Category: Central America

Moody’s has cut the outlook on Guatemala’s ratings to stable from positive. The affected ratings are the Ba2 foreign currency rating, Ba1 country ceiling for foreign currency bonds and Ba3 country ceilings for foreign currency deposits. The cut reflects a relative worsening of Guatemala’s credit metrics compared to similarly rated countries, as well as the impact of the global crisis, which will make credit improvements more difficult. “Despite recent above-trend growth, Guatemala is growing slower than the median for Ba sovereigns; Guatemala is getting poorer and smaller compared to other Ba countries,” says Moody’s vice president Gabriel Torres. “Ten years ago Guatemala’s per capita GDP was 82% of Ba rated nations. Today that has dropped to 58% because of the lower relative growth,” he adds.

The Dominican Republic and Guatemala are seeing lower inflation rates, says JPMorgan. The DR’s monthly inflation dropped by 3.3% in November, taking the annual rate to 7.2%, down from 12.8% in October. “We expect positive base effects, lower commodity prices and a decline in domestic demand to ease consumer price pressures and help bring down headline inflation, which is already at its lowest point since October 2007, to around 6% by year-end and keep it between 6-7% in 2009,” the shop says. Guatemala, while not having seen inflation drop in 2008, should see it decline to 7.5% in 2009 from about 9.8% in 2008.

Despite the global economic slowdown, JPMorgan says Costa Rica’s tourism industry is expected to grow by 7.5% in 2008 versus the previous year and Guatemala is expected to post a better-than-expected fiscal deficit of 1.2% of GDP in 2008. Costa Rica’s tourism chamber, says the shop, expects 2.1m visitors by the end of this year, which could translate into more than $2bn in revenues. In 2007, almost 2m tourists generated more than $1.9bn, the chamber says. As for Guatemala, JPMorgan says that although tax revenues declined by 8.9% 1-year average to $310m in November, the year-to-date figures show a 6.3% increase from the first 11 months of 2007. Central American credits tend to be defensive in bear markets, outperforming more liquid higher beta sovereigns on the downside.

Fitch has cut to stable from positive the outlook on the BB ratings of Banco Industrial amid a worsening environment in capital markets that complicates capital enhancement alternatives. Guatemala’s biggest bank had been trying to do an IPO earlier this year, but opted instead for a $35m 2068 Tier-1 hybrid paying 9% for 10 years and Libor plus 600bp thereafter. The April offering through Credit Suisse was placed only with Guatemalan investors and fell well short of a $100 million target size. The prior positive outlook from Fitch reflected perception that capital adequacy would improve following certain strategies that the management has pursued. “Weakening economic prospects are likely to impact Industrial’s impairment loan ratio, its provisions and overall performance, a confluence of factors that is consistent with Industrial’s current ratings, hence Fitch’s outlook revision to stable,” says the agency. It notes that Industrial maintains a robust franchise in Guatemala, low level of loan delinquency, improving efficiency and profitability, and adequate funding and liquidity. However, it also has a tight capital position following ample organic and acquisition-driven growth over the past two years, limited and declining loan loss reserves and modest revenue diversification. If Industrial hits difficulties, Fitch believes the government of Guatemala would have a vested interest in supporting it, given ample deposit market share.

Spain’s Barcelo Hotels & Resorts has acquired the Hotel Guatemala City for $42m in cash, and will rename it Barcelo Guatemala City. The hotel was purchased from Marriott International. A Barcelo spokesman says the company did not use outside advisors for the deal. He also says Barcelo is in talks to either acquire a hotel in Managua or sign a contract to manage it and expects a deal to be completed early next year. The Guatemalan and Nicaraguan hotels will be part of Barcelo’s business hotels, says the official, adding that the company is interested in expanding this sector. “We would like to open a business hotel in Panama and expand in Mexico,” says the source.

S&P says it has revised its outlook rating for Guatemala to stable from positive. “We revised the outlook to stable to reflect the slowdown of the encouraging momentum seen in both Guatemala’s tax collections and GDP growth in the last two years,” explains S&P credit analyst Roberto Sifon Arevalo. He also notes he expects tax revenues as a percentage of GDP to be about 11.7% in 2008, lower than in prior years and likely remaining low in 2009. S&P also cut its GDP growth forecast for 2008 and 2009 to 3.8% and 3.5%, respectively. In addition, the agency affirmed its BB/B foreign currency and BB+/B local currency sovereign credit ratings and its BBB minus transfer and convertibility assessment on the country.

S&P has cut its corporate credit rating on Empresa Electrica de Guatemala (EEGSA) to BB minus from BB and placed it on credit watch with negative implications. The downgrade comes after the national energy commission in Guatemala lowered by 55% a component of the 2008-2013 tariff that reimburses the distribution company for its investment, S&P says. “This change will result in deteriorated profitability and cashflow measures as well as limited liquidity during the second half of 2008 and going forward,” the agency says. Any downward rating action would not necessarily be limited to one notch, it adds. The rating is constrained by inherent challenges associated with the operating environment of Guatemala, as well as limited financial flexibility, given undeveloped local capital markets.

IFC has made a $70m equity investment in Guatemala’s Banco G&T Continental, seeking to expand the bank’s services to small and medium enterprises in Central America, IFC says. The investment is consistent with IFC’s strategy in CentAm of helping to develop financial markets and promoting access to finance for SMEs, the multilateral adds. Banco G&T Continental has operations in El Salvador, Costa Rica and Panama. The multilateral also announced a $50m loan to Costa Rican household good and electronics retailer Grupo Monge to expand operations in CentAm and increase access to consumer credit for low income costumers. IFC’s total committed portfolio in Central America as of May 2008 was $719m, the multilateral says.

S&P expects Guatemala GDP growth to slow towards 4.0% in 2008, mainly because of adverse external conditions. The country’s real GDP grew 5.7% in 2007, according to the IMF. “High commodities prices and inflation as well as the expected slowdown in the US economy, which will affect the pace of growth of workers remittances, are among the main negative shocks that the Guatemalan economy will face in 2008,” says the agency. S&P affirms its BB/B foreign currency and BB+/B local currency sovereign credit ratings on Guatemala. The outlook remains positive. “Guatemala’s ratings are supported by a strong track record of cautious fiscal policies, an improving government debt profile, and a steady flow of workers remittances,” adds the agency. However, fiscal flexibility and creditworthiness will continue to be constrained over the medium term by a narrow tax base and continual current account deficits that hinder an otherwise sound macroeconomic framework, says S&P.

Guatemala-based entities are targeting close to $1bn in project finance for the coming weeks as the pace of infrastructure development hastens. Cementos Progreso, the local cement maker, has tapped Citi to lead financing totaling $470m that will include local bank debt, syndicated financing and bi-lateral loans, a company official tells LatinFinance. Proceeds will be used for a new cement plant. A significant portion of the $470m should be done in the syndicated loan market and the company is looking at tenors ranging from 7-10 years. Elsewhere in Guatemala, Ashmore Energy International (AEI) is looking to raise around $500m to build a new power facility, say bank market participants. Jaguar Energy, an AEI subsidiary, won a mandate to build a $600m coal-fired power plant in early May. The development will generate 275MW annually and sell electric power through distributors belonging to Spain’s Union Fenosa.