S&P cuts Corp Banking

S&P said it lowered the ratings on Corp Group Banking SA to CCC from CCC+.

“The rating action is based on increasing pressure on CG Banking to meet its financial obligations in the next 12 months, despite our view that the group will continue to support its interest payments. In our view, persistent low dividend stream from Itau CorpBanca forces the group to sell other non-strategic assets in order to honor its coupon payments, subject to unfavorable discount rates given heightened uncertainty amid large social protests and unrest in the country,” said S&P in a press release.

The rioting is likely to weigh upon GDP growth for the remainder of 2019 and in 2020, especially on private investment. Chile’s central bank cut its estimate for growth in 2019 to 1% from a previous forecast of 2.25%-2.75%, and its 2020 forecast to a range of 0.5%-1.5% from 2.75%-3.75% previously.

The outlook remains negative.

S&P trims Grupo Idesa

S&P said it lowered the ratings for Grupo Idesa SA de CV and its senior unsecured notes to CCC- from CCC citing increased default risks. The 4 recovery rating on the notes is unchanged.

“The downgrade reflects our view that Mexico-based petrochemical producer and distributor Idesa faces an elevated risk of a payment default on its 2020 maturities unless unanticipated events improve its weak liquidity in the next six months. Moreover, the company’s operational performance has continued declining, resulting in a funds from operations (FFO) deficit in the last 12 months, further worsening the company’s liquidity profile,” said S&P in a press release.

Idesa is discussing refinancing its debt due in 2020, which includes the company’s $300 million of senior unsecured notes due Dec. 18, 2020, which would help its capital structure. However, the resolution is still uncertain, the agency said.

The outlook is negative.

Fitch cuts Grupo Famsa

Fitch Ratings said it downgraded Grupo Famsa, SAB de CV’s long-term local currency, foreign currency issuer default ratings and the national long-term rating to RD from C on the completion of Famsa’s exchange offer. Fitch considers the debt exchange, which closed on Dec. 10, as a distressed debt exchange under Fitch’s DDE criteria. Subsequently, Fitch reassessed and upgraded the IDRs and the national long-term rating to CCC- post completion of the exchange.

The CCC- ratings reflect that Famsa hasn’t eliminated the refinancing risk for the untendered $59.1 million notes due in June 1, 2020 and there still are credit concerns of high debt burden and weak FCF generation. The ratings also reflect Famsa’s high execution risk in the company’s strategy, amid a very competitive market and expectations of soft consumer demand, Fitch said.

Fitch assigned a CCC-/RR4 rating to Famsa’s $80.9 million 9¾% senior notes due 2024 which were issued from the exchange offer.

The agency upgraded the rating on Famsa’s untendered $59.1 million 7¼% senior unsecured notes due June 1, 2020 to CC/RR5, reflecting the lower recovery prospects and lower levels of creditor protection as the exchange’s percentage of acceptance eliminated restrictive covenants and certain events of default included in the 2020 senior notes indenture. Fitch withdrew the rating of Famsa’s untendered 2020 unsecured notes that were partially exchanged for the new 2024 notes.

S&P cuts three Lebanese banks

S&P said it lowered its long-term issuer credit ratings on Bank Audi SAL, Blom Bank SAL, and Bankmed SAL to SD from CCC.

The ratings were removed from CreditWatch with negative implications, where they were placed on Oct. 28.

The rating actions follow the release of a new circular from Banque du Liban, the Lebanese central bank, on Dec. 4, in which it requests banks to pay, in Lebanese pounds, half of the interest due on customers’ dollar-denominated term deposits not matured before Dec. 5. This is contrary to the terms of the original contractual agreements. The circular is the latest in a series of recent measures by the central bank and the Association of Banks in Lebanon, including restrictions on U.S. dollar-deposit withdrawals, the limitation of transfers of money abroad, and limits on cash conversion from Lebanese pound to the dollar at the official rate, the agency said.

“We lowered our ratings to SD because, in our opinion, private individuals’ lack of access to their bank deposits on time and in full, different remuneration from the original contractual terms, and constraints to their ability to transfer funds abroad constitute a risk for depositors of losing the benefit of their agreements and therefore a selective default,” S&P said in a press release.

S&P lowers Panda Green Energy

S&P said it lowered the long-term issuer credit rating on Panda Green Energy Group Ltd. to CC from CCC+. The agency also lowered the issue rating on the notes to CC from CCC. The ratings remain on CreditWatch with developing implications.

Panda Green Energy proposed an exchange offer for its $350 million 8¼% senior unsecured notes due Jan. 25, 2020. “We would view the transaction as a distressed exchange if finalized, due to the potential material extension of maturity and lower interest rate,” the agency said in a press release.

On Monday, Panda Green proposed holders, should they wish to participate in the exchange offer, would receive two-year $350 million 8% senior unsecured notes, targeted to be issued on Jan. 6. Every $1,000 of principal of notes will be exchanged for $1,001 of the new notes (incorporating capitalized interest).

“But we expect PGE to terminate the exchange offer if it finalizes a share purchase agreement with Beijing Energy Holding Co. Ltd. by early January 2020. Under the terms of the conditional agreement, Beijing Energy would become PGE’s largest shareholder, and it is likely to provide financing support to help the company repay the notes,” S&P said.

Moody’s raises Hildago

Moody's Investors Service said it upgraded the baseline credit assessment and the issuer ratings of the state of Hidalgo to ba1 from ba2 and to Ba1/A1.mx (global scale, local currency/Mexico national scale) from Ba2/A2.mx, respectively. The outlook is stable.

The upgrade of the bca to ba1 from ba2 and the issuer ratings to Ba1 from Ba2 reflects Hidalgo’s strong cash financing balances, improved liquidity, very low debt levels, low unfunded pension liabilities and the absence of financial contingencies. Such positive trends are tempered by the state´s relatively weak economic base and low own source revenue collection, the agency said.

From 2014-2018, the state has consistently registered strong cash financing surpluses, equivalent on average to 5.5% of its total revenues, well above its Ba1-rated Mexican peers (-0.7%), as revenue growth has consistently surpassed expenditure growth in those years. Non-earmarked federal transfers “participaciones” and own source revenues have posted a compound annual growth rate of 9.0% and 9.1%, respectively, compared to the total expenditures growth of 5.6%, Moody’s said.

While Moody´s expects federal transfers for Mexican sub-sovereigns will grow below from their historic average in 2019-20, as a result primarily of low economic growth, the agency expects Hidalgo to continue posting cash financing surpluses on average equivalent to 0.9%.

Moody’s changes HSBC China view to negative

Moody’s Investors Service said it changed to negative from stable the outlook for HSBC Bank (China) Co. Ltd., as well as for its long-term foreign and local currency issuer ratings.

The change in outlook to negative for HSBC China follows a rating action on its immediate parent, the Hongkong and Shanghai Banking Corp. Ltd. on Tuesday.

HSBC China’s A1 rating incorporate a very high level of support from the parent in times of need.

S&P removes Seazen from watch

S&P said it affirmed its BB long-term issuer credit rating on Seazen Group Ltd. and BB- long-term issue rating on the company’s outstanding offshore senior unsecured notes and removed the ratings from CreditWatch, where they were placed with negative implications on July 5.

“We affirmed the rating on Seazen Group with a stable outlook because we believe the company has managed the negative repercussions from the detention of its now ex-chairman in July. We also expect the impact of the incident to continue to subside and the company to maintain its steady sales performance into 2020,” the agency said in a press release.

Steady sales helped the company endure the initial credit crunch following the then chairman’s detention in July. The company reached RMB 124 billion in contracted sales over July-November. This became its primary source of cash inflow to support construction spending and debt repayment in the absence of new debt financing during that period. Seazen Group will likely meet its annual sales target of RMB 270 billion, given sales of RMB 246 billion in the first 11 months of the year, S&P said.

Moody’s changes Vietnam view to negative

Moody’s Investors Service said it confirmed the government of Vietnam’s Ba3 local and foreign currency issuer and senior unsecured ratings and changed the outlook to negative, concluding the review for downgrade started on Oct. 9.

“The negative outlook reflects some ongoing risk of payment delays on some of the government’s indirect debt obligations, in the absence of more tangible and significant measures to improve the coordination and transparency around debt management within the administration,” said Moody’s in a press release.

The ratings confirmation reflects Moody’s assessment that enhanced attention by the administration on forthcoming payments of all the government’s obligations, direct and indirect, reduces the risk of renewed payment delays.

The Ba3 rating is underpinned by strong growth potential and economic diversification, supporting the economy’s capacity to absorb shocks, including a prolonged slowdown in global trade. The rating also reflects Moody’s estimate the government’s direct debt burden will decline gradually from moderately high levels and debt affordability will improve.

Moody’s changes BRF view to stable

Moody’s Investors Service said it affirmed BRF SA’s Ba2 corporate family rating and its senior unsecured ratings as well as changing the outlook to stable from negative.

The change of BRF’s outlook to stable reflects the improvements observed in credit metrics in the past few quarters, as a result of the reorganization within the company, including changes in the management, operations, logistics and commercial strategies, combined with asset divestitures and liability management initiatives, the agency said.

These internal changes, coupled with some improvement observed in BRF’s main markets and the spread of the African Swine Fever in China and other countries in Asia/Eastern Europe, have helped a recovery in BRF operating performance with positive free cash flow generation in 2019.

“The stable outlook reflects our expectations that BRF will present steady credit metrics in the next 12 to 18 months, and maintain an adequate liquidity profile, managing capital spending and dividend distribution in a prudent manner, avoiding compromising its leverage and cash flow,” said Moody’s in a press release.

S&P changes China International view to stable

S&P said it changed the outlooks for China International Capital Corp. and its subsidiary China International Capital Corp. (Hong Kong) Ltd. to stable from positive.

“We revised the outlooks on CICC and CICCHK to stable from positive because of the effects of CICC’s weakened capitalization partly offset by its strengthening business position,” said S&P in a press release.

The agency said it sees significant pressure on CICC’s capital, leverage and earnings assessment from business growth that was faster than expected. S&P revised its assessment of the company’s CLE to strong from very strong. Without commensurate capital raising, the company must increase leverage to meet the capital required for business expansion. CICC’s leverage, as measured by the adjusted-asset to equity ratio, increased to 6.13x as of June 30, from 5.35x one year ago.

S&P affirmed the BBB long-term issuer ratings for both companies. The agency also affirmed the BBB issue ratings on the senior unsecured debt guaranteed by CICCHK and issued by CICC Hong Kong Finance 2016 MTN Ltd.

S&P changes MegaFon view to stable

S&P said it revised the outlook for MegaFon to stable from negative and affirmed its BB+ ratings.

MegaFon recently sold shares valued at RUB 55.7 billion and plans to use most of the proceeds to repay debt. “We now forecast MegaFon’s adjusted debt to EBITDA at about 2.7x and free operating cash flow (FOCF) to debt at about 8% at end-2019, compared with our previous expectation of slightly more than 3x and about 5% respectively,” said S&P in a press release.

“Management remains committed to lower leverage. MegaFon’s management’s commitment to its financial policy should support debt reduction in our view. It targets reported net debt to OIBDA below 2x and no dividend until reported debt leverage declines below 2x. We estimate that MegaFon’s reported leverage at year-end 2019 will be slightly higher than that but is likely to decline below 2x next year. MegaFon paid almost no dividends in 2018-2019 and we don’t expect it will do so in 2020,” the agency said.

Moody’s assigns B3 to Jiayuan notes

Moody’s Investors Service said it assigned a B3 senior unsecured rating to the $225 million notes issued by Jiayuan International Group Ltd. in July. Moody’s corporate family rating for Jiayuan is B2.

The proceeds of the notes were used by Jiayuan to refinance debt.

The B3 senior unsecured rating on the dollar-denominated notes is a notch lower than the CFR, due to structural subordination risk. Most of the of claims are at the operating subsidiaries. These claims have priority over Jiayuan’s senior unsecured claims in a bankruptcy scenario. In addition, the holding company lacks significant mitigating factors for structural subordination. As a result, the likely recovery rate for claims at the holding company will be lower, Moody’s said.

The outlook is stable.

Fitch revises Sri Lanka view downward

Fitch Ratings said it revised the outlook on Sri Lanka’s long-term foreign-currency issuer default rating to negative from stable and affirmed the IDR at B.

The outlook revision to negative from stable reflects rising risks to debt sustainability from a significant shift in fiscal policy and the potential for roll-back of fiscal and economic reforms in the aftermath of November’s presidential elections. “We believe the departure from the previous revenue-based fiscal consolidation path has created policy uncertainty and increased external financing risk for the sovereign, particularly given the large external debt repayments due in 2020 and beyond,” said Fitch in a press release.

Recently appointed President Gotabaya Rajapaksa announced tax cuts soon after taking office, including a revision of the value-added tax rate to 8% from 15% (the rate applicable to financial services has been kept at 15%), an increase in the liable limit for VAT registration to LKR 300 million, scrapping of the nation building tax, lowering the income tax rate for the highest income bracket to 18%, from 24% and changing the withholding tax regime among others.

Fitch’s preliminary estimates show the VAT rate change and the scrapping of the nation building tax could lower revenue by as much as 2% of GDP in the absence of off-setting measures. VAT accounted for 24% of government revenue in 2018. Despite offsetting measures, the agency expects the deficit to widen by about 1.5% of GDP relative to Fitch’s previous forecasts.

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