S&P has put the B+ rating of Mexico’s Corporacion Durango on CreditWatch with negative implications and warns of significant pending downgrades amid deteriorating debt ratios. “They have too much debt, and are getting caught by higher costs,” says an analyst at a major Wall Street shop, adding that the 2017 was trading around 58-60. “Right now their Ebitda is less than their interest expense,” the analyst adds. The S&P watch follows last week’s demotion from Fitch, and S&P predicts that key financial ratios will continue to exceed assumptions based on the current rating. “We will need to reevaluate the company’s financial and operational strategies to resolve the CreditWatch. Any downward rating action would not be limited to one notch,” says S&P analyst Juan Pablo Becerra. The Mexican paper and packaging firm’s total debt to Ebitda ratio hit 6.8x March 31, versus an S&P forecast of around 3.8x by year-end 2008. Negatives include high debt, a moderately aggressive financial policy, and natural risk associated with the paper industry’s cyclicality. This is partially offset by Durango’s leading position in the containerboard and packaging industries, as well as vertical integration in Mexico. Fitch cut Durango to B minus from B and its 2017 notes B/RR3 from B+/RR3, implying a 51%-70% recovery in the event of default. The ratings remain on rating watch negative. The firm has $14m in short-term debt and $524m in long-term debt. Only last year, the company was planning to buy back bonds in 2008 to spruce up the balance sheet.
Category: Regions
Bolivia Referendum Sparks Violence
A vote on autonomy for Bolivia’s richest region, Santa Cruz, sparked violence Sunday. President Evo Morales and indigenous groups oppose the referendum, which according to wire reports could give rightist leaders more control of taxes, policing and natural resources. Bolivia last week seized four energy companies and a telecom, aggravating a recent deterioration in the country’s investment climate.
Colombia Fines Local Rating Agency
Colombia’s regulator has fined local ratings agency BRC investor services COP80m ($45,000) for failing to update ratings on bond, according to the ruling. In a 27-page document, Colombia’s Superintendencia Financiera explains that the lack of an update for ratings on bonds issued by Titulos Banano Colombia hurt the local market. The entities issuing the bonds are bankrupt Colombian banana producers. This is the first time such action has been taken in the country, according to local media. In February this year BRC signed a technical services agreement with Moody’s, according to BRC’s website.
Nationalization Spree Hits Bolivia
The Bolivian government took control Thursday of four energy companies and a telecom, according to ABI, the state information agency. By decree of president Morales, Bolivia took over the 51% of oil company Chaco and pipeline builder Transredes and 100% of previously privatized oil storage and distribution company Compania Logistica de Hidrocarburos Boliviana (CLHB). An agreement was reached, however, with oil company Andina to purchase 51% of its stock for $6m, according to ABI. Previously, the Bolivian government had a 48% participation in Andina and Chaco and 34% in Transredes, ABI adds. The takeovers come after a lengthy process of negotiations between the government and the energy companies, which had a deadline of April 30 for that process to conclude, says Casey Reckman an analyst at Fitch. “[The nationalizations] just contribute to the deteriorating investment climate that we’ve seen in Bolivia,” Reckman says. There has been a lot of uncertainty in the hydrocarbons sector in Bolivia since Morales took office, she notes. These actions will further impair Bolivia’s ability to attract foreign investment to the oil sector. “From the perspective of credit worthiness, “[nationalization] is not a positive trend,” adds Reckman. Morales also decreed the nationalization of Entel, Bolivia’s telecom company, partly owned by Italy’s Euro Telecom International. The government already controlled half of that firm.
Peru Sees Marginal Inflation Hike
Inflation in Peru – the fastest growing LatAm economy – slowed to 0.15% in April, a considerable drop from the previous month’s 1.04%, according to the Peruvian government statistics institute INEI. This is below market forecasts of 0.35%-0.40%, says Carola Sandy, analyst at Credit Suisse. Year-to-date, inflation in the Andean country adds up to 2.34%, the institute reports. External pressures could aid a further decline in Peru’s inflation. “I think what’s important for Peru is the trend in food inflation globally,” Sandy says. “We are expecting food inflation to decline and this should help inflation in Peru to continue to decline,” she adds.
Colombia Sees Minimal Inflation Increase
Colombia’s inflation was 0.71% in April, according to the country’s statistics bureau. The number is less than the 0.90% price hike of April 2007. However, the inflation picture is still far from comfortable, according to Goldman Sachs. “Of particular concern is the fact that core, non-food inflation continues to accelerate 4.74% yoy in March and moved outside the 4.5% upper limit of the inflation target band for the second month in a row,” says the shop. Although US activity has decelerated significantly, there are no visible signs of contagion in the Colombian economy, Goldman adds. “In addition, the terms of trade have reached historically high levels; trade flows remain strong, and the confidence of foreign investors in the Colombian economy remains firm as demonstrated by strong FDI flows year to date.” All the above suggest that the central bank is likely to leave the policy rate unchanged at 9.75% in May, Goldman adds. Analysts see strong FDI propping up the COP for the foreseeable future.
IMF Moves Singh to Asia
The IMF’s man in LatAm, Anoop Singh, has been appointed director of the Fund’s Asia Pacific department. IMF MD Dominique Strauss-Kahn, who did not name a successor, says the move is part of an “ongoing refocusing effort.” Singh, currently director of the Western Hemisphere department, takes over from David Burton who is leaving the fund in the “voluntary separations phase” of the IMF’s organizational restructuring. There will be a period of transition before the new appointments become effective, which the fund has yet to define.
Peruvian Exporter Gets Term Loan
Peruvian fishmeal and fish oil producer Pesquera Exalmar has closed a 6-year $80m export-backed term loan, its first in the international market. The facility is secured by assets including vessels, licenses and processing plants, as well as export receivables from customers in Germany, Japan and China. It pays Libor plus 350bp. The unit of Corporacion Exalmar will use proceeds to pay down debt and fund its purchase of 50% of rival Corporacion del Mar for an undisclosed amount. WestLB arranged the loan, which included as participants BNP Paribas, Citi, Rabobank, Natixis and Israel Discount Bank.
Banco Industrial Hybrid Details Emerge
Guatemala’s Banco Industrial priced an offering of Tier 1 capital securities worth $30m. The issue, cloaked in secrecy at the time of pricing last week, is made up of 60-year non-call 10 debt securities that switch from fixed to floating-rate notes in year 10. In the first 10 years, they pay an annual coupon of 9%. In year 10, if not called, they jump to Libor plus 600bp, a figure that was calculated by adding the April 25 10-year Libor spot rate of 450bp to a spread of 150bp. The notes, which priced at par, are rated Ba3/B+/B+, and get 100% equity treatment. At 9%, the transaction was seen as aggressive, especially versus higher-rated hybrids from US commercial banks in the past two months, which were done at 8%-10%. That partly explains the smaller size of the deal, says a banker close to the process. Credit Suisse led and Guatemalan investors were among the buyers.
Rebuilding Colombia
Firm commodity prices, fiscal reforms and reduced violence has Colombia planning for an infrastructure buildout. The sovereign is targeting the private sector.
by Ben Miller