer concentrations as well as the liquidity of the fleet
profile, as nearly 100% of the portfolio is expected to be tier 1.
Pro forma for the senior unsecured debt issuance, senior unsecured
debt increased to 60.6% of total debt, from a fully secured funding
structure, as of March 31, 2023. Following the initial issuance,
Fitch expects Griffin will opportunistically seek to access the
secured and unsecured debt capital markets to fund its operations,
targeting greater than 70% unsecured debt over time. Future
unsecured debt issuances would be viewed favorably as it would
increase unencumbered assets and provide enhanced funding
flexibility.
Pro forma for the debt issuance, the company is expected to
maintain solid near-term liquidity, including $260.7 million of
unrestricted cash and $1.1 billion of availability under a $2
billion, 30-month committed warehouse facility provided by a
syndicate of 12 banks. In addition, Griffin is expected to generate
annualized operating cash flow of $164 million in 2023. Together,
this provides 3.8x liquidity coverage of $403 million of contracted
aircraft purchases. Fitch believes there is minimal refinancing
risk given the lack of debt maturity walls in the next 12 months.
Fitch's sensitivity analysis for Griffin incorporated quantitative
metrics for the company under the agency's base case and stress
case assumptions. These included slower than projected growth,
lower aircraft disposal gains, additional equipment depreciation,
higher interest expenses, and additional impairment charges. Fitch
believes Griffin would have sufficient liquidity headroom relative
to the threshold of 1.0x to withstand near-term reductions in
operating income in both scenarios. Fitch expects Griffin would
also retain sufficient capitalization headroom relative to the 4.0x
downgrade trigger under both scenarios.
The Stable Outlook reflects Fitch's expectation that Griffin will
manage its balance sheet growth in order to maintain sufficient
headroom relative to its targeted leverage range and Fitch's
negative rating sensitivities over the Outlook horizon, despite
Fitch's expectation for increased macro challenges including
elevated market volatility, rising interest rates and growing
inflation. The Stable Outlook also reflects expectations for the
maintenance of a strong liquidity position, given the absence of
order book purchase commitments with aircraft manufacturers over
the near term.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Macroeconomic and/or geopolitical-driven headwinds that pressure
airlines and lead to additional lease restructurings, rejections,
lessee defaults, and increased losses would be negative for
ratings. A weakening of the company's projected long-term cash flow
generation, profitability and liquidity coverage falling below 1.0x
and/or a sustained increase in leverage above 4.0x would also be
viewed negatively.
Griffin's ownership by fixed-life private funds could also
contribute to negative rating action if it leads to elevated
capital extractions, of if a forced sale of the company at fund
maturity impairs Griffin's financial profile, franchise or
long-term strategic direction. Finally, an abrupt departure of
Griffin's founder and CEO could have negative rating implications
if said CEO departure impaired Griffin's franchise or long-term
strategic direction.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Griffin's ratings could be positively influenced by solid execution
with respect to planned growth targets and outlined long-term
strategic financial objectives, including maintenance of leverage
below 2.75x. Ratings could also benefit from enhanced scale and an
improved risk profile of the portfolio, as exhibited by greater
diversity of airline customers and maintenance of low impairments.
An upgrade would also be conditioned upon achieving a sustained net
spread above 5% and unsecured debt funding above 35% while
maintaining unencumbered assets coverage of unsecured debt in
excess of 1.0x. Any potential upward rating momentum would also be
evaluated in the context of potential long-term strategic
uncertainty, given Griffin's ownership by fixed-life private funds,
and potential governance and conflicts of interests associated with
Griffin's externally managed business model.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The senior unsecured debt ratings are equalized with Griffin's
Long-Term IDR and reflect expectations for average recovery
prospects in a stress scenario given the availability of
unencumbered assets.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The senior unsecured debt ratings are primarily sensitive to
Griffin's IDR and secondarily to the relative recovery prospects of
the instruments. A decline in unencumbered asset coverage, combined
with a material increase in secured debt, relative to pro forma
plans, could result in the notching of the unsecured debt down from
the IDR.
SUBSIDIARY AND AFFILIATE RATINGS: KEY RATING DRIVERS
The Long-Term IDR assigned to GGAM Finance Ltd. is equalized with
the IDR assigned to Griffin given it is a wholly owned subsidiary
of the company.
SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES
The rating assigned to GGAM Finance Ltd. is primarily sensitive to
changes in the IDR assigned to Griffin and is expected to move in
tandem.
ADJUSTMENTS
The Standalone Credit Profile (SCP) has been assigned in line with
the implied SCP.
The Sector Risk Operating Environment has been assigned in line
with the implied score. Regulatory and legal framework was
identified as a positive factor in the assessment.
The Business Profile has been assigned below the implied score due
to the following adjustment reasons: Market position (negative),
Business model (negative), Group benefits and risks (positive).
Capitalization & Leverage has been assigned below the implied the
score due to the following adjustment reason: Historical and future
metrics (negative).
ESG CONSIDERATIONS
Griffin has an ESG Relevance Score of '4' for Management Strategy
due to the execution risk associated with the operational
implementation of the company's outlined strategy. This has a
negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
Griffin has an ESG Relevance Score of '4' for Governance Structure
due to the potential governance and conflict of interests associate
with Griffin's externally-managed business model, limited number of
independent board members and ownership by a fixed-life private
fund structure. This also reflects key man risk related to its
founder and CEO, Ryan McKenna, who is leading the growth and
strategic direction of the company. 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
----------- ------ -----
Griffin Global
Asset Management
Holdings, Ltd. LT IDR BB New Rating BB(EXP)
GGAM Finance Ltd. LT IDR BB New Rating BB(EXP)
senior
unsecured LT BB New Rating BB(EXP)
=========
C H I L E
=========
CHILE: IDB OKs $400MM Loan to Boost Green Hydrogen Industry
-----------------------------------------------------------
The Inter-American Development Bank (IDB) has approved a loan to
support the development of the green hydrogen industry and its
derivatives in Chile. This operation seeks to help decarbonize the
economy and generate new opportunities for the country's productive
development.
The resources will be used to finance new projects in green
hydrogen, domestic demand development, human capital formation,
creation of intermediate goods and services that facilitate the
development of industry, applied research financing, development
and technological innovation, and promotion of entrepreneurship in
this sector.
The institutions, companies and enterprises that are part of this
value chain, as well as workers in the industry, will benefit from
the operation.
According to the International Energy Agency, by 2050 around 300
million tons of hydrogen will be produced annually — more than
four times the current demand — and nearly half is expected to be
in the form of green hydrogen, which is produced from renewable
energies. Given Chile's natural advantages in producing renewable
energy at low cost, the growing global demand for green hydrogen
presents a great opportunity both in terms of productivity and
sustainability.
Chile is the country with the highest per capita carbon dioxide
emission in Latin America and the Caribbean. Its emissions are
double those of Brazil, Uruguay and Peru, and similar to those of
industrialized European countries such as the United Kingdom,
France and Spain. In this scenario, strengthening the green
hydrogen industry will be crucial for Chile to advance in the
global objectives set by the Intergovernmental Panel on Climate
Change (IPCC) to cut emissions by half by 2030 and reach net zero
emissions before 2050.
However, investment in Chile's green hydrogen industry is still
incipient and faces the typical challenges of nascent industries: a
limited history of projects in this energy vector, high costs of
the technology, and uncertainty about its long-term performance.
"The IDB loan helps increase investment in green hydrogen in Chile,
and allows the country to advance in the development of a
high-potential sector that, in addition to boosting the economy,
will contribute to promote environmental sustainability and address
climate change with an inclusive approach," said María Florencia
Attademo-Hirt, IDB Representative in Chile.
The $400 million loan approved by the IDB's Board of Executive
Directors is the second credit operation under the $1 billion
Conditional Credit Line for Investment Projects (CCLIP) for
productivity and sustainable development in Chile. It has a
repayment term of 24 years, a 6.5-year grace period, and an
interest rate based on the Secured Overnight Financing Rate
(SOFR).
=============
J A M A I C A
=============
JAMAICA DIVERSIFIED: Fitch Affirms 'BB+' Rating on 2020-1 Notes
---------------------------------------------------------------
Fitch Ratings has affirmed the issue-specific ratings assigned to
all outstanding series of notes issued by Jamaica Merchant Voucher
Receivables Limited (JMVR) and Jamaica Diversified Payment Rights
Company (JDPR) at 'BBB-' and 'BB+', respectively. The Rating
Outlook on the notes remains Stable.
Entity/Debt Rating Prior
----------- ------ -----
Jamaica Merchant
Voucher Receivables
Limited
2016-1 470170AD3 LT BBB- Affirmed BBB-
2022-1 470170AE1 LT BBB- Affirmed BBB-
Jamaica Diversified
Payment Rights
Company (DPR) (NCB)
2020-1 47015PAD0 LT BB+ Affirmed BB+
TRANSACTION SUMMARY
JMVR is backed by future flows due from Visa International Service
Association (Visa) and MasterCard International Incorporated
(MasterCard) related to international merchant vouchers (MV)
acquired by National Commercial Bank Jamaica Ltd. (NCBJ) in
Jamaica.
JDPR is backed by existing and future USD-denominated diversified
payment rights (DPRs) originated by NCBJ. DPRs are defined as
electronic or other messages used by financial institutions to
instruct NCBJ to make payment to a beneficiary. The majority of
DPRs are processed by designated depository banks (DDBs) that have
executed agreements obligating them to send payments to accounts
controlled by the transaction trustee.
Fitch's ratings address timely payment of interest and principal on
a quarterly basis.
KEY RATING DRIVERS
FF Rating Driven by Originator's Credit Quality: The ratings of
these future flow transactions are tied to the credit quality of
the originator, NCBJ. On March 17, 2023 Fitch affirmed NCBJ's
Long-Term (LT) Local Currency (LC) Issuer Default Rating (IDR) at
'B+' and revised the Outlook to Positive from Stable following a
similar action on Jamaica's LT IDRs and Fitch's revision of the
Outlook on the Jamaican banking system's 'b' operating environment
score to positive. NCBJ's LT LC IDR is driven by its Viability
Rating which remains at 'b+' and is influenced by the Sovereign
Rating and broader operating environment considerations.
Strong Going Concern Assessment (GCA): Fitch uses a GCA score to
gauge the likelihood that the originator of a future flow
transaction will stay in operation through the transaction's life.
NCBJ's GCA score of 'GC1' reflects its systemic importance as
Jamaica's largest bank.
Notching Uplift from IDR: The 'GC1' score allows for a maximum
rating uplift of six notches from the bank's IDR, pursuant to
Fitch's future flow methodology. However, given Fitch reserves the
maximum uplift for originators rated at the lower end of the rating
scale, the rating uplift for the MV and DPR programs are currently
four notches and three notches, respectively. Furthermore, the DPR
program's notching uplift is one notch less than that of the MV
program as DPR flows are more concentrated than that of the MV
program and are therefore viewed as comparably more volatile.
Moderately High Future Flow Debt: NCBJ's total future flow debt
represents approximately 10.4% of the bank's total funding and
24.5% of non-deposit funding when considering the current
outstanding balance on both programs ($640.25 million) as of April
2023 and utilizing YTD September 2022 consolidated financials.
Fitch considers the future flow ratio relative to the bank's total
funding to be moderately high (greater than 10%). Furthermore,
Fitch expects the future flow programs will remain a primary source
of long-term funding for NCBJ, limiting the rating uplift on the
notes.
Coverage Levels Commensurate with Assigned Rating (JMVR): When
considering average rolling quarterly flows for the MV program over
the past five years (May 2018-April 2023) and the maximum periodic
debt service over the life of the program, Fitch's projected
minimum quarterly debt service coverage ratio (DSCR) is 8.1x
throughout the life of the program. The transaction can withstand a
drop in flows of approximately 87.6% and still cover the maximum
quarterly debt service obligation, highlighting the strength of the
flows. Fitch will continue to actively monitor the performance of
the flows.
Coverage Levels Commensurate with Assigned Rating (JDPR): When
considering average rolling quarterly DDB flows over the past five
years (May 2018 - April 2023) and the maximum periodic debt service
over the life of the program, Fitch's projected quarterly DSCR is
65.5x. Moreover, the transaction can withstand a drop in flows of
approximately 98.5% and still cover the maximum quarterly debt
service obligation.
However, due to concentrations in DPR flows from affiliates of
NCBJ, and entities with high domestically originated,
government-related and/or capital flows, it has been determined
that the notching differential for the DPR program will be one
notch less than that of the MV program whose flows are
comparatively less volatile. Fitch will continue to actively
monitor the performance of the flows.
Sovereign/Diversion Risks Reduced: The structure mitigates certain
sovereign risks by collecting cash flows offshore until collection
of periodic debt service amount. Fitch believes diversion risk is
partially mitigated by the consent & agreements or acknowledgments
signed by Visa and MasterCard (in the case of the MV program) or
designated depositary banks (in the case of the DPR program).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transactions' ratings are sensitive to changes in the credit
quality of NCBJ. A deterioration of the credit quality of the
sovereign and/or NCBJ could pose a constraint to the rating of the
outstanding series of notes for both programs from their current
level;
- The transaction ratings are sensitive to the performance of the
securitized business lines. The base case DSCR for the merchant
voucher program and DPR program are approximately 8.1x and 65.5x
respectively, and should therefore be able to withstand a decline
in cash flows in the absence of other issues. However, significant
declines in flows could lead to a negative rating action;
- The transaction's ratings are sensitive to the ability of the
credit card acquiring and DPR business line to continue operating,
as reflected by the GCA score, and changes in the sovereign
environment and ratings assigned to the Jamaican sovereign. Changes
in Fitch's view of the bank's GCA score can lead to a change in the
transaction's rating. Additionally, the MV program could also be
sensitive to significant changes in the credit quality of Visa or
Mastercard to a lesser extent.
Any changes in these variables will be analyzed in a rating
committee to assess the possible impact on the transaction
ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the transactions' ratings is the
originator's rating and NCBJ's operating environment. If the bank's
LT LC IDR is upgraded by more than one notch from its current
rating, Fitch would consider an upgrade to the ratings of the
transactions.
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.
JAMAICA: JMEA Joins the Jamaica Energy Resilience Alliance
----------------------------------------------------------
RJR News reports that the Jamaica Manufacturers and Exporters
Association has joined the The Jamaica Energy Resilience Alliance.
As an Alliance member, the JMEA will be able to leverage the
Jamaica Energy Resilience Alliance's resources to promote solar
energy opportunities within the manufacturing and export sectors,
according to RJR News.
In January 2021, the United States Agency for International
Development and JERA launched the Strengthening Energy Sector
Resilience in Jamaica program, the report notes.
It aims to strengthen Jamaica's energy sector to rebound quickly
from disasters, by supporting the adoption of distributed and
resilient renewable energy technologies, the report relays.
Under the program, JERA is helping businesses explore ways to
reduce power costs through free assistance to inform solar
technology implementation and decision-making, the report adds.
As reported in the Troubled Company Reporter-Latin America in March
2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
=====================
P U E R T O R I C O
=====================
FIRSTBANK PUERTO RICO: Fitch Affirms 'BB/B' Issuer Default Ratings
------------------------------------------------------------------
Fitch Ratings has affirmed the Long- and Short-Term Issuer Default
Ratings (IDRs) of First Bancorp (FBP) and its subsidiaries at 'BB'
and 'B', respectively. The Rating Outlook has been revised to
Positive from Stable.
KEY RATING DRIVERS
Ratings Affirmed: The affirmation and Positive Rating Outlook
reflect FBP's financial resilience and solid market position, above
average profitability and capitalization relative to U.S. mainland
banks, proven business model, and strategic execution.
Operating Environment a Constraint: The ratings continue to be
constrained by the local operating environment in Puerto Rico;
however, positive economic trends, including resolution of local
government debt restructuring, continued disaster recovery and
pandemic relief inflows, strong tourism sector performance and
slowing outmigration trends are near-term tailwinds. FBP's
financial profile has demonstrated resilience during the island's
protracted period of economic contraction, local government debt
crisis, severe hurricane losses and outmigration.
While federal aid will continue to have a positive effect on the
island's economy over the rating horizon, operating conditions over
the longer term are likely to remain considerably less stable than
the U.S. mainland. FBP's overall operating environment considers
its Puerto Rican, U.S. mainland and U.S. Virgin Islands presence.
Business Profile and Earnings Underpin Positive Outlook: FBP
maintains a strong local franchise, evidenced by its number two
position in Puerto Rico across most business lines, solidified
following its 2020 acquisition of Banco Santander. FBP's financial
profile has also demonstrated sustained resilience under
challenging local economic conditions over several years.
Conversely, FBP's elevated spread reliance (86% of operating income
at 1Q23) is a constraint on its business profile assessment.
FBP's financial performance is a ratings strength and benefits from
a low-cost business model. At 1Q23, non-interest expenses were
50.2% of revenues, a moderate sequential increase, but lower than
the bank's 5-year average of 53.8%. A softening macroeconomic
backdrop has driven a rebound in loan loss provisions relative to
the prior year, partly offsetting 7% revenue growth as of 1Q23. The
bank's operating profit to risk-weighted assets of 3.3% at 1Q23
remains stronger than most U.S. mainland peers.
Improved Risk Appetite: FBP's risk profile is characterized by its
adequate management of interest rate risk, as evidenced by the
moderate duration of its investment portfolio, the low share of
securities classified as held-to-maturity (7% at 1Q23) and the
manageable decline in its tangible common equity ratio to 6.6%
(9.1% at YE2021). A long-term de-risking process has contributed to
the improvement in credit quality measures over the last five years
and should limit normalization to below pre-COVID levels.
Asset Quality Normalizing: Fitch adjusted the ratings for the
revised accounting standard governing troubled debt restructurings,
which has supported a decline in FBP's impaired loan ratio. FBP's
net charge-offs rose to 47 bps as of 1Q23 from 31 bps at YE22 but
remained well below pre-COVID levels. The bank's commercial real
estate (CRE) loans represent 20% of gross loans, with a moderate
exposure to office CRE, which predominantly consist of low
loan-to-value (LTV) exposures.
Similar to peers, Fitch expects deterioration across consumer and
commercial loan portfolios through the second half of 2023.
However, Fitch does not anticipate credit deterioration to exceed
pre-COVID levels, as local operating environment trends, including
federal aid and a recovering tourism industry, should offset wider
pressures related to elevated rates.
Healthy Capital Levels: FBP's capital ratios, which are maintained
at higher levels compared to most U.S. mainland banks, are solid
and supportive of the bank's rating. The bank's regulatory common
equity Tier 1 (CET 1) ratio as of 1Q23 was 16.3%, a modest decline
from 16.5% at YE2022. Adjusted for accumulated other comprehensive
income, FBP's CET1 ratio would be approximately 10.5%. FBP's
tangible common equity ratio of 6.6% compared favorably to local
and U.S. mainland peers.
Solid Funding Profile: Similar to peers, FBP experienced deposit
outflows and deposit migration from demand to term products. At
1Q23, deposits contracted by 7% yoy. However, the bank's overall
loan-to-deposit ratio remained lower than the long-term average at
72.2% at 1Q23. Excluding public sector collateralized deposits,
FBP's loan-to-deposit ratio would be approximately 83%, a level,
which was comparable to the U.S. mainland peer average.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A significant deterioration in asset quality, particularly a
reversion of the net charge off ratio above the long-term
historical average, or a sustained decline of the CET1 ratio below
the benchmark level for this operating environment (13%) could
result in negative rating action. Pressure could also emerge if the
bank were to experience volatility or a decline in operating
profitability below 1% of risk weighted assets over multiple
quarters.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Continued strategic execution, revenue growth, maintenance of
market position, and stability in financial performance, without
altering its risk profile, could result in upward rating momentum
over the rating horizon. Although some normalization of credit
quality is likely, positive rating action would be dependent on
FBP's ability to maintain its net charge-off ratio at the low end
of its long-term historical range, particularly in light of
anticipated economic headwinds related to monetary policy
tightening.
Over the longer term, further rating momentum would likely be
contingent on improved non-interest income contribution, a positive
revision to the bank's operating environment score, and/or
improvement in the bank's franchise without materially increasing
its risk appetite.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long- and Short-Term Deposit Ratings: Long-term deposits at FBP's
subsidiary bank are rated one-notch higher than FBP's Long-Term IDR
because U.S. uninsured deposits benefit from depositor preference.
U.S. depositor preference gives deposit liabilities superior
recovery prospects in the event of default.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Long- and Short-Term Deposit Ratings Sensitivities: The long-term
deposit ratings and short-term deposit ratings of FBP's subsidiary
banks are sensitive to changes in the company's Long-Term IDR.
VR ADJUSTMENTS
The Earnings and Profitability score has been assigned below the
implied score due to the following reason: Revenue
Diversification.
The Funding and Liquidity score has been assigned below the implied
score due to the following reason: Historical and Future Metrics.
ESG CONSIDERATIONS
First Bancorp's ESG Relevance Score for 'Exposure to Environmental
Impacts' is a '3', which is above the bank sector default score of
'2' due to the heightened risk of natural disasters in the bank's
primary operating environment of Puerto Rico. While an emerging
factor that bears monitoring, an ESG Relevance Score of '3' implies
it is minimally relevant to the rating currently.
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 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
----------- ------ -----
FirstBank
Puerto Rico LT IDR BB Affirmed BB
ST IDR B Affirmed B
Viability bb Affirmed bb
Government Support ns Affirmed ns
long-term
deposits LT BB+ Affirmed BB+
short-term
deposits ST B Affirmed B
First BanCorp LT IDR BB Affirmed BB
ST IDR B Affirmed B
Viability bb Affirmed bb
Government Support ns Affirmed ns
===============
X X X X X X X X
===============
LATAM: Sharp Slowdown Recorded in Exports From Region, IDB Finds
----------------------------------------------------------------
The value of exported goods from Latin America and the Caribbean
grew at an estimated rate of 2.9% year-on-year in the first quarter
of 2023, after increasing by 16.4% in 2022, according to the latest
edition of the Inter-American Development Bank's Trade Trends
Estimates report.
Although the region's trade performance was better than the world
average, exports slowed significantly due to lower commodity prices
and weaker export volumes.
Looking ahead, the balance of risks is moderately weighted to the
downside due to the impact of tight monetary policies on global
growth, uncertainty surrounding the war in Ukraine, the depletion
of the expansionary effect of the reopening of the Chinese economy,
and the reversal of the upward trend in commodity prices.
"The post-Covid expansionary phase in the trade cycle has run its
course, and Latin American and Caribbean exports have moved into a
slowdown that is set to continue into the next quarter before
stabilizing in the second half of the year," said Paolo Giordano,
Principal Economist at the IDB's Integration and Trade Sector, who
coordinated the publication. "Policies and investments that seek to
boost competitive insertion into foreign markets will be key to
shoring up the region's economic recovery."
The slowdown affected the entire region but was especially
pronounced in the economies of South America, where the impact of
falling prices was also greater due to the weight of commodities in
their export baskets. External sales continued to expand in the
first quarter of the year in the countries of Mesoamerica,
particularly Mexico, which helped to sustain the region's
performance.
Export prices
According to the report, the prices of Latin America and the
Caribbean's main export commodities were extremely volatile between
January and April 2023. Year-on-year growth rates were negative for
the prices of oil (-18.2%), coffee (-12.6%), iron ore (-11.9%),
copper (-11.1%), and soybeans (-5.2%). Sugar prices increased by
15.1% year-on-year.
The report expects that "the main adjustment to prices took place
in the first quarter of 2023" and that "prices will remain largely
stable for the rest of the year, at historically high levels."
However, "the forecast includes risks of different natures that may
unfold against a backdrop of uncertainty regarding the evolution of
interest rates and the value of the dollar, which tend to have a
direct impact on commodity prices."
Performance by subregion
In South America, exports are estimated to have stagnated (-0.3%)
in the first quarter of 2023 compared to the same period in the
previous year, after having grown by 16.2% on average in 2022.
Commodity prices drove exports throughout 2022 but entered a
downward phase halfway through the year. Moreover, real trade flows
contracted compared to the first quarter of 2022, albeit with some
exceptions.
Meanwhile, exports from Mesoamerica climbed by an estimated 6.3%
year-on-year in the first quarter of 2023 after growing 16.1% in
2022. External sales of Mexico increased by 6.8% year-on-year in
the first quarter of 2023. Shipments from Central America grew by
1.6% year-on-year in the same period.
The region's total imports are estimated to have grown by 0.6% in
the first quarter of 2023 after expanding by 21.1% in 2022.
The report contains detailed data on the export performance of 20
countries in Latin America and the Caribbean.
Variation in export values
(Year-on-year variation rate, percentages, Q1 2023 and 2022)
*********
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.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *