Latin America High Yield
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> Latin America High Yield: Comprehensive Analysis of ‘B+’ Issuers and Below Volume II 2010-2011 Corporates Analysts Table of Contents Joe Bormann, CFA Executive Summary .................................................................. 2 +1 312 368-3349 [email protected] Sovereign Forecasts.................................................................. 6 Domestic Indicators .................................................................. 7 Ana P. Ares Commodity Prices .................................................................... 8 +54 11 5235-8121 Rating Transition Statistics ......................................................... 9 [email protected] AES Dominicana Energia Finance ................................................. 10 Lucas Aristizabal Alestra, S. de R.L. de C.V........................................................... 15 +1 312 263-10321 [email protected] Alto Palermo S.A...................................................................... 21 Bio-PAPPEL, S.A.B. de C.V.......................................................... 28 Gabriela A. Catri BR Properties S.A..................................................................... 36 +54 11 5235-8111 [email protected] C.A. La Electricidad de Caracas S.A. ............................................. 43 Cablevisión S.A........................................................................ 48 Jay Djemal Ceagro Agrícola Ltda................................................................. 58 +1 312 263-1032 [email protected] CEMEX, S.A.B. de C.V................................................................ 65 Clarendon Alumina Production Limited (CAP).................................. 81 Rogelio Gonzalez Compania de Transporte de Energia en Alta Tension Transener S.A. +52 81 8399-9134 [email protected] (Transener) .......................................................................... 86 Copamex, S.A. de C.V. .............................................................. 92 Cecilia Minguillón Corporacion Geo, S.A. de C.V...................................................... 96 +54 11 5235-8123 [email protected] Digicel Limited ........................................................................ 104 Empresa Generadora de Elctricidad Haina, S.A. ............................... 111 Gisele Paolino Empresa Generadora de Electricidad Itabo, S.A. .............................. 117 +55 21 4503-2624 [email protected] Even Construtora e Incorporadora S.A........................................... 123 Gruma S.A.B. de C.V. ................................................................ 127 Hilario Ramirez Grupo Posadas S.A.B. de C.V....................................................... 135 +58 21 2286-3356 [email protected] Grupo Senda Autotransporte, S.A. de C.V. ..................................... 142 Independência S.A. .................................................................. 150 Fernanda Rezende Industrias Metalúrgicas Pescarmona S.A.I.C. y F. (IMPSA) ................... 160 +54 11 4504-2600 x2618 [email protected] Inversiones y Representaciones S.A. (IRSA)..................................... 167 Marfrig S.A. ............................................................................ 174 Sergio Rodríguez, CFA Minerva S.A. ........................................................................... 180 +54 81 8399-9100 [email protected] Petroleos de Venezuela S.A. (PDVSA) ............................................ 187 Rede Energia S.A. (Celpa and Cemat) ............................................ 192 Jose R. Romero Servicios Corporativos Javer, S.A.P.I. de C.V. ................................. 198 +55 11 4504-2601 [email protected] Siderúrgica del Turbio, S.A. (Sidetur)............................................ 206 TAM, S.A................................................................................ 213 Mauro Storino Telecom Argentina, S.A. (Telecom Personal S.A.) ............................ 221 +55 21 4503-2625 [email protected] Telefonica de Argentina S.A. (TASA) ............................................. 228 Transportadora de Gas del Norte (TGN) ......................................... 234 Jose Vertiz Transportadora de Gas del Sur (TGS)............................................. 241 +1 202 908-0641 x1641 [email protected] Fitch Analyst Directory.............................................................. 247 Managing Director of Latin America Corporates Daniel R. Kastholm, CFA +1 312 368-2070 [email protected] Editorial Advisors Traci Dixon, Editor Yolanda Calvillo and Diana Barriga, Latin America Administrative Assistants 1 Corporates Executive Summary The Latin America corporate issuers have performed well since the financial crisis began in the middle of 2007. Only eight cross-border issuers defaulted during this time period. A lack of competitiveness and weak capital structures were the most common reasons for defaults. These characteristics describe Durango, Transtel, Vitro, and SANLUIS. The fast-moving dynamics of the Brazilian beef industry have also been difficult to navigate, as reflected by the low ratings for this sector and the defaults of Arantes and Independencia. The overall credit quality of Fitch’s lowest rated companies in the region is healthy, and the trends are positive. Short-term debt is low in relation to cash and marketable securities plus cash flow from operations on an aggregate level, as is leverage. Combined, the group of Latin America corporates rated ‘B+’ or lower has USD7.0 billion of cash and marketable securities versus USD19.6 billion of total debt obligations, of which USD6.7 billion is classified as short-term debt. These figures exclude the two Venezuelan government-owned entities, EDC and PDVSA. During the latest 12 months (LTM), these corporates generated approximately USD9.0 billion of EBITDA. While this represents an improvement from USD8.9 billion of EBITDA during 2009, it remains below the 2008 record of USD10.3 billion. With a return to growing sales volumes, working capital needs are increasing as the companies build inventories and receivables. As a result, cash flow from operations has declined to USD5.3 billion for the LTM from USD5.6 billion during 2009. The record amount of money moving toward emerging-markets (EM) debt has also been positive for many of the lowest rated corporates in Latin America and has allowed them to refinance existing debt. The growth in demand for emerging markets corporate debt has been driven by a confluence of factors. They include attractive EM spreads relative to comparatively rated developed market corporate spreads, low levels of sovereign debt issuances, and a sharp decline in structured credit products. Improving underlying economic fundamentals in Latin America and Asia due to attractive economic growth rates have also led to higher EM allocations for many bond funds. Liquidity Solid Across Rating Spectrum (x) LTM 2010 2009 2008 2007 2006 Average Investment Grade Cash/Short-Term Debt 2.2 2.1 1.1 1.2 1.9 1.7 Short-Term Debt/Long-Term Debt (%) 14 14 22 21 14 17 Cash + EBITDA/Short-Term Debt 6.6 5.9 4.5 4.6 5.8 5.5 Speculative Grade Cash/Short-Term Debt 1.7 1.5 1.4 1.6 1.7 1.6 Short-Term Debt/Long-Term Debt (%) 18 21 19 22 28 21 Cash + EBITDA/Short-Term Debt 4.2 3.3 4.0 3.7 3.9 3.8 Highly Speculative Grade Cash/Short-Term Debt 1.0 1.2 0.8 1.0 0.9 1.0 Short-Term Debt/Long-Term Debt (%) 22 21 17 15 15 18 Cash + EBITDA/Short-Term Debt 3.1 3.1 2.8 3.8 3.4 3.2 Source: Company reports and Fitch calculations. 2 Latin America High Yield November 2, 2010 Corporates Liquidity Returns to Latin American Debt Markets International Domestic Total Latin America Issuance (USD Bil.) 30,000 25,000 20,000 15,000 10,000 5,000 0 5 5 6 6 7 7 7 8 8 8 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 Q Q Q Q Q Q Q Q08 Q Q09 Q Q09 Q Q 1Q05 2 3Q05 4 1Q06 2 3Q06 4 1Q07 2 3Q0 4 1Q0 2 3Q0 4 1 2 3 4 1 2Q10 3 Source: Dealogic. Sovereigns have also been active in supporting corporates. The most active government in the region has been Brazil. Its development bank, BNDES, has played a crucial role in the government’s strategy of attempting to minimize the effects of the international financial crisis upon the Brazilian economy. The bank reduced the interest rates charged on its financing, in particular stimulating the capital goods and innovation sectors and intensifying its support to micro-, small-, and medium-sized companies. It also expanded its trade finance lines and special credit program for working capital to small- and medium-sized companies. In addition to lending aggressively to corporates, BNDES has taken an equity stake in companies in crucial sectors of the economy such as agriculture and forestry. While the support of BNDES has allowed many of the companies to achieve global economies of scale, there are limits to the credit enhancement associated with its involvement in a company, as reflected by the bankruptcy of Independência, a beef processor in which BNDES owns a minority stake. The 37 lowest rated companies can be subdivided into various groups for analytical purposes. The first group is composed of 18 companies that are domiciled in countries whose sovereign ratings are ‘B+’ or lower. The breakout of this group is as follows: Argentina (10), Venezuela (3), the Dominican Republic (3), and Jamaica (2). Most of these companies are more vulnerable to systemic