Macro Analysis /

BancTrust & Co. LAC Daily Comments 10 March 2023

  • Argentina: Private sector participation in local debt swap disappoints expectations

  • Ecuador: Opposition parties seek to shield Lasso impeachment against Constitutional Court rebuttal

  • Bolivia’s FX woes drives bond selloff; we expect devaluation and FX controls but no near-term default

Ramiro Blazquez
Ramiro Blazquez

Head of Research and Strategy

Federico Cuba
Juan Sola
Bruno Gennari
BancTrust & Co.
10 March 2023
Published byBancTrust & Co.

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* Our tactical positioning is based on the rebalancing of our latest portfolio recommendation against the EMBIG Index’s weights of the credits we track. For more on this, please check LatAm and Caribbean Fixed Income Strategy: “Home-grown factors back on the front burner”, 10 February.


Private sector participation in local debt swap disappoints expectations

According to daily Ambito, the Treasury exchanged ARS4.3tn out of a total of ARS6.7tn of March and 2Q ARS debt maturities, implying a 64% participation level in yesterday’s swap. Assuming that all public entities, which held roughly 50% of the total eligible debt, entered the swap, the remaining 14% were private investors. This means that only 22% of the total private holders participated in the swap. Moreover, this level of participation was lower than the holdings of the private banks (c20% of total debt) with whom Economics Minister Sergio Massa had announced the swap last Monday, anticipating his support. In this vein, the level of acceptance in our view was low. Since the Treasury has not yet disclosed the full details of the swap at the time we write, the total amount of debt offered by creditors and the premium paid by the Treasury remain unknown. Either way, whether the Treasury did not validate the interest rates bid by creditors or creditors had no interest at all in the swap, the swap has not paved the way for the financing programme this year. In this context, we believe that the risks of further FX pressures ahead of the elections remain valid, although it is necessary to wait for the final details of the swap to have a better interpretation of its impact.

BCBA also slashes agricultural forecasts for this season

The Buenos Aires Grain Exchange (BCBA) reduced the soybean and corn production forecast for this season, in line with the recent cuts from the Rosario Board of Trade (BCR). The BCBA cut 2022/23 soybean production by 4.5mm tn to 29mm tn and corn production by 3.5mm tn to 37.5mm tn. Based on these estimates soybean and corn output this campaign would fall by 33% y-o-y and 27.9% y-o-y, respectively.

YPF (YPFDAR) 4Q22 Adjusted EBITDA grows 12% y-o-y after 6 quarters growing >30% y-o-y

Revenues were up 28% y-o-y, representing a slowdown relative to the 42-78% y-o-y growth rates presented in the previous 6 quarters, basically explained by a slowdown in natural gas and domestic gasoil sales volumes. Consolidated Adj. EBITDA grew 12% y-o-y, as operating costs were affected by the real appreciation of the ARS vis-à-vis the USD at the official FX rate and global inflationary trend in the industry, according to the report.

Upstream (70% of 4Q22 Consolidated EBITDA): strong shale oil and NGL production (interconnection of a new pipeline) q-o-q was more than offset by weaker natural gas production (-7.0% q-o-q), explained by seasonal factors and a higher focus on shale oil development. Revenues were up 18% y-o-y, boosted by higher production and domestic crude oil prices, but down 13% q-o-q, as both prices and volumes dropped slightly. Adjusted EBITDA fell 1% y-o-y and 28% q-o-q. YPF’s lifting costs per boe were up 22% y-o-y, impacted by higher unit costs in its conventional operations. At its core shale hub, lifting costs decreased around 8% y-o-y [Note that Vista Energy, a pure unconventional player, recently reported lifting cost per boe down 11% y-o-y in 4Q22]. Total oil & gas reserves increased 4% y-o-y, achieving 1.2bn boe as of December 2022, implying a reserve replacement ratio of 124%. Shale reserves increases were only partially offset by 2022 production and the reduction in conventional reserves.

Downstream (43% of Adj. EBITDA): Refining utilisation capacity reached 89.4%, its highest level since 1Q19, while conversion rates were at all-time highs. Higher utilisation helped gasoil import volumes to halve both y-o-y and q-o-q. In our view, it also helped that gasoil domestic sales volumes were flat y-o-y, after growing in a range between 8-22% y-o-y during the previous 6 quarters.

Capex reached a peak of USD1.4bn in 4Q22, up 58% y-o-y, achieving the company’s full year USD4.2bn budget, but generating a negative free cash flow of USD188mn. FCF was also affected by a significant income tax payment advance. Net debt to EBITDA reached 1.2x as of December 2022. YPF has USD1bn of debt amortisations in 2023, while it is likely to burn FCF this year considering its ambitious capex program.

Pampa (PAMPAR) reported a 7% y-o-y drop in 4Q22 adj. EBITDA, impacted Barragan and TGS

Despite 4Q being a seasonally weak quarter, Pampa’s equity-adjusted net debt decreased 1.5% q-o-q to USD913mn, with an adjusted net leverage ratio of 1.2x as of December 2022 (vs. 1.3x as of September 2022).

Pampa’s power generation segment (47% of 4Q22 equity-adjusted EBITDA) reported 11% y-o-y higher volumes, mainly explained by planned overhauls that took place in several units during 4Q21. Revenues were up only 5% y-o-y because of less PPA revenue due to contract maturity of CTLL’s ST as of November 2021 and an export incentive that was discontinued in January 2022. Adjusted EBITDA dropped 19% y-o-y (USD20mn lower), mostly explained by a USD17mn lower contribution from Barragan thermal plant.

The Oil & Gas segment (39% of 4Q22 equity-adjusted EBITDA) contributed with a USD26mn higher adj. EBITDA y-o-y, boosted by 6% higher natural gas production and 24% higher average natural gas price. However, on a q-o-q basis, both natural gas production and prices dropped (11% and 20%, respectively), due to demand seasonality.

The Petrochem segment (8% of 4Q22 equity-adjusted EBITDA) contributed with a USD6mn adj. EBITDA increase y-o-y, boosted by a rise in domestic price and demand for reforming products. The adjusted EBITDA fell 21% q-o-q, mainly due to lower reforming prices and decreased SBR volume sold, partially offset by off-peak gas costs.

Regarding the rest of Pampa’s holdings, the equity-adjusted EBITDA in Transener was USD4mn less y-o-y and that of TGS dropped USD17mn y-o-y, as the ARS devaluation has outpaced tariff increase, among other reasons. Note that in December 2022, Transener and Transba’s tariff schemes dated February 2022 were incremented by 155% and 154%, respectively, applicable as of 1 January 2023. On the other hand, TGS’s public hearing took place on 4 January 2023, requesting a 135% tariff increase on March 2022’s schemes, to be applicable as of February 2023. TGS is still waiting for a response from ENARGAS, according to Pampa’s report.

Argentina market run


Head of the government’s delegation complains about delays in implementing UN fund 

The President of the 2020 National Assembly Jorge Rodríguez insisted on Thursday that the government “will not sign any agreement until it is 100% free of sanctions”. The head of the government’s delegation in Mexico also complained about the delays in the creation of the USD3.2bn fund to be administered by United Nations, stating that the US administration sent a letter to the multilateral institution, soon after the deal was reached last November, alerting about the safety of the funds. According to Rodríguez, this is the reason behind the refusal of the UN to create the financial instrument.

CITGO’s net income reaches record

CITGO Petroleum Corporation officially reported its financial results for 4Q22 and the full year 2022. The company revealed an annual record net income of USD2.8bn, a figure that is even higher than the preliminary estimate announced by the President of the Ad Hoc Board Horacio Medina in late February (USD2.5bn). EBITDA reached USD4.4bn, in a year in which the annual crude rate of the firm attained an all-time record, after processing 748.0k bpd. 


Public sector’s wage negotiations fall within IMF’s targets

The government’s negotiating team and the country’s labour unions have reached an agreement on the public sector wages for the period 2022-2025. As a result, public sector workers will receive a one-off tax-free payment of BBD1.500, a 6% wage increase over the next two years, and a rise in allowances through 2025 for qualifying employees. Staff from state-owned enterprises that depend on financial support from the central government will get the same conditions, while the government encouraged the rest of the SOEs to conclude negotiations soon. The agreement falls within the latest IMF’s forecasts, which expected a 4.8% increase in wage expenditure for each of the next two fiscal years. It is worth noting that nominal public wages remained constant since 2018.


Central bank seeks to calm Bolivians rushing to buy dollars

The central bank (BCB) moved to reassure anxious savers who have been lining up for days outside the bank's headquarters in a rush for dollar demands. “Maintaining a stable currency gives security to the population which allows us to live in a stable economy, in a process of recovery”, BCB Governor Edwin Rojas told reporters yesterday. In this context, Mr Rojas reiterated his commitment to keeping a 15-year old dollar peg in place, and said the monetary authority is adding tellers and fast-tracking administrative processes in a bid to clear out the queues, which have been forming for three days. As a reminder, the bank began selling dollars directly to the public this week, and across the country via state-owned bank Banco Unión, to meet a surge in demand. The scramble was stoked by growing fears the nation´s dwindling cash reserves will force a devaluation of the boliviano currency, which has been held at around seven per dollar since 2008.

We think that despite the low level of liquid reserves, BCB will continue to supply FX to the market in the short term and will probably sell part of its gold holdings through mechanisms that could echo the gold swaps conducted by Ecuador with Goldman Sachs. In any case, given the depleting natural gas reserves and the plunge in the price of this natural resource, combined with a large fiscal deficit, it is likely that at some point the authorities will have no choice but to devalue the currency and introduce FX controls. In our view, the sooner they acknowledge this, the better. In any case, we do not expect an aggressive debt restructuring given that external private debt accounts for roughly 5% of GDP. Instead, we look to Bolivia remaining current on EXD payments in the next few months and to settle the August 23 bond maturing in July as it only amounts to USD183mn. By keeping up with debt servicing, we expect Bolivia to negotiate in good faith with investors, so that the further inversion of the yield curve to us seems unwarranted. 


Petro’s approval keeps falling, but reforms still welcomed

According to a survey conducted by Cifras y Conceptos, President Petro´s approval rating stands at 52%, deteriorating compared to the 62% registered in November. The study showed that public opinion is divided on subjects such as health reform and the energy transition, with support for these  at 55% and 58%, respectively. In contrast, the pension reform was backed by over 70% of respondents. The survey was carried out between 24 February and 6 March and polled 1,878 people.

Avianca (AVIAGP) proposes restricting options to integrate Viva, for which it has paid USD240mn

Frederico Pedreira, Avianca COO, disclosed in an interview with Cambio that Avianca would not be contemplating recovering the USD240mn paid for the economic interest on Avianca. 

Avianca has presented 2 restricting options that contemplate temporarily ceding slots in El Dorado airport, lowering prices in certain routes, giving back BOG-EZE routes, exclusivity agreement limits, etc.. Interested third parties (other airlines) have stated the proposals as insufficient.

The Viva-Avianca merger depends on the authorization of the Colombian Aviation authority, after it suspended the integration on 18 January 2023 due to a “substantial irregularity” that could risk competition in the sector. According to El Tiempo newspaper, the Aviation authority would have a definitive answer by the end of March, although the regulatory deadline is 19 April 2023. 


The Treasury raised cCRC96bn in Monday debt auction

The Treasury raised CRC65bn and USD55.9mn (cCRC31bn) in Monday´s domestic bond auction. Authorities placed three CRC-denominated bonds due in 2027, 2029 and 2033 yielding 9.44%, 9.54% and 9.61%, respectively. On the other hand, the Treasury issued two USD-denominated notes maturing in 2027 and 2034 at 6.19% and 6.88%, respectively. It should be noted that the yields at which the bonds were auctioned showed a slight decrease compared to last week's auction. After the auction, Finance Minister Nogui Acosta noted that the recent upgrades of Costa Rica´s credit rating, together with an improvement in tax collection, allowed the country to place securities in better conditions. In this sense, he also highlighted that almost half of the offers received were rejected as they were unfavourable for the Treasury. With this issuance, authorities have already raised 28% of the CRC2.7tn domestic issuances planned for the year.


Opposition parties in talks to shield Lasso  impeachment motion against Constitutional Court rebuttal 

Journalist Andersson Boscán from La Posta news media stated yesterday that there is consensus among opposition parties to move forward with a new impeachment of President Lasso. According to the news outlet, non-Correist opposition parties want to participate in the drafting of the impeachment request led by Correism. Opposition parties want to make sure they can submit a strong case against President Lasso and have even hired legal advisors to edit the document. In the case of the indigenous movement Pachakutik, Mr Boscán mentioned that seventeen lawmakers from Pachakutik influenced by Leonidas Iza would be willing to move on with the impeachment, but they are waiting for a formal stance from the party. “They want to consult the grassroots”, they stated. In this regard, leader of Ecuador’s Native Communities Federation (CONAIE) Leonidas Iza has already anticipated that the grassroots support the impeachment. Journalists in La Posta also stressed that the indigenous are reluctant to back a request proposed unilaterally by Correism, therefore they need a joint request endorsed by other opposition parties. The draft of the document might be ready on Friday and presented on Monday, according to Mr Boscán. As a reminder, La Posta is an independent news outlet that has been extremely influential in recent political events, as they disclosed the corruption scandals in state-owned companies in their “Great Godfather” investigation.

Junior indigenous group FEINE rejects resuming mass protests

Evangelical Indigenous Peoples and Organisations (FEINE), one of Ecuador’s three leading indigenous organisations, rejected restarting mass protests against the government, its president Eustaquio Tuala said in an interview with newspaper La Hora. FEINE made a formal decision not to support new protests in a general assembly held on Wednesday. Mr Tuala said an opposition drive to have President Guillermo Lasso impeached is politically irresponsible. The organisation, which together with CONAIE and FENOCIN led the protests in 2022, said a series of accords need to be maintained while calling on the government to ensure it meets all of its commitments to indigenous groups. According to official estimates from the nationalities bureau Consejo de Desarrollo de las Nacionalidades y Pueblos del Ecuador, in 2007  FEINE accounted for less than 3% of the total membership of all three indigenous forces. It is worth mentioning that the FEINE’s decision might be subject to change, as Ecuador’s Native Communities Federation’s (CONAIE) leader Leonidas Iza stated that on 17 March all indigenous groups will convene to determine a common stance. 


Economic activity continues to slow down in January

The monthly economic activity index (IMAE) increased 3.1% y-o-y in January, decelerating compared to the 3.7% y-o-y rise recorded in December. In a press release, the central bank (Banguat) reported that the annual increase was driven by improvements in financial activities, manufacturing, commerce and auto repair and hotels and restaurants. In turn, the trend-cycle series of the index rose 0.2% m-o-m in January, from a 0.4% m-o-m increase in December.

Imports keep increasing in January on strong remittances inflows

The trade balance posted a USD1.4bn deficit in January, widening by USD104mn from a year earlier. The widening of the trade deficit was explained by the decline in exports, which dropped 4.6% y-o-y to USD1.15bn. In turn, imports increased 1.9% y-o-y to USD2.56bn. On another note, remittances continued to grow strongly in February, although at a slower pace, as they increased 9.4% y-o-y to USD1.38bn, from a 17.4% y-o-y rise in January. With this reading, they accumulated a 13.3% y-o-y increase to USD2.76bn in the first two months of the year.

Slight decrease in CPI expectations as growth expectations remain stable

The central bank (Banguat) published February´s Economic Expectation Survey, which showed a slight decrease in inflation expectations, while expected growth remained unchanged. According to the analysts surveyed by Banguat, the economy would grow by 3.4% in 2023 and 3.6% in 2024. Noteworthy, we see growth at 2.8% this year and at 3% in 2024. On top of this, 2023 and 12-month inflation expectations fell by 0.15ppt and 0.2ppt to 6% and 5.3%, respectively, and remain slightly above our 5.4% y-o-y forecast for this year. On the other hand, the activity confidence index stood at 52.15 in February, 8.35% above January´s reading, returning to the positive region above 50.


Barquero announces “socialisation process” of taxes

Secretary of Economic Development Pedro Barquero announced that the government initiated on Wednesday the so-called “socialisation process” of the Tax Justice draft bill. The reform proposal is aimed at eliminating what national authorities have described as “the abuses of the fiscal exemptions” framework, and creating a fairer tax system. Barquero presented the bill to representatives of Honduras’ main private business association (Cohep) and stated that it was important to maintain or improve the competitiveness of the country. In this regard, the member of the Executive Cabinet indicated that “special regimes could not be eliminated, but rather they should be strengthened”. The need to streamline tax exemptions and make the tax system more equitable has been acknowledged by the IMF on several occasions, emphasising that it would create fiscal space to boost much-needed investment and support social spending.


Government makes further disclosure of terms agreed with First Quantum

Commerce and Industry Minister Federico Boyd offered a press conference late on Wednesday, announcing the successful end of the 14-month negotiations and affirming that the new contract respects the commitments assumed in January 2022, for the maximum benefit of the Panamanian people. Boyd emphasised the increase in royalties, from a range of 2%-5% to 12-16%, the payment of several taxes that were exempted before, and the elimination of indefinite fiscal credits. Importantly, Minister Boyd informed the planned distribution of the fiscal income to be generated by the company: 50% will be oriented to the social security fund (CSS), specifically the sub-system that the International Labour Organisation deemed as “unsustainable”; 20% to increase public pensions; 25% to infrastructure projects in the areas surrounding the mine; and 5% to a teachers’ wealth-being institute. Finally, the member of the Executive Cabinet underlined the inclusion in the contract of an anti-corruption clause that allows the government to immediately end the concession if corruption acts were verified. It is expected that the contract will be approved by the ruling party’s majority in the National Assembly, noting that legislators will not be able to change the terms of the agreement.


Emiliano Rolón was sworn in as Attorney General

Emiliano Rolón was sworn in as the new Attorney General on 9 March, replacing Sandra Quiñónez. It should be recalled that the former Attorney General was criticised on several occasions by the opposition forces for not investigating former president Horacio Cartes. 


Monetary authorities keep policy rate unchanged, as expected

The Central Reserve Bank of Peru (BCRP) kept the reference interest rate at 7.75% on Thursday, as broadly expected. Monetary authorities made only minor changes to the policy communicate, only incorporating the expectation that the monthly inflation rate in March would be higher than previous months due to seasonal and circumstantial factors. Despite this anticipated rise, policymakers reaffirmed the scenario of declining annual inflation rates starting in March, with the return to the target range in 4Q23. The pause in the tightening cycle is, therefore, expected to continue in April, as authorities validate their disinflationary dynamics’ scenarios and gather more information about the impact of previous rate adjustments. If inflation expectations continue declining at a fast rate, however, the corresponding implicit increase in the real ex-ante interest rate might force the BCRP to start cutting interest rates as soon as next June. Our nominal rate projection for the end of the year continues to be 6.50%, consistent with five 25bp cuts in the second half of the year as inflation gradually declines towards the upper limit of the 2%±1% goal. Notice that this would imply a still restrictive policy stance. Considering the prevailing negative output gap, risks to our rate forecast are tilted to the downside, in particular if 12-month inflation expectations have already come back to the 2% level by the end of the year. 

PetroPeru (PETRPE) plans to revamp Amazon oil pipeline to transport 22,500bpd by 2026

Tomas Diaz del Aguila, E&P and Pipelines VP at Petroperu, stated at a press conference that PETRPE targets to produce 22,500bpd from two oil fields in the Amazon rainforest by 2026. The production is planned to be pumped via a pipeline with a track record of attacks and leaks, reaching 50 incidents since December 2021. He estimates that the pipeline needs 30,000 bpd being pumped to reach breakeven as a standalone business.

PETRPE also expects to produce from two coastal fields that are currently in private hands but with operational contracts set to expire soon. This production would not be transported through the Amazon pipelines.

We note that the new management of PETRPE guided last month that it could reach a USD542mn EBITDA in 2023 (-USD206mn in 2022), assuming the optimization of its Talara refinery, gradual recovery of the lost share in the domestic market, together with other initiatives under development with consulting agencies expected to be presented to shareholders no later than 31 July 2023.


Energy Minister Stuart Young stated Trinidad and Tobago has held substantive talks with Venezuela on developing the promising Dragon offshore gas field. In talks with news agency Reuters, the minister said that “if negotiations go well, gas technically could begin flowing in two years”. He also commented that the government and companies participating in the project are expected to sign next month a definitive agreement restructuring its ownership. To note, the Dragon gas field is owned by Venezuelan state-owned company PDVSA, which discovered the reserves and built the field´s infrastructure. However, its development has been stalled for over a decade on a lack of investment and sanctions. Finally, Mr Young commented he is planning a third visit to Caracas to talk with Venezuela´s Energy Minister Tareck El Aissami and PDVSA President Pedro Tellechea.

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BancTrust & Co. Research & Strategy Team.