Mexico is the best place in LatAm for companies, according to the World Bank’s Doing Business 2011 survey. Despite worsening drug-related crime, Mexico has moved up 6 places in the global ranking to 35 in the study, released last week. “The region’s top-ranked economy, Mexico launched an online one-stop shop for initiating business registration, improved construction permitting, and increased options for online payment of taxes,” says the multilateral. Twelve of 20 economies in LatAm have reformed business regulation to expand opportunity for local firms in the past year, according to the World Bank. Peru improved business regulation the most in the region, moving up 10 places in the global ranking on the overall ease of doing business, to 36th out of 183 economies. Peru was also among the world’s 10 most active economies, improving in 4 of 9 areas covered by the report. It created an online one-stop shop for business registration, improving the ease of business start-up more than any other economy. Peru also streamlined permits for construction, introduced fast-track procedures at the land registry, and eased trade with a new Web-based electronic data interchange system, the World Bank adds. “Economies in Latin America are improving regulation with faster, transparent, electronic systems,” says the multilateral. Chile moved up to 43 from 53 in the global ranking, while Grenada did best in the Caribbean, it adds. Doing Business analyzes regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and closing a business. It does not measure security, macroeconomic stability, corruption, skill level, or the strength of financial systems.
Category: Corporate & Sovereign Strategy
Fitch downgrades Posadas to B
Fitch has downgraded Mexico’s Grupo Posadas’ local currency and foreign currency IDR to B from B+ and national scale rating to BB+ from BBB+, with a stable outlook. The ratings action reflects continued deterioration on operating performance and financial indicators due to higher indebtedness, operating trends that have not improved as anticipated and the sale of Nuevo Grupo Aeronautico (NGA), including the airline carrier Mexicana, says Fitch. These factors have resulted in the company’s inability to gradually reduce leverage, adds the ratings agency. “Posadas’ ratings are supported by the company’s solid business position, strong brand name and multiple hotel formats,” says Fitch in a release. “Conversely, the ratings are tempered by increased leverage, exposure to currency fluctuation which can pressure liquidity and industry cyclicality,” it adds. Posadas has experienced weak operating results, which Fitch says is a result of lower vacation club revenues, and lower revenue per available room in its coastal hotels in part due to the perception of violence in Mexico and stabilization of urban destinations. This has not been able to compensate increased indebtedness and extraordinary charges due to the sale of NGA. The ratings also take into consideration the industry’s high correlation to economic cycles, which negatively affects operating indicators in downturns. Fitch adds that the company’s liquidity position is manageable and Posadas’ cash levels, excluding cash needed for operations, and credit facilities allow it to cover margin calls.
China’s CCB Pushes RMB Trade
China Construction Bank (CCB) sees scope to significantly increase volume in its settlement business supporting RMB-denominated trade between LatAm and China. “We think it could be a very big opportunity for our bank,” says John Weinshank, head of trade finance and corporate banking at CCB’s New York office. Since the end of April, CCB has done over $300m in deals for international trading companies shipping LatAm commodities to China. Much of it is Argentine soya beans, but the deals also include softs and metals from Brazil and Chile. “By the end of the year it will be more like $500m [in deal volume],” Weinshank tells LatinFinance. Putting contracts in RMB can give suppliers to China an edge over competitors, while also decreasing their reliance on the dollar, says the banker. Payment terms are given up to 360 days and CCB settles for the LatAm exporter in dollars. “Their functional currency is not the dollar, and the dollar’s appreciating while the RMB’s appreciating,” says Weinshank. “If they’re on the selling side, it would make more sense for them to have a more valuable currency that they will translate back to their local currency,” he adds. The product is particularly suited to clients with global flows. They can have proceeds remitted in dollars, or keep an RMB deposit and benefit from any appreciation in the Chinese currency. RMB deposits would also generate a higher rate than USD. “If Codelco or Vale came to us and said we have RMB exposure, can we settle it with you, we’d be delighted,” says Weinshank. The CCB business is run from New York, but the bank is considering establishing offices in region. A Brazil branch looks most imminent, following several trips to the country by senior CCB bankers. The New York branch is not yet authorized to lend to LatAm corporates. CCB is one of the biggest banks in the world.
Ecuador Gets a B
Fitch has upgraded Ecuador’s foreign currency issuer default rating to B minus from CCC, with a stable outlook, because of increased bilateral lending and a decrease in financing constraints due to the recovery of international oil prices. Loan agreements with China worth $2.6bn and financing from the social security agency have provided Ecuador with resources for budgetary support and infrastructure spending, says Fitch. However, the upgrade did affect spreads in the secondary bond market, with analysts and economists saying the rating is still not high enough to attract institutional investors. “There has been very little debt being traded since the default, and I don’t expect this to have a significant impact,” Eduardo Checa, president at Analytica Securities, tells LatinFinance. A LatAm economist says institutional investors will remain uninterested in Ecuador’s debt. The country’s ratings are constrained by weak willingness to service debt and limited transparency and disclosure of public finances information, adds Fitch. “Ecuador’s limited sources of recurrent and reliable financing as well as the high dependence of external and fiscal accounts on oil prices will continue to weigh on the sovereign’s capacity to service its outstanding debt commitments,” says Erich Arispe, director in Fitch’s sovereign group. Fitch adds that Ecuador’s growth prospects remain low for regional standards. The report adds that while enhanced willingness or strengthened capacity to service outstanding debt could improve Ecuador’s credit rating, deterioration in fiscal and external accounts or further unwillingness to service outstanding debt could lead to a ratings downgrade.
Brazil Elections Seen Credit Neutral
Brazil’s election results are broadly credit neutral for its sovereign rating, says Fitch. The ratings agency says the Rousseff administration is likely to continue Brazil’s macro policy framework. However, Fitch questions whether Rousseff will take measures to make the economy stronger while addressing some of its fiscal weaknesses. It adds that the rating could benefit from continued sound management of the economy, further strengthening of the balance sheet and fiscal improvement. Fitch also says the rating could be upgraded if Rousseff improves the structure of public finances. Much-needed policies to encourage investment and growth could also lead to an upgrade.
Fitch Upgrades KCSM
Fitch has upgraded Kansas City Southern de Mexico and its senior notes to BB from BB minus with a stable rating outlook. Fitch attributes its upgrade of the railway transportation service provider to the company’s recovery and solid operational performance in the last year. Fitch adds that the company is well positioned to benefit from the improvement in the Mexican economy and cross-border trade with the US. In the first 9 months of 2010, KCSM’s revenues were $582.4m, a 33% increase over the corresponding period in 2009. Fitch expects KCSM to generate approximately $792m and $884m in revenues during fiscal year 2010 and 2011, respectively. Fitch’s main concerns about the company are its exposures to fuel cost volatility and other industry-related risks, such as revenue volatility and high operating leverage and the potential for further weakening of the US economy, which would also affect the Mexican economy. Under that scenario, leverage could rise to a level inconsistent with the current ratings, adds Fitch.
Fitch Ups Bogota’s Outlook
Fitch has improved Bogota’s outlook to positive from stable, after a similar action was taken 2 weeks ago on Colombia’s risk. Fitch has affirmed the BB+ long term foreign currency rating, and the BBB minus long term local currency debt rating of Bogota. This reflects the district’s strong fiscal management, consistent budgetary surplus position, affordable debt, highly valuable assets and strong socio-economic profile. However, Fitch cites high unemployment rates, increasing social and infrastructure needs of a growing population and contingent liabilities regarding pension and retirement payments of employees as potential limitations. The district’s economy, following the same trend as Colombia, remained almost flat in 2009, but growth is expected to reach rates above 4% for 2010 and 2011.
Moody’s Downgrades Banif Subs
Moody’s says it has cut the ratings for Banco Internacional do Funchal and Banif Banco de Investimento. The bank financial strength ratings of both Brazilian subsidiaries of the Portuguese bank were chopped to E+ from D minus; long-term global local-currency and foreign-currency deposit ratings, to B1 from Ba3; and Brazilian national scale deposit ratings, to Baa1.br and BR-2 from A2.br and BR-1, long- and short-term respectively. The outlook on the BFSRs is stable, and the outlook on the deposit ratings is negative. The short-term global local-currency and foreign-currency deposit ratings of Not Prime of Banif Brasil and Banif Investimento were not affected by this action. Moody’s says that the downgrade of Banif Brasil’s and Banif Investimento’s BFSR reflects the low capitalization of the 2 banks, and the modest prospects for earnings generation, which also highlights their reasonably small franchises. Moody’s added that the banks’ limited capital cushion represents a challenge for the expansion of the 2 banks’ operations, and for the growth of their balance sheets because of the intense competitive conditions in their respective core markets: lending to small and mid-sized companies for Banif Brasil, and investment banking for Banif Investimento.
Sidetur on Negative Watch
Fitch has placed Sidetur on rating watch negative. The announcement follows the announcement Sunday by the Venezuelan government that it would nationalize the steel company. Fitch rates Sidetur’s $100m 10% senior unsecured notes due 2016 issued through its wholly-owned subsidiary Sidetur Finance. The negative watch reflects the uncertainty regarding the exact time by which the nationalization will be completed and its impact on the company’s operations during this process. This uncertainty will negatively affect labor productivity and the fluidity of day-to-day relationships with the company’s suppliers, customers and banking institutions that provide it with working capital financing.
Aruba Outlook Negative
S&P has changed its outlook on Aruba’s A minus rating to negative from stable to reflect the rapid growth in the Aruban government’s debt burden due to both the recent global downturn and structural factors such as a narrowing tax base. The agency says general government debt could exceed 51% of GDP this year compared to only 41% in 2008, and could approach 55% to 60% of GDP by 2015. Such a level of debt for a small, open economy with a fixed exchange rate would risk weakening its creditworthiness, possibly leading S&P to lower the ratings by one notch.