/raid1/www/Hosts/bankrupt/TCRLA_Public/231018.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, October 18, 2023, Vol. 24, No. 209
Headlines
A R G E N T I N A
ARGENTINA: Inflation Accelerates in September to 12.7%
B A H A M A S
FTX GROUP: Auditor Sued by SEC for Independence Rules Violation
FTX GROUP: Trustee Argues That Clients Cannot Hide Behind Law Firm
C H I L E
GUACOLDA ENERGIA: S&P Withdraws 'CCC-' LT Issuer Credit Rating
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Give Haitians Access to Essential Products
J A M A I C A
JAMAICA: Electricity & Water Industry Up by 6.2% in June Quarter
M E X I C O
BUPA MEXICO: A.M. Best Affirms C++(Marginal) Fin. Strength Rating
P E R U
PETROLEOS DEL PERU: S&P Lowers ICR to 'B+', Outlook Stable
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Inflation Accelerates in September to 12.7%
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Buenos Aires Times reports that Argentina will go to the ballot box
with inflation running at its fastest pace in three decades.
Just over a week out from the October 22 presidential election, the
INDEC national statistics bureau revealed that consumer prices have
risen by more than 100 percent since the turn of the year and by
138.3 percent over the last 12 months, according to Buenos Aires
Times.
Inflation accelerated in September to 12.7 percent, reported the
bureau, the second consecutive double-digit hike after the 12.4
percent recorded in August and the highest monthly rate in three
decades, the report notes.
The cost of living in the first nine months of 2023 has risen 103.2
percent, with a quarter of the year still to go, the report
relays.
INDEC's report indicates that inflation is accelerating and at its
highest pace since the 27 percent recorded February 1991 prior to
the introduction of the convertibility plan, the report notes.
The news came just days after Argentina's beleaguered peso tumbled
to new lows against the dollar on the informal market as citizens
scramble to ditch the peso amid anxiety over what the election will
bring, the report says.
"The division with the highest increase in the month was clothing
and footwear (15.7 percent), driven by the change of season. It was
followed by recreation and culture (15.1 percent) - mainly due to
the rise in cable television services - and food and non-alcoholic
beverages (14.3 percent)," said INDEC in its report, Buenos Aires
Times discloses.
Highlighting the challenges facing consumers in affording everyday
essentials, the bureau found that meat and derivatives rose 15.9
percent in September, with bread and cereals up 12.7 percent and
fruits soaring 25.6 percent. Bananas were up a whopping 46.2
percent, the report relays.
By contrast, the only categories that remained below double digits
in September were education (8.1 percent), housing, water,
electricity and other fuels (8.5 percent), healthcare (9.5 percent)
and communication (9.6 percent), the report notes.
Broken down by type of product, INDEC said that goods soared 13.5
percent while services rose 10.5 percent, the report discloses.
Price hikes were most extortionate in Patagonia, rising 13 percent,
with Greater Buenos Aires given the most relief with a
below-average 12.2 percent, the report relays. Food and drink rose
17,5 percent in the southern region alone, the report notes.
Most analysts had forecast that last month's inflation rate topped
11 percent, though not necessarily that it had accelerated, the
report discloses.
Chief economist of the Fundacion Libertad y Progreso think-tank,
Eugenio Mari, predicted a rate of 11 percent, noting that Argentina
had not recorded two consecutive months of double-digit inflation
for more than three decades, the report says.
"You have to go back to the two-month period February-March 1991 to
find another two consecutive months with double-digit monthly
inflation," observed the specialist, the report notes.
Economist Claudio Caprarulo, director of the consulting firm
Analytica, estimated that prices rose 12.1 percent, the report
relays.
A report published earlier by the Institute of Workers' Statistics
(IET) of the Metropolitan University for Education and Work (UMET)
and the Centre for Consultation and Development (CCD) revealed that
inflation for workers reached 11.5 percent in September, Buenos
Aires notes.
"If inflation averaged 10 per cent a month in the remaining three
months of the year, the cumulative figure for 2023 would be 167.1
percent," the report said, Buenos Aires says.
August's devaluation of the peso, in the wake of the PASO
primaries, contributed to the high rate of inflation in September,
according to economist Federico Zirulnik of the Scalabrini Ortiz
Centre for Economic and Social Studies, the report relays.
"As the devaluation took place in the middle of the month, there
was still more or less half of the impact of that devaluation that
was going to be passed on to September prices. Statistically, this
is what is called the drag effect," said the expert, the report
discloses.
Regarding the risk of hyperinflation, Zirulnik said: "We are now
stabilised with high inflation, but stabilised at 12 [ercemt per
month. If we were facing hyperinflation, last month it would have
been 12 percent, this month 15 percent or 20 percent, and next
month 25 percent. That's the difference," the report relays.
"If the government manages to sustain the official exchange rate,
perhaps in October we will be below this inflationary index of 12
percent. If not, we could continue to climb up the ladder and at
some point we could hit hyperinflation," warned Zirulnik, the
report discloses.
This is the last publication of official data before Argentina goes
to the polls for a general election on October 22, the report
relays. Outsider libertarian candidate Javier Milei is the
frontrunner after winning the most votes in the PASO primaries back
in August, the report says.
His main rivals are opposition coalition leader Patricia Bullrich
and the presidential candidate for the ruling Union por la Patria
coalition, Economy Minister Sergio Massa, the report relates.
Argentines are already struggling to make ends meet, with about 40
percent of the population living in poverty as the nation reels
from the latest in a long line of economic crises, the report
notes.
Massa has also been accused of worsening Argentina's crisis by
going on a spending spree to lure voters and further fuelling
inflation, the report says. In recent weeks he has eliminated
income tax for some 800,000 citizens, removed VAT levies from basic
goods, and is making cash payouts to millions of informal workers,
the report relays.
Analysts say whoever wins the election faces an uphill battle to
achieve what no previous government could: restoring fiscal
discipline in the heavily indebted country, where millions rely on
welfare, and which has a penchant for printing money to finance its
overspending, 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.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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.
=============
B A H A M A S
=============
FTX GROUP: Auditor Sued by SEC for Independence Rules Violation
---------------------------------------------------------------
Katryna Perera of Law360 reports that the U.S. Securities and
Exchange Commission filed a lawsuit September 29, 2023, in
Florida federal court against an accounting firm that audited FTX
prior to the cryptocurrency exchange's high-profile bankruptcy,
accusing it of conducting several audits, examinations and reviews
between 2017 and 2020 that failed to comply with auditor
independence rules.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9 struck a deal to sell
itself to its giant rival Binance, but Binance walked away from the
deal amid reports on FTX regarding mishandled customer funds and
alleged US agency investigations.
At 4:30 a.m. on Nov. 11, Bankman-Fried ultimately agreed to step
aside, and restructuring vet John J. Ray III was quickly named new
CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
million in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year.
According to Reuters, SBF shared a document with investors on Nov.
10, 2022, showing FTX had $13.86 billion in liabilities and $14.6
billion in assets. However, only $900 million of those assets were
liquid, leading to the cash crunch that ended with the company
filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims agent,
maintaining the page https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
FTX GROUP: Trustee Argues That Clients Cannot Hide Behind Law Firm
------------------------------------------------------------------
Dorothy Atkins of Law360 reports that the U.S. trustee asked the
Delaware bankruptcy judge overseeing FTX's Chapter 11 proceedings
to require the crypto platform's foreign customers to produce their
addresses instead of listing their counsel's address at Eversheds
Sutherland, arguing that the committee is openly flouting the
court's order while simultaneously asking FTX pay its fees.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9 struck a deal to sell
itself to its giant rival Binance, but Binance walked away from the
deal amid reports on FTX regarding mishandled customer funds and
alleged US agency investigations.
At 4:30 a.m. on Nov. 11, Bankman-Fried ultimately agreed to step
aside, and restructuring vet John J. Ray III was quickly named new
CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
million in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year.
According to Reuters, SBF shared a document with investors on Nov.
10, 2022, showing FTX had $13.86 billion in liabilities and $14.6
billion in assets. However, only $900 million of those assets were
liquid, leading to the cash crunch that ended with the company
filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims agent,
maintaining the page https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
=========
C H I L E
=========
GUACOLDA ENERGIA: S&P Withdraws 'CCC-' LT Issuer Credit Rating
--------------------------------------------------------------
S&P Global Ratings withdrew its 'CCC-' long-term issuer credit
rating on Guacolda Energia SpA, a Chilean coal-fired power
generator. The outlook was negative at the time of withdrawal.
Guacolda owns and operates five coal-fired power units, with an
aggregate capacity of 760 megawatts (MW), located on Chile's
Pacific coast, in the northern region of Atacama. These units have
been fully operational since 1995, 1996, 2009, 2010, and the end of
2015, respectively. S&P said, "At the time of withdrawal, the
ratings reflected our expectation of cash deficit in early 2025 and
the risk of a new tender offer in the next 12 months that we would
view as tantamount to default. Moreover, the 'CCC-' ratings
reflected the shareholder's aggressive characxter, considering
Guacolda's two cash tender offers well below par value in the last
six months that we viewed as tantamount to default, as well as the
uncertainty regarding the shareholder's future financial policies.
We considered that management could seek another opportunistic debt
exchange or tender offer, as it had done twice in the past six
months, or repurchase its 2025 notes below par value in the
secondary market."
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Give Haitians Access to Essential Products
--------------------------------------------------------------
Dominican Today reports that the Ministry of Industry, Commerce,
and MSMEs of the Dominican Republic has taken action to establish a
humanitarian corridor that will allow Haitian citizens access to
essential products. Minister Victor "Ito" Bisono announced via
Twitter that discussions are underway with local merchants,
authorities, and civil society to create a mechanism for this
purpose.
"We are working to provide Haitian citizens with access to basic
necessities," Bisono stated in his tweet. Bisono shared a video
showing his arrival in the border province of Elias Piña via
helicopter, as well as part of the meeting with relevant
stakeholders, according to Dominican Today.
This initiative is part of an effort to reopen trade with Haiti,
and it focuses on providing Haitian citizens with essential goods
through a humanitarian corridor, the report notes. The orientation
day regarding the reopening of trade with Haiti also involves
discussions with merchants from the border markets in the southern
region of the Dominican Republic, the report relays.
Furthermore, Minister Bisono met with representatives of merchant
associations from the Dajabon binational market, who expressed
their readiness for the border's reopening, the report discloses.
It's important to note that the reopening of trade with Haiti,
scheduled, will initially be limited to pedestrian traffic, the
report notes. The goal is to address the basic needs of Haitian
citizens while fostering cooperation at the border, 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.
TCR-LA reported in April 2019 that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On August 14, 2023, the TCR-LA reported that Moody's Investors
Service has changed the outlook on the Government of Dominican
Republic's ratings to positive from stable and affirmed the local
and foreign-currency long-term issuer and senior unsecured ratings
at Ba3. Moody's said the key drivers for the outlook change to
positive are: (i) sustained high growth rates have enhanced the
scale and wealth levels of the economy; and (ii) a material decline
in the government debt burden coupled with improved fiscal policy
effectiveness will support medium-term debt sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
Fitch Ratings, in December 2022, affirmed the Dominican Republic's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Rating Outlook.
=============
J A M A I C A
=============
JAMAICA: Electricity & Water Industry Up by 6.2% in June Quarter
----------------------------------------------------------------
RJR News reports that there was a 6.2 per cent increase in the
production of electric and water supply in Jamaica for the April to
June period.
The Statistical Institute of Jamaica (STATIN) says electricity
consumption reached 853,000 megawatt-hours, moving from 790,600
megawatt-hours for the same period in 2022, according to RJR News.
This was mainly due to higher consumption by commercial customers,
the report notes.
Water consumption, however, fell by 0.3 per cent to 4.6 billion
gallons, the report relays.
For April to June last year, 4.62 billion gallons were consumed,
the report says.
STATIN says there was a decline in consumption by residential
customers, due to water restrictions in some areas of the island,
the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy. This is the best credit
rating that Jamaica has received from S&P since it started rating
the country's sovereign debt in 1999, according to The Gleaner.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
Moody's credit rating for Jamaica was last set at B2 with stable
outlook (December 2019).
===========
M E X I C O
===========
BUPA MEXICO: A.M. Best Affirms C++(Marginal) Fin. Strength Rating
-----------------------------------------------------------------
AM Best has affirmed the Financial Strength Rating of C++
(Marginal), the Long-Term Issuer Credit Rating of "b+" (Marginal),
and the Mexico National Scale Rating of "bbb.MX" (Good) of BUPA
México, Compania de Seguros, S.A. de C.V. (Bupa Mexico) (Mexico).
The outlook of these Credit Ratings (ratings) is positive.
The ratings reflect Bupa Mexico's balance sheet strength, which AM
Best assesses as weak, as well as its adequate operating
performance, limited business profile and appropriate enterprise
risk management.
The positive outlooks reflect sustained improvement in the
company's balance sheet strength underpinned by an adequate level
of risk-adjusted capitalization, as measured by Best's Capital
Adequacy Ratio (BCAR), following the change in its reinsurance
program, and fully retained quality business.
Bupa Mexico is a subsidiary of The British United Provident
Association Limited and is tied to the Bupa group's commercial
strategy of expanding into Mexico's insurance market by leveraging
its brand. Bupa Mexico's focus is on the individual and group major
medical coverage segment, while the individual lines segment
represents its biggest share of business, at approximately 89%. The
company's target market has been small clients with high net worth;
however, it is trying to diversify by opening coverage to other
sectors, with a higher volume of lower premium business.
The company's historically favorable financial flexibility was
achieved through the capital and reinsurance support historically
provided by its ultimate parent. Beginning in third-quarter 2021,
changes in the Mexico-based subsidiary's reinsurance program
significantly raised its underwriting risk, pressuring BCAR.
Nonetheless, the company's flagship business, which previously was
ceded for the most part, historically has demonstrated operating
performance in line with industry benchmarks, enhancing the
company's balance sheet strength assessment.
Bupa Mexico's business volume has outpaced the market for the past
five years, resulting in a compound annual growth rate of 13.7%.
However, an offsetting rating factor is the small size of the
subsidiary, reflected in a market share of over 3% (as of December
2022) in an industry led by bigger participants. As of June 2023,
Bupa Mexico posted a positive bottom-line result of MXN 90.5
million, which was mainly a result of contained claims, as well as
its internal service team, which includes synergies between areas
of customer service and a core business system. The company also
has continued to reduce operating expenses; however, a challenging
and concentrated operating environment raises uncertainty over the
expected success of this new business strategy.
Positive rating actions could occur as a result of sustained
improvement in balance sheet strength as a consequence of the new
business strategy being successfully executed. Negative rating
actions could occur if the strategic importance of the company to
Bupa group decreases, which could diminish AM Best's expectation of
parental support toward the Mexico-based subsidiary. Negative
rating actions could also take place as a result of the execution
risk derived from the new business strategy.
The methodology used in determining these ratings is Best's Credit
Rating Methodology (Version Nov. 13, 2020), which provides a
comprehensive explanation of AM Best's rating process and contains
the different rating criteria employed in the rating process.
=======
P E R U
=======
PETROLEOS DEL PERU: S&P Lowers ICR to 'B+', Outlook Stable
----------------------------------------------------------
S&P Global Ratings, on Oct. 12, 2023, lowered its ratings on
Petroleos del Peru Petroperu S.A. to 'B+' from 'BB' due to the SACP
revision. The outlook is stable.
The stable outlook captures S&P's assumption of the very high
likelihood of extraordinary support, which we expect will be
instrumental for bridging the liquidity needs during fourth-quarter
2023, in addition to the ongoing negotiations of certain terms with
Cesce.
2023 performance has been weak so far, hampered by Talara's bumpy
ramp-up (requiring higher oil purchases and not resulting in
sellable products), a falling market share affecting volumes,
social unrest in Peru, and rough weather conditions, among other
factors. Despite Petroperu's efforts, liquidity hasn't improved,
resulting in a new request for support to its shareholders for $3.2
billion, the need to renegotiate some covenant terms with Cesce,
and as a result, lower creditworthiness.
The higher costs for Talara (budget increased to $5.3 billion from
$5.1 billion before interest) and the financial assistance from the
government resulted in higher debt, while the company still seeks
to set up new funding sources to stabilize liquidity, which will
further weaken capital structure. Although S&P expects higher
EBITDA in 2024 (driven by Talara's operations and the stabilization
of working capital), we don't expect meaningful deleveraging in at
least the next 12 months.
S&P said, "With the company's total debt burden already at $6
billion as of June 2023 (and potentially nearing $7 billion by
year-end, depending on how much the company manages to raise during
this quarter), we consider our EBITDA expectation of about $450
million as insufficient to cope with an interest burden of at least
$300 million, the $144 million Petroperu repays yearly to Cesce,
the repayment of the $750 million to the Ministry of Finance (MEF),
and capex of $400 million-$450 million (mainly maintenance and
pending payments on Talara). The company remains extremely
dependent on working capital dynamics, external credit, and
ultimately on government support. As a result, the chance of a
structural reduction of debt in 2024 appears slim. At this stage,
we don't expect that the contribution from Talara in 2024 will
result in a sustainable capital structure or a meaningful
improvement of leverage metrics."
This restructuring plan includes the comprehensive plan from the
consortium Arthur D. Little LLC - Columbus HB Latam Inc., changes
in key management positions, changes to the company's by-laws, and
the set-up of the framework for a potential public offering); in
addition to the still ongoing negotiations on pending initiatives
to raise new third-party funding. However, in our view, this will
take time to bear fruit while the company's creditworthiness has
worsened.
S&P said, "In addition, we think that any potential recovery of
EBITDA beyond our expectations will depend, among other factors, on
the management's ability to effectively recover market share and
put Talara's output in the market profitably, to implement the
restructuring plan efficiently and timely, and to deliver audited
statements on time (statements have been late the past two years).
In view of the various changes of board members and other key
managerial positions, we view management effectiveness as a crucial
issue to monitor.
"The government has a long track record of supporting the company.
We saw such support materialize when Petroperu's crisis began in
early 2022. This support included the $750 million loan from the
MEF, the decree 023-2022 implementing a $1 billion equity
contribution, a guarantee for a $500 million short-term facility
from Banco de la Nación, and the set-up of a framework for the
company's comprehensive restructuring, including a potential public
offering. In our opinion, all these measures were essential for
Petroperu's business continuity and instrumental in preserving fuel
supply in Peru, to prevent business disruptions and a potential
default in payments.
"However, support hasn´t conclusively solved -in our view- the
company's increasingly levered capital structure, its scarce
liquidity or restored market confidence. This is despite the
company's efforts and the shareholders' stated intention to support
the company to avoid defaults. Although we think amounts and
mechanisms of support could be subject to discussion between the
company and its shareholders, we also believe that the response
from government officials suggesting a shift in government
priorities may have raised concerns in the financial community.
"As a result, we have reviewed our assessment for extraordinary
support and decided to keep it unchanged at this stage. Our review
included qualitative aspects like the effectiveness of oversight
and supervision and the intention to have a partial public
offering. We think that the government has the willingness and
capacity to provide the necessary support to Petroperu in case of
financial distress and to avoid a payment default. We base this
view on the record of support and the repeated statements from
government officials that they can't afford a default in payments
by Petroperu or a disruption in Peru's fuel supply.
"We will continue to monitor the relationship between Petroperu and
the Peruvian government, including the latter's incentives,
capacity, timing, and tools to support the company, particularly
amid the uncertain global economic conditions and the company's
current strains."
Despite the release of the unqualified 2022 audit, Petroperu's
liquidity remains under pressure and depends on third-party funding
(including government support). The company has sent a new request
for support to the government and continues to negotiate the
reopening of uncommitted credit lines and the set-up of long-term
facilities, all of which have taken longer than anticipated.
*********
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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