/raid1/www/Hosts/bankrupt/TCRLA_Public/240417.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, April 17, 2024, Vol. 25, No. 78
Headlines
A R G E N T I N A
ARGENTINA: World Bank Official Says Milei's Plans Sensible
B A H A M A S
FTX GROUP: Bankman-Fried Appeals Fraud Conviction, 25-Yr Sentence
B R A Z I L
AMERICANAS SA: Calls for Extraordinary Gen. Assembly on May 10
BRAZIL: No Privatization for Santos Port, Filho Says
COMPANHIA DE SANEAMENTO: Fitch Affirms 'BB+' IDR, Outlook Stable
KLABIN SA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
C H I L E
LATAM AIRLINES: Moody's Ups CFR & Senior Secured Term Loan to Ba3
WOM SA: Investors Failed to Deliver Promised Funding, Ex-CEO Says
J A M A I C A
ALLIANCE GROUP: Charges on Chins 'Unprecedented and Unnecessary'
[*] JAMAICA: World Bank Maintains 2% GDP Growth Outlook in 2024
U R U G U A Y
URUGUAY: Central Bank Pivots Back to Easing Cycle w/ Half-Point Cut
X X X X X X X X
LATAM: IMF Faces Pressure to Cut Bil. in Fees for Large Borrowers
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: World Bank Official Says Milei's Plans Sensible
----------------------------------------------------------
Buenos Aires Times reports that the top World Bank official William
F. Maloney said the institution is supportive of President Javier
Milei's government and in favour of strong cuts in public spending
in Argentina.
Mr. Maloney, chief economist for Latin America and the Caribbean at
the World Bank, argued in an interview that there is "no
alternative" to the President's plan to achieve fiscal balance,
highlighting the importance of slowing inflation and supporting the
most vulnerable, according to Buenos Aires Times.
Mr. Milei's plans are "sensible," provided that the most vulnerable
are not neglected, said the official, the report notes. "There's
no alternative" to a heavy fiscal adjustment, Maloney told the AFP
news agency in an interview, the report relays.
The Argentine leader's fiscal adjustment, which includes a sharp
reduction in the public expenditure, the privatization of state
companies and the closing of government agencies and institutes,
has been accompanied by a devaluation of the peso that further
stoked inflation, now running at around 280 percent year-on-year,
the report relays.
The report discloses that a World Bank report forecasts that
economic activity will decline by 2.8 percent this year in
Argentina, a downgrade on an earlier estimate.
Protests are multiplying with citizens who can see austerity
affecting their pockets, the report relays. A number of government
regulations have been removed by decree, along with the removal of
subsidies for utilities and public transport, the report notes.
Does the World Bank continue to support Milei's plans, despite
their social cost?
"Yes, the reforms are sensible," said Maloney, but there must be
aid "for the most vulnerable."
He continued: "I believe fiscal balance to be the right path. It's
a pre-condition for growth and for any society to have stability.
There's no alternative.
"Argentina has some long overdue fiscal adjustment. That's what's
driving inflation.
"The question is how we can achieve the fiscal adjustment while we
support the most vulnerable population in the country, and the
[World Bank] is currently having talks specifically about that type
of support mechanism."
How will this aid be finalized?
"The [World] Bank is talking to the government right now and we're
exploring ways to bring aid, in terms of efficiency of social
protection and strengthening support programmes for food and
employment."
How long do you estimate the austerity will last?
"The adjustment time depends very much on the confidence the
population has that it will be sustainable."
It also depends "on how fast the policies and credibility have been
implemented, [which is why] "it's important for Congress to support
society."
The report notes that President Milei has forecast two years of
sacrifice ahead. Do you believe it would be better to ask for a
shorter-lasting adjustment, even given the response of the
markets?
In general, "the faster measures come . . . the better."
Could the country become a success story from this or do you find
that ridiculous?
"Absolutely. Argentina has talent, human capital, plenty of
well-developed industry, and a first-rate agricultural sector. But
there's no country in the world that can grow with that inflation
and volatility."
He concluded: "Argentina, like any other country, has to achieve
macroeconomic stability, [because] it's a pre-condition for
sustainable growth," the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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 March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings 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: Bankman-Fried Appeals Fraud Conviction, 25-Yr Sentence
-----------------------------------------------------------------
Luc Cohen at Reuters reports that Sam Bankman-Fried, facing the
prospect of spending much of his adult life behind bars, appealed
his conviction and 25-year prison sentence for stealing $8 billion
from customers of the now-bankrupt FTX cryptocurrency exchange he
founded.
Defense lawyer Marc Mukasey had announced plans for the appeal to
the Manhattan-based 2nd U.S. Circuit Court of Appeals during
Bankman-Fried's March 28 sentencing hearing, according to Reuters.
The 32-year-old former billionaire crypto wunderkind was convicted
in November on seven counts of fraud and conspiracy in what federal
prosecutors have called one of the biggest financial frauds in U.S.
history, the report notes.
Bankman-Fried's appeal could take years, the report relays. He
faces steep odds, with his lawyers needing to persuade the 2nd
Circuit - and potentially the U.S. Supreme Court - that U.S.
District Judge Lewis Kaplan made significant errors that deprived
Bankman-Fried of his legal rights and made the trial unfair, the
report says.
The sentence imposed by Kaplan was shorter than the 40- to 50-year
term that prosecutors had recommended but longer than the 5-1/4
years or fewer that Mukasey had suggested, the report notes.
Bankman-Fried's sentencing put an exclamation point on his downfall
from an entrepreneur whose meteoric rise prompted adulation,
reverence and jealousy from some quarters into the biggest trophy
for U.S. prosecutors in their crackdown on excesses in the
cryptocurrency markets, the report discloses.
The Massachusetts Institute of Technology graduate rode a boom in
the values of bitcoin and other digital assets to a $26 billion net
worth before he turned 30, Forbes magazine estimated, the report
relays.
Bankman-Fried also became a major political donor and an advocate
of effective altruism, a movement that encourages talented young
people to focus on earning money and giving it away to worthy
causes, the report notes.
His wealth evaporated when Bahamas-based FTX declared bankruptcy on
Nov. 11, 2022, following a wave of withdrawals by customers
panicking over reports that Bankman-Fried commingled their assets
with Alameda Research, a crypto-focused hedge fund he also
controlled, Reuters relays.
The next month, Bankman-Fried was arrested in the Bahamas and
extradited to the United States, the report notes.
'Bad Decisions'
Three former close associates testified as prosecution witnesses
against Bankman-Fried, saying he ordered them to use FTX funds to
pay Alameda's debts, make political donations and buy luxury real
estate in the Bahamas, the report relays. They pleaded guilty to
fraud and are awaiting sentencing, the report says.
Bankman-Fried testified in his own defense, acknowledging he made
mistakes managing risk but denying he stole money, the report
notes.
"I made a series of bad decisions," Bankman-Fried said at his
sentencing hearing. "They weren't selfish decisions. They weren't
selfless decisions. They were bad decisions," he added.
His lawyers have complained that prosecutors worked too closely
with FTX's bankruptcy estate, and asked it to hand over only
information that would help their case, the report notes.
During the sentencing hearing, Mukasey told Kaplan that the judge
should ignore the prosecution's claim that FTX customers had lost
$8 billion because, he said, customers would likely be made whole
eventually, the report discloses.
Kaplan dismissed that as speculative, and said Bankman-Fried lied
by testifying he did not know until shortly before FTX's collapse
that Alameda had spent large sums of customer money, the report
relays.
"He was viewing the cost of getting caught, discounted by
probability or improbability, against the gain of getting away
without getting caught, given the probabilities. That was the
game," Kaplan said of Bankman-Fried, the report notes.
Earlier, Bankman-Fried's former lawyer Mark Cohen questioned the
disparity between Bankman-Fried's sentence and rival exchange
Binance's founder Changpeng Zhao's maximum 18-month sentence for
violating an anti-money laundering law, the report notes.
Zhao pleaded guilty in connection with a $4.3 billion settlement
for Binance and is due to be sentenced on April 30. Authorities
said Binance failed to report more than 100,000 suspicious
transactions with U.S.-designated terrorist groups including Hamas,
al Qaeda and Islamic State, the report says.
"These are very different outcomes," Cohen, who represented
Bankman-Fried at his trial, said at a conference hosted by the New
York City Bar, the report notes. "Can you square them from a policy
point of view? I would suggest it's very hard," he added.
Nicolas Roos, one of prosecutors in the Bankman-Fried case, said at
the conference that the two cases involved very different conduct,
the report notes. Zhao also acknowledged wrongdoing and traveled
voluntarily to the United States to face the charges, the report
adds.
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, 2022, 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. Bankman-Fried 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
billion 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.
===========
B R A Z I L
===========
AMERICANAS SA: Calls for Extraordinary Gen. Assembly on May 10
--------------------------------------------------------------
Alex Vasquez of Bloomberg News reports that Americanas called for
an extraordinary general assembly on May 10, 2024, according to a
company's filing.
Among the topics to be discussed are:
* To approve the reverse split of all the ordinary shares issued
by the company
* To approve an increase in the authorized capital limit to
435,084,497 ordinary shares
* To approve the increase in the company’s share capital,
in
the amount of at least 12.4 billion reais, and a maximum of 41.2
billion reais, with the issue of at least 9,546,019,017 and a
maximum of 31,693,837,340 new ordinary shares.
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.
Americanas sought protection under Chapter 15 of the 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: No Privatization for Santos Port, Filho Says
----------------------------------------------------
Richard Mann at Rio Times Online reports that Ports Minister Silvio
Costa Filho confirmed Santos Port will remain public but didn't
dismiss the possibility of Public-Private Partnerships (PPPs).
In an interview with CNN Brasil, he said he'll meet Sao Paulo
Governor Tarcisio de Freitas, according to Rio Times Online.
The Santos port is located in the state of Sao Paulo, the country's
money engine with an economy as large as Argentina, the report
notes.
Costa Filho aims to enhance governance at Brazil's public ports.
He's open to introducing PPPs and allowing concessions, 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.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
a
strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. Fitch said Brazil's ratings are supported by its large and
diverse economy, high per-capita income, and deep domestic markets
and a large cash cushion that support the sovereign's financing
flexibility and its high local-currency debt share. Strong external
finances support resilience to shocks, underpinned by a flexible
exchange rate, robust international reserves and a sovereign net
external creditor position. The ratings are constrained by weak
economic growth potential, relatively low governance scores, high
and rising government debt/GDP, and budgetary rigidities. A new
fiscal framework introduced this year aims to anchor a gradual
consolidation process and address these fiscal weaknesses, but its
effectiveness is increasingly unclear.
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 Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
COMPANHIA DE SANEAMENTO: Fitch Affirms 'BB+' IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Companhia de Saneamento Basico do Estado
de Sao Paulo's (Sabesp) Foreign Currency (FC) and Local Currency
(LC) Issuer Default Ratings (IDRs) at 'BB+'. Fitch has also
affirmed Sabesp's National Scale Rating and its unsecured debenture
issuances at 'AAA(bra)'. The Rating Outlook is Stable.
Sabesp's ratings reflect its solid business and financial profile
within the water/wastewater industry in Brazil, with benefits
coming from its large scale in the industry. Fitch expects the
company to maintain conservative net leverage and robust liquidity,
despite forecasted negative FCFs due to an even more aggressive
capex plan than previously anticipated.
The analysis incorporates Fitch's view of the company's ownership
exposure to its majority shareholder, the state of Sao Paulo (IDR,
BB/Stable), and the allowance of the LC IDR up to two notches above
of the parent's rating, as per Fitch's criteria, which is currently
is not a constrain.
KEY RATING DRIVERS
Porous Linkage Assessment: Sabesp's assessment of its Standalone
Credit Profile (SCP) is commensurate with a LC IDR of 'BB+'.
Nevertheless, as a company controlled by the state of Sao Paulo,
Fitch applied the Government-Related Entities and Parent and
Subsidiary Linkage Rating Criteria, which resulted in the issuer's
LC IDR allowance at two notches above its parent's IDR.
Considering that the state of Sao Paulo's IDR is 'BB', Sabesp's LC
IDR can reflect its SCP. Fitch considers strong the decision-making
influence of the state of São Paulo over Sabesp's operations and
its oversight robust. In addition, there is porous legal
ring-fencing and porous access and control between the company and
its main shareholder.
Low Business Risk: Sabesp's credit profile benefits from its almost
monopolistic position for provision of an essential service in its
concession area. It presents economies of scale as the largest
water/wastewater company in the Americas by number of customers,
which adds to its profitability.
The analysis considers the evolving regulatory environment, the
hydrological risk intrinsic to its business and the political
exposure as a state-owned company, with potential shift in
strategies after each election for the government of Sao Paulo. The
company's activity in the state of Sao Paulo is favorable, given
the state's largest GDP and population in the country.
High Revenue Predictability: Sabesp's credit profile benefits from
resilient demand and track record of adequate tariff increases that
supports its high revenue predictability. Fitch assumed tariff
increase already approved of 6.45% to be implemented in May 2024
and in line with inflation estimates of around 3.5% thereafter.
The company also benefits from required revenue framework in which
it must receive or return revenue to customers in the following
year, by means of a tariff adjustment, if realized revenues fall
outside the range +/-2.5% from the regulatory required revenue.
This revenue protection mechanism should be reviewed by Sabesp's
regulatory entity in the next tariff revision estimated to occur in
2025 and Fitch does not anticipate any relevant changes on the
company's revenue low volatility.
EBITDA Margin Above Peers: Fitch expects Sabesp to keep its EBITDA
margin in the 45%-50% range, which is high and compares favorably
with its state-owned peers in Brazil. In the base case scenario for
the rating, the company's EBITDA margin reaches 45% in 2024 and
increases to 47% in 2025 mainly supported by operating efficiency
gains. Total volume billed should grow by 1.4% on average annually
during this period, given the increasing number of connections.
Projection assumes manageable levels of water losses and
delinquency and no water supply restrictions as reservoirs are
currently at comfortable levels.
Heavy Investment Cycle: Sabesp significantly increased its capex
plan for the 2024-2027 period to BRL39 billion from BRL24 billion
previously expected, which should further pressure its FCF. Fitch
projects the issuer's EBITDA of BRL10.3 billion and cash flow from
operations (CFFO) of BRL4.9 billion in 2024, resulting in negative
FCF of BRL4.2 billion after relevant investments of BRL8.1 billion
and dividends of BRL1.0 billion. Annual FCF in 2025-2026 should
average negative BRL5.7 billion, after robust average CFFO of
BRL6.2 billion, investments of BRL11.0 billion and expected
dividends of around BRL950 million on average per year. Working
capital pressure should ease as the company improves commercial
measures.
Low to Moderate Leverage: The leverage metrics of Sabesp should
remain low to moderate over the rating horizon, despite of heavy
negative FCFs. The base case scenario considers the total
debt-to-EBITDA and net debt-to-EBITDA ratios to increase but remain
below 3.5x and 3.0x, respectively, which are conservative for the
industry. Fitch forecasts gross leverage of 2.2x and net leverage
of 2.0x in 2024 and peaking by 2027 as the company implements its
capex plan.
Possible Privatization Should Be Neutral: The ongoing strategy for
possible change in Sabesp's ownership structure should not impact
the ratings. Potential impact on the company's ratings deriving
from privatization will depend on the updates mainly in capex,
dividend and financial policies materially different from current
assumptions. The assessment after conclusion of eventual
privatization will also consider expectations on efficiency gains
and profitability improvements.
DERIVATION SUMMARY
Sabesp's mature operations and its position as the largest
water/wastewater utility in the Americas benefit its business
profile, in terms of economies of scale and financial structure,
when compared with Aegea Saneamento e Participacoes S.A. (Aegea; LC
and FC IDRs BB/Stable), which has moderate leverage, reflecting its
growth strategy, partially mitigated by stronger EBITDA margins.
Sabesp's sound CFFO generation capacity also supports the one notch
difference on the IDR, despite exposure to political risk. Aegea's
credit profile benefits from its diversified concessions within
Brazil, while Sabesp operates exclusively in the state of Sao
Paulo, which concentrates operational and regulatory risks.
Compared with power-transmission company Alupar Investimento S.A.
(LC IDR BBB-/Stable; FC IDR BB+/Stable), Sabesp presents higher
regulatory risk, lower operational cash flow predictability and
less asset diversification, which explain the difference on the LC
IDRs, despite Sabesp's expected lower leverage metrics.
Sabesp favorably compares with Namibia Water Corporation (NamWater;
FC and LC IDRs BB-/Stable), a government-related entity in Namibia
that has its ratings constrained by the shareholder given Fitch's
view of legal ring-fencing and access and control as 'open', which
leads to the company's IDRs being constrained by the sovereign's.
NamWater SCP is 'bbb-' supported by the company's role as the water
supplier in Namibia, with a cost pass-through tariff framework and
a strong financial profile.
KEY ASSUMPTIONS
- Total volume billed growth of 1.6% in 2024 and on annual average
for 2025-2026, supported by growth of connections and overall
stable volume/connection consumption;
- Total annual tariff increase of 6.45% in May 2024 and 3.5%
thereafter - in line with Fitch's inflation estimates;
- Average annual capex of BRL10.0 billion in 2024-2026;
- Average annual dividends of BRL953 million in 2024-2026,
equivalent to a payout ratio of 29% of net profits.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on the LC IDR depends on FCF at least
neutral to slightly negative;
- A positive rating action on the FC IDR depends on the same
movement on the LC IDR and on the Brazilian Country Ceiling;
- An upgrade of the National Scale Ratings is not possible as the
rating is at the top of the national scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative action on the Brazilian Country Ceiling will lead to
negative action on the FC IDR;
- Negative rating action on the state of São Paulo rating by more
than one level may lead to negative action on the FC and LC IDRs;
- EBITDA margins below 40%;
- Net leverage sustained above 3.0x;
- Increased political and/or regulatory risk;
- Lower financial flexibility.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity Profile: Sabesp's robust cash position and strong
access to the financial market are key factors for the rating, as
they enable the company to manage its forecasted negative FCF and
refinancing needs. Sabesp's cash position of BRL3.3 billion at end
of 2023 was sound and covered its short-term debt of BRL2.5 billion
by 1.3x.
Total debt of BRL19.4 billion had an extended maturity profile and
consisted primarily of funding from multilateral agencies of BRL8.4
billion, BRL7.4 billion in debenture issuances, and BRL3.0 billion
from Caixa Economica Federal (Caixa) and Banco Nacional de
Desenvolvimento Economico e Social (BNDES).
Foreign currency debt corresponding to 14% of total debt represents
reduced exposure risk to currency volatility. At the end of 2023,
only Caixa's and BNDES's debt was secured by receivables that
represents less than 0.3x its EBITDA and does not pressure the
ratings of unsecured issuances.
ISSUER PROFILE
Sabesp is the basic sanitation concessionaire that provides treated
water supply and sewage collection and treatment services in 376 of
the 645 municipalities in the state of São Paulo (Brazil). The
company directly supplies water to 28 million people and provides
sewage collection services to 25 million. Sabesp is controlled by
the state of São Paulo and listed on B3 S.A. - Bolsa Brasil,
Balcão (Novo Mercado) and the New York Stock Exchange (ADR Level
III).
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Companhia de Saneamento
Basico do Estado de Sao
Paulo (SABESP) 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)
KLABIN SA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Klabin S.A.'s Long-Term Foreign Currency
(FC) and Local Currency (LC) Issuer Default Ratings (IDRs) at 'BB+'
and its National Scale Long-Term Rating at 'AAA(bra)'. Fitch has
also affirmed Klabin Austria Gmbh's senior notes, guaranteed by
Klabin, at 'BB+'. The Rating Outlook for Klabin remains Stable.
Klabin's ratings reflect the company's leading position in the
Brazilian paper and packaging sector and its large forestry assets,
providing a low production cost structure and a high degree of
vertical integration. The company's solid liquidity position and
low refinancing risk remain key credit considerations. Fitch
expects Klabin's cash flow generation to remain strong due to the
company's low cost position in the industry and strong demand in
the paper and packaging segment.
The Stable Outlook incorporates a temporary pressure on leverage
due to Caete project, that is already negatively affected by the
downturn of the pulp cycle, and the expectation that net leverage
should peak at about 4.5x in 2024 and gradually reduce to around
4.0x in 2025 and 3.5x in 2026. Klabin has no headroom to face
additional investments during the 2024-2026 period, given its high
leverage. The company, nevertheless, continues to have the
flexibility to dispose their excess of land and non-strategic
forestry assets.
KEY RATING DRIVERS
Strong Brazilian Market Share: Klabin has a leading position in the
Brazilian packaging sector and a high degree of vertical
integration, which enhances product flexibility in the competitive
but fragmented packaging industry. The company has market shares of
22% and 35%, respectively, in the Brazilian corrugated boxes and
coated board sectors. Klabin is the sole producer of liquid
packaging board in Brazil and is the largest producer of kraftliner
and industrial bags, with market shares of 61% and 50%,
respectively.
Klabin's strong market shares allow it to be a price leader in
Brazil and to preserve more stable sales volume and operating
margins during instable economic scenarios than its competitors.
Paper and packaging business represented 64% of Klabin's EBITDA in
2023, while pulp represented 36%. Fitch views the company's
competitive advantage as sustainable due to its scale, high level
of integration and diversified client base in the more resilient
food sector, which represents about 67% of packaging sales.
Low Pulp Prices in 2023: Average BEKP prices for 2023 reached
USD585 per tonne, falling from USD796 per tonne in 2022. Fitch
expects prices to remain around USD600 per tonne in 2024, with
lower volatility than during 2023, supported by lower inventories
at the level of pulp buyers and paper producers, which help
maintain a tighter balance between supply and demand.
Caete Project Increases Wood Supply: Klabin announced the
acquisition of acquire 150 thousand hectares of land, including 85
thousand hectares of productive land and 31.5 million tons of wood,
for USD1.160 billion, expected to be completed in 2Q2024. The
transaction is part of Klabin's strategy to increase the percentage
of own eucalyptus wood in its production process to about 75%, from
54% in 2023, and reduce its dependence on third-party wood. The
acquisition will also have a positive impact on cash cost as wood
purchased at spot price is more expensive and the main blocks of
land acquired are in relatively close proximity to Klabin's
facilities.
Operating Margins to Gradually Improve: Fitch expects Klabin's
EBITDA margin to gradually improve to about 40% by 2025. Klabin is
expected to generate EBITDA of BRL6.3 billion and cash flow from
operations (CFFO) of BRL4.0 billion in 2024 and BRL7.4 billion and
BRL4.5 billion, respectively, in 2025. This compares with BRL6.0
billion of EBITDA and BRL4.4 billion of CFFO in 2023. The scenario
considers a reduction in capex and cash costs in the following
years, mainly due to decreased use of third-party wood.
Klabin's FCF should be negative in 2024 and neutral in 2025, due to
high investments and lower pulp prices, and recovering in 2026.
Fitch's base case projections considered annual dividends between
BRL1.2 billion and BRL1.5 billion in 2024 and 2025, and total
investments close to BRL6.4 billion in the period. Base case
projection incorporates the disbursement for Caete project in
2024.
Leverage Temporarily Above Sensitivities: Fitch estimates Klabin's
net leverage to peak at about 4.5x in 2024, returning to around
4.0x in 2025 and around 3.5x in 2026. The leverage peak in 2024,
although high for Klabin's current rating, is within tolerance
during the low part of the cycle and during an investment period,
considering the company's capacity to deleverage to within its
rating sensitivities. This scenario does not include sale of
non-core assets or excess land and wood.
Brazil Country Ceiling: Klabin's FC IDR of 'BB+' not capped by
Brazil's Country Ceiling ('BB+'). In the case of a downgrade of
Brazil's Country Ceiling, Klabin's FC IDR could go up to three
notches above the country ceiling. This is due to a combination of
exports of USD1.3 billion, approximately USD338 million of cash
held outside of Brazil and an undrawn USD500 million offshore
credit facility. Hard Currency debt service for the next 24 months
is covered more than 1.5x by 50% of EBITDA from exports, cash held
abroad and a revolving credit facility.
DERIVATION SUMMARY
Klabin has a leading position in the Brazilian packaging segment.
Its size, access to inexpensive fiber and high level of integration
relative to many of its competitors give it sustainable competitive
advantages. Its business profile is consistent with a rating in the
'BBB' category.
Klabin's leverage will remain high in 2024 and 2025, with the
announced acquisition of land and wood. Its leverage is higher than
Empresas CMPC (BBB/Stable) and Suzano (BBB-/Stable). Liquidity is
historically strong for pulp and packaging producers, and Klabin
has strong access to debt and capital markets.
Klabin is more exposed to demand from the local market than Suzano,
CMPC and Arauco, as these companies are leading producers of market
pulp sold globally. This makes Klabin more vulnerable to
macroeconomic conditions than its peers. Positively, its
concentration of sales to the food industry, which is relatively
resilient to downturns in Brazil's economy, and its position as the
sole producer of liquid packaging board, add stability to operating
results.
KEY ASSUMPTIONS
- Paper and packaging sales volume of 2.6 million tons for 2024 and
2025;
- Pulp sales volume of 1.5 million tons in 2024 and 2025;
- Average hardwood net pulp price of USD600 per ton in 2024 and
2025;
- Average FX rate of 5.00 BRL/USD in 2024 and 5.1 BRL/USD in 2025;
- Investments around BRL6.4 billion during 2024 and 2025, in
addition to the BRL5.8 billion of Caete project;
- Dividends around 20% of EBITDA from 2024 onwards.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Average net debt/EBITDA ratios of 2.5x or below throughout the
pulp price cycle following completion of the expansion project;
- Sustained net debt at Klabin of less than USD3.3 billion after
completion of the expansion project.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Average net debt/EBITDA ratios of 3.5x or higher throughout the
pulp price cycle following completion of the expansion;
- Sustained net debt at Klabin of more than USD6 billion after
completion of the expansion project;
- More unstable macroeconomic environment that weakens demand for
the company's packaging products as well as prices.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Klabin's solid liquidity position and low
refinancing risk remain key credit considerations. As of Dec. 31,
2023, the company had BRL10.7 billion of cash and marketable
securities and BRL33.9 billion of total debt, including about
BRL2.1 billion of factoring transactions as per Fitch's criteria.
The company has an extended debt amortization profile, with BRL3.7
billion of debt maturing in 2024, including BRL2.1 billion of
factoring transactions, BRL0.8 billion in 2025 and BRL2.4 billion
in 2026. Financial flexibility is enhanced by a USD500 million
unused revolving credit facility. Fitch expects Klabin to continue
to preserve strong liquidity, conservatively positioning it for the
price and demand volatility, which is an inherent risk of the
packaging industry.
As of Dec. 31, 2023, about 77% of total debt was denominated in
U.S. dollars. Total debt consisted of bonds (32%), factoring (6%),
BNDES (10%), export credit notes and export prepayments (8%),
Agribusiness Receivables Certificate (CRA, 3%), debentures (3%) and
others loans (38%).
ISSUER PROFILE
Klabin is the leader in the Brazilian corrugated boxes and coated
board sectors. In the Brazilian market, it is the sole producer of
liquid packaging board and the largest producer of kraftliner and
industrial bags. It also has an annual production capacity of 1.6
million tonnes market pulp.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Klabin S.A. LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
Klabin Austria Gmbh
senior unsecured LT BB+ Affirmed BB+
=========
C H I L E
=========
LATAM AIRLINES: Moody's Ups CFR & Senior Secured Term Loan to Ba3
-----------------------------------------------------------------
Moody's Ratings has upgraded to Ba3 from B1 LATAM Airlines Group
S.A (LATAM)'s corporate family rating, the rating of the $1.1
billion senior secured term loan B due in 2027, and the ratings of
the $1.15 billion senior secured notes due in 2027 and 2029,
co-issued by LATAM and Professional Airline Services, Inc., a
Florida corporation and a wholly owned subsidiary of LATAM. The
outlook remains stable.
RATINGS RATIONALE
The upgrade of LATAM's ratings to Ba3 from B1 reflects the track
record of strong operating and financial performance of the company
during 2023 and strong traffic figures for early 2024, which gives
Moody's Ratings' visibility over the sustainability of the current
credit metrics and liquidity levels. LATAM's Moody's
Ratings'-adjusted leverage improved to 2.8x at the end of 2023 from
6.1x at the end of 2022, while it generated $679 million of free
cash flow in the year. Moody's Ratings expects LATAM's leverage to
remain within 2.5-3.0x and its cash position to amount to above 20
% of revenues in the next 2 years, which provides cushion to the
company's credit quality even under stress scenarios. Moody's
Ratings also expects LATAM to pursue liability management
initiatives to reduce debt costs and strengthen its interest
coverage further after the expensive issuance of its exit
financing. The strong operating performance and strengthened credit
metrics reflect sustained improvements in LATAM's cost and capital
structures, which provides LATAM cushion to withstand potentially
weaker market conditions.
LATAM's Ba3 rating reflects the company's scale and superior
network connectivity that translates into leading positions in 3
out of the 5 domestic markets in which it operates and in
intraregional flights in Latin America as of June 2023, along with
its well-diversified business portfolio of air transportation
services and strategic alliances. The rating is also supported by
LATAM's improved post-bankruptcy capital and cost structures and
adequate liquidity, which will allow the company to weather the
volatile recovery of the industry.
The rating is constrained by LATAM's exposure to the airline
industry and to macroeconomic risks and oil prices. LATAM will have
to contend with higher costs derived from labor (denominated in
local currencies), fuel, and other US dollar denominated inputs,
which can hamper profitability despite firm demand and capacity
discipline in its key markets.
LATAM's operating performance was stronger than anticipated in
2023, with Moody's Ratings'-adjusted EBIT margin increasing to
10.6% compared to 7.5% in 2019. The strong performance was driven
by LATAM's sustained improvements in its cost base, combined with a
disciplined approach towards capacity and airfares by all Latin
American airlines following industry consolidation, supply chain
bottlenecks that prevent major fleet expansion and tight balance
sheets and liquidity. LATAM's CASK ex-fuel stood at around $4.9
cents in 2023, $0.5 cents higher relative to 2019 levels,
evidencing LATAM's cost-driven management despite the inflationary
pressures faced by the region in the last four years. The company
restructured its cost base, simplified its fleet, increased the
share of variable costs, outsourced non-core activities and
renegotiated over 1,000 contracts, most of which do not contain
step-up or termination clauses, making the improvements
sustainable.
So far, air travel demand has remained robust in the region even
amid stagnant economic growth and lower disposable income. LATAM's
total RPK recovered to 102% of 2019 level in February 2024, with
Brazil and Spanish speaking countries RPKs at 126% and 102%,
respectively, and international RPKs at 92%.
LIQUIDITY
LATAM has a good liquidity profile with $1.9 billion in cash and
$675 million in debt maturing before the end of 2026. The company's
cash balance covers short term financial debt maturities of $207
million by 9x. The company's debt amortization schedule is
comfortable, with most of the upcoming maturities represented by
the exit financing, namely the term loan and notes, due beyond
2026. The company also has two secured, undrawn revolving committed
credit facilities amounting to $1.1 billion and generated $679
million of free cash flow in 2023. The company's cash generation
benefits from a reduction of about 40% in annual fleet cash costs
from 2019 levels following the renegotiation of the fleet contracts
done during Chapter 11, and the company continues to have
flexibility in terms of fleet and non-fleet capex. Moody's Ratings
expects that LATAM will generate about $2.0-2.5 billion in cash
flow from operations annually, which is sufficient to cover annual
capex needs by about 1.5x, including fleet renewal and expansion.
Moody's Ratings also expects a neutral to positive free cash flow
from 2024 onwards, reflecting flexibility in maintenance capex and
costs. The company also has other potential liquidity sources,
including unencumbered assets that could be used in potential
secured financing transactions.
RATING OUTLOOK
The stable outlook reflects Moody's Ratings' expectations that
LATAM's credit metrics and liquidity will remain stable in the next
12-18 months, and that the company will maintain its conservative
approach towards liquidity, costs and capacity management.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
There will be little upward rating pressure before the company
refinances its bankruptcy exit financing at materially lower
interest rates. Quantitatively an upgrade would require adjusted
leverage (measured by total debt / EBITDA) sustained below 3.5x and
interest coverage (measured by (FFO + interest expense) / interest
expense) above 5.5x on a sustained basis. The maintenance of an
adequate liquidity profile, with positive free cash flow generation
even during times of fleet expansion would also be required for an
upgrade.
The rating could be downgraded if credit metrics deteriorate, with
adjusted leverage remaining above 4.5x and interest coverage below
3.5x on a sustained basis. A deterioration in the company's
liquidity profile or additional shocks to demand or profitability
that lead to cash burn could also result in a downgrade of the
rating.
COMPANY PROFILE
LATAM Airlines Group S.A (LATAM) is a Chile-based airline holding
company formed by the business combination of LAN Airlines S.A. of
Chile and TAM S.A. (TAM) of Brazil in June 2012. LATAM is the
largest airline group in South America, with a local presence for
domestic passenger services in five countries (Brazil, Chile, Peru,
Ecuador and Colombia). The company also provides intraregional and
international passenger services, has a cargo operation that is
carried out using belly space on passenger flights and a dedicated
freighter service and has LATAM Pass, the largest frequent flyer
program in the region and 7th largest in the world in terms of
members. In 2023, LATAM generated $11.6 billion in net revenue.
LATAM serves passengers in around 148 destinations in 26 different
countries; provides cargo services to 166 destinations in 33
countries; and as of December 2023, had a fleet of 333 aircraft and
a set of bilateral alliances.
The principal methodology used in these ratings was Passenger
Airlines published in August 2021.
WOM SA: Investors Failed to Deliver Promised Funding, Ex-CEO Says
-----------------------------------------------------------------
law360.com reports that WOM SA, one of Chile's biggest cellphone
operators, ousted its chief executive days after it filed for
bankruptcy in Delaware, with the ousted official alleging investors
failed to deliver on new sources of funding promised in the fall.
Chris Bannister, who came to be known as "tio WOM" or "uncle WOM"
during his first stint as CEO of the company from 2015 to 2018,
rejoined WOM in October but was replaced by its board of directors
on the heels of WOM's Chapter 11 filing April 1, according to
social media posts by WOM and Bannister, notes law360.com.
In a colorful LinkedIn post, Bannister said shareholders had
promised new sources of funding when he rejoined the company in the
fall as it faced headwinds from credit score downgrades and a
delayed 5G network project, the report notes.
"Shareholder[s] did not deliver their commitment in funds," wrote
Bannister in his post, saying WOM's Chapter 11 filing was the
"best/only decision to solve the issue of its corporate finance
structure," the report relays.
WOM, which is owned by Icelandic billionaire Thor Bjorgolfsson's
private equity firm Novator Partners LLP, filed for bankruptcy
April 1 with more than $1 billion debt, the report adds.
The case is In re: WOM SA et al., case number 1:24-bk-10628, in the
U.S. Bankruptcy Court for the District of Delaware.
About WOM SA
WOM is a Chilean telecommunications provider, focused on offering
mobile voice, data, and broadband services, along with a rapidly
expanding "Fiber to the Home" broadband offering, to consumers and
businesses in Chile. Since the acquisition of Nextel Chile in 2015
through Novator Partners LLP's investment vehicle NC Telecom AS,
WOM has expanded from having virtually no market share to
establishing itself as the second-largest mobile network operator
in Chile.
WOM sought relief under Chapter 11 of the U.S. Bankruptcy Code
(Bankr. D. Del. Lead Case No. 24-10628) on April 1, 2024. In the
petition filed by Timothy O'Connoer, as independent director, the
Debtor reports estimated assets and liabilities between $1 billion
and $10 billion each.
The Honorable Bankruptcy Judge Karen B. Owens oversees the case.
The Debtors tapped WHITE & CASE LLP as general bankruptcy counsel,
RICHARDS, LAYTON & FINGER, P.A., as local bankruptcy counsel,
RIVERON CONSULTING LLC as financial advisor, and ROTHSCHILD & CO US
INC. as investment banker. KROLL RESTRUCTURING ADMINISTRATION LLC
is the claims agent.
=============
J A M A I C A
=============
ALLIANCE GROUP: Charges on Chins 'Unprecedented and Unnecessary'
----------------------------------------------------------------
Dashan Hendricks at Jamaica Observer reports that the legal team
for the former owners of the Alliance affiliated companies -
Alliance Investment Management Limited (AIML), Alliance Financial
Services Limited (AFSL), and Alliance Finance Limited (AFL) - is
dismissing a recent statement from the Bank of Jamaica (BOJ) about
the circumstances which led it to sanction the former principals of
the company Peter and Robert Chin and suspending the licenses of
AFSL.
In a release to the Jamaica Observer, the Chin brothers, through
their attorney Sean-Christopher Castle, said he was setting the
record straight "to correct the omission of pertinent facts and
misstatements made by the Bank of Jamaica (BOJ) in recent
publications," adding that it was "shocking that charges were laid
at all" against the men and their former company, AFL, given the
events leading up to the central bank's action, according to
Jamaica Observer.
AFL and the Chin brothers were charged with the offences of
carrying on the business of lending in foreign currency, in breach
of the Bank of Jamaica Act, and accepting deposits without the
requisite licence in breach of the Banking Services Act.
"The charges against AFL, for lending in foreign currency, related
to transactions conducted between 2013 and 2019," Castle said in
the release as he pointed out that "it was AFL who self-reported to
the BOJ certain historic loan transactions which had been made in
foreign currency".
He said the transactions were done consistent with an industry
practice and was not prohibited by the Money Lending Act under
which AFL operated at the time, the report notes.
"AFL conducted a review of its procedures to ensure conformity with
the new Microcredit Act in June 2021, and the restriction on
lending in foreign currency imposed by section 22A of the Bank of
Jamaica Act came to light. AFL promptly sought guidance from the
BOJ in the interest of conformity with the Bank of Jamaica Act. The
BOJ provided directions, which were implemented, and the BOJ
acknowledged AFL's compliance in September 2021, two months before
the charges were laid by the FID [Financial Investigations
Division]," it was pointed out, the report relays.
AFL pleaded guilty to the charges and was fined, the report
discloses. The charges against Peter Chin and Robert Chin were,
however, withdrawn by the Office of the Director of Public
Prosecutions (ODPP), the report says. The attorney said given the
events that took place, "the charges against the Chins were
unprecedented and unnecessary," the report notes.
Turning to AIML, an affiliate of AFL, which was itself charged with
breaches of the Proceeds of Crime (Money Laundering Prevention)
Regulations 2007 for failing to make threshold transaction reports,
the attorney said that the success of the no case submission in
which the charges were dismissed also calls into question the basis
for the charges in the first place, as there was no case to answer,
the report relays.
The BOJ suspended AFSL's cambio and remittance licences as well as
its authorisation to operate its electronic payments service within
the Fintech Regulatory Sandbox in December 2021 - immediately
following the laying of the criminal charges against the Chins,
AFL, and AIML, the report discloses.
"Even though AFSL had not been charged with any offence, the BOJ
claimed that the charges laid by the Financial Investigations
Division (FID) on the Chins, as individuals, rendered AFSL's
principals, Peter Chin and Robert Chin not fit and proper persons
to participate in a Bank of Jamaica regulated business, even though
they had not been tried or convicted of any offense," the attorney
said, the report notes.
The BOJ, earlier in a press release, said "the regulatory actions
became necessary" after the FID charged AFSL's principals as well
as AIML and AFL with several offences under the Bank of Jamaica Act
and the Banking Services Act, the report discloses.
"Bank of Jamaica is aware that investigations by the FID into the
Alliance Group began around 2018. However, it was only after formal
charges were laid against the entities and their principals by the
FID following the requisite ruling by the Office of the Director of
Public Prosecutions that BOJ took the regulatory action of the
suspension of licences to safeguard the financial system. The
formal charging of the entities and their principals raised serious
"fit and proper" considerations for their continued operation of
financial services under the Bank of Jamaica Act and the Banking
Services Act," the central bank said, the report notes.
Following the suspension of its operating licence, AFSL filed an
application in the Supreme Court for leave to institute judicial
review proceedings against the BOJ "on the grounds that the
decision to suspend its Cambio Licence and revoke its authorization
to operate the electronic payments service was ultra vires,
arbitrary, irrational, and unreasonable and that the BOJ had acted
in breach of the principles of natural justice," the report
relays.
The Chins' attorney said AFSL had a legitimate expectation that it
would be afforded an opportunity to be heard before such drastic
action was taken peremptorily, the report says.
"There was no validation of BOJ's actions by the court. In fact,
the court ruled that AFSL's judicial review claim had realistic
prospects of success and granted AFSL permission to bring a
judicial review claim. That judicial review claim would have quite
possibly taken months or years to be decided. AFSL would not have
been able to operate for that entire period unless an interim
injunction was granted by the court. However, the court refused to
grant an interim injunction against the BOJ pending the hearing of
the judicial review claim. The court recognised that damage would
be done to AFSL's business by not being able to operate until the
outcome of the judicial review, but acceded to BOJ's argument that
the potential damage to the Jamaican economy and the financial
sector outweighed any potential damage to AFSL's business," the
report discloses.
He said the impact of the suspension of the licence and the
revocation of its authority to operate its e-payment system
"without any judicial review hearing happening soon was
devastating. A company against which there were no charges was
unable to operate. The Chins, as the principals of AFSL, attempted
to negotiate with the BOJ terms that would allow the company to
continue to operate. The Chins were willing to remove themselves
from the management and directorship of AFSL completely," he
continued, the report relays.
But he said the BOJ refused any compromise of the Chins stepping
down from management and directorship of AFSL to save the business,
the report notes. Given that, the attorney charged that AFSL had
to immediately cease its operations, which brought its business and
the business of its partners to a grinding halt, the report says.
"The Chins had no alternative but to sell their company to ensure
the continuity of the business they had built and secure employment
for their staff/team members and, by extension, their partners.
Also, the BOJ's actions caused severe and debilitating damage to
the AFSL brand as well as the reputations of Mr Peter Chin and Mr
Robert Chin," the report notes.
Concluding the release, the attorney noted that it was interesting
to see that both the FSC and BOJ took different approaches towards
AIML and AFSL following the charges being laid against Peter and
Robert Chin, the report discloses. It was pointed out that the FSC
opted to enforce enhanced supervision of AIML - the company with
looming POCA charges - while the BOJ opted to immediately suspend
the licences of AFSL, which had no charges against it and asked
why?
On April 4, 2024, the charges were dismissed against AIML, with the
judge ruling that the prosecution had not made out a case against
the company, the report adds.
[*] JAMAICA: World Bank Maintains 2% GDP Growth Outlook in 2024
---------------------------------------------------------------
Javaughn Keyes at RJR News reports that the World Bank has
maintained its 2024 outlook for economic growth in Jamaica.
In its report on growth in Latin America and the Caribbean, Chief
Economist for the region at the World Bank, William Maloney, said
the multilateral agency expects gross domestic product (GDP) to
increase over the next three years, according to RJR News.
There was a 0.2 per cent upward revision for 2025 growth
expectations, the report notes.
"For growth for 2024 we're looking at 2.0 per cent, for 2025 we're
looking at 1.6 per cent and then for 2026 we're looking at 1.6 per
cent," he disclosed, the report relays.
Mr. Maloney said there are a number of things going right for the
country, the report discloses.
"Jamaica continues to be incredibly impressive in their management
of external debt. The consensus mechanism they developed - the
EPOC (Economic Program Oversight Committee) - several years ago,
that brought the . . . major interest groups and economy together
with the goal of managing the fiscal deficit and managing the debt
levels, has worked extremely well and generated consistently
declining overall debt levels which I think in the long term will
lead to more dynamic growth and poverty reduction," he noted, the
report relays.
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.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
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.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
=============
U R U G U A Y
=============
URUGUAY: Central Bank Pivots Back to Easing Cycle w/ Half-Point Cut
-------------------------------------------------------------------
Bloomberg News reports that Uruguay's central bank resumed its
easing cycle with a half-point cut to its benchmark interest rate
after inflation rose at the slowest pace since 2005.
The central bank said it lowered the key rate by 50 basis points to
8.50% following a pause in February thanks to a gradual drop in
inflation expectations and a sustained slowdown in consumer price
increases that've stayed within the 3% to 6% target, according to
the report.
The move marked the central bank's biggest since a half-point
reduction last October, the report notes.
Monetary policy going forward will seek "to keep inflation in the
center of the target range" and achieve the convergence of
inflation expectations with the central bank's 24-month policy
horizon, policymakers said in a statement after their decision, the
report relays.
Receding inflation across Latin America has allowed central banks
to lower interest rates, the report discloses.
Mexico was the last major inflation targeting central bank in the
region to join the rate cutting club in late March, the report
notes.
Uruguay, long a high inflation outlier in Latin America, has logged
10 consecutive months of inflation within the target range, the
report relays.
Inflation slowed to 3.8% in March, the smallest gain since August
2005, the report recalls. Inflation expectations are slowly
falling but remain at or near the target ceiling, the report says.
The most recent survey of analysts by the central bank put
inflation at 5.98% at the end of the year, while the 24-month
outlook was steady at 6%, the report adds.
===============
X X X X X X X X
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LATAM: IMF Faces Pressure to Cut Bil. in Fees for Large Borrowers
-----------------------------------------------------------------
Buenos Aires Times reports that for years, the International
Monetary Fund has collected billions of dollars in fees from its
biggest borrowers, a practice that penalized those most in need.
Now, with its coffers refilling and interest rates running high,
the world's lender of last resort is considering giving them a
break, according to Buenos Aires Times.
The IMF released a statement saying that "a number" of its board
members were open to reviewing policies around surcharges, the fees
that it charges nations that borrow more than their allotted share
or take longer to repay, the report notes. The rates have climbed
above eight percent on some loans, with the burden carried by a
handful of countries including Argentina, Egypt and Ukraine topping
US$6 billion, the report relays.
Brazil President Luiz Inacio Lula da Silva, as host of the Group of
20 this year, promised to make it a top issue amid his calls to
reform the international financial system, the report discloses.
Representative Chuy Garcia, an Illinois Democrat, plans to
reintroduce legislation from 2022 directing the US Treasury
Department to support a review and end of surcharges, his office
said, the report notes.
The IMF describes the fees as a necessary part of its financial
model, meant to discourage borrowing too much or taking too long to
repay, the report relays. Borrowers and their supporters say they
drain resources needed for essentials such as food and healthcare,
and are increasingly punitive given faster inflation and higher
interest rates, the report says.
The board plans another meeting on the topic in June, according to
people familiar with the process who asked not to be identified
discussing internal deliberations, the report notes. It's still
not clear how many board members support the idea of cutting the
fees, the report discloses.
"In this perfect storm situation, it's particularly egregious to be
facing these surcharges," said Michael Galant of the Center for
Economic and Policy Research, a progressive think tank that
supports surcharge relief, the report relays. He said the extra
charges make loans from other sources, including China, more
attractive and risk diluting the fund's influence, the report
notes.
The fees have been around for years, but higher global interest
rates, particularly from the US Federal Reserve and European
Central Bank, mean that the total rate on some loans from the IMF
is now more than eight percent, the report relays. That's double
the level before the Covid-19 pandemic, the report says.
As well, the number of countries paying the fees has risen, the
report notes. Twenty-two nations are currently pay surcharges, up
from eight in 2019 as the economic and political risks of the
post-pandemic world have pushed the IMF's lending to a near-record
US$150 billion to almost 100 countries, the report relays. Fund
data compiled by CEPR indicate that 40 percent of nations that need
to repay the fund in the next five years are paying the fees, the
report discloses.
The IMF board's discussion of surcharges came as part of a review
of its precautionary balances, the money the fund keeps in store to
protect against possible losses, the report notes. The IMF is on
track to hit its target of US$33 billion (25 billion SDR) in
precautionary balances by the end of this month, ahead of schedule,
the report relays.
The IMF didn't immediately respond to a request for comment.
In the Fund's 2022 discussions on precautionary balances, a number
of directors didn't see merit in exploring changes to the policy,
noting that the average cost of borrowing for the IMF at that time
was well below market rates, the report notes.
The US, the IMF's biggest shareholder, has signalled a willingness
to reconsider the issue, the report discloses. US Treasury Under
Secretary for International Affairs Jay Shambaugh said in a speech
in September that the Biden administration was open to new
approaches that help countries while protecting the IMF's balance
sheet and incentivising repayment, the report notes.
"The countries most in need of resources for development usually
are those most penalized," Mauricio Carvalho Lyrio, the Brazilian
ambassador managing the G20 agenda this year, said in an interview
last month, the report relays. He added that the IMF should set up
a framework that's "conducive for poor countries to have access to
better and bigger resources," the report relays.
*********
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