Flash Fixed Income Report /
Argentina

Stoneway: Reiterate Sell on more troubling news

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    28 January 2020
    Published byTellimer Research

    According to reports this morning, Argentina's electricity generator Stoneway (STNEWY) is visiting investors in the US and Europe this week to discuss "liability management alternatives" as the company will not be able to make its next coupon payment. We have been trying to speak to management (as we regularly do, or did until this point) since the beginning of January, but haven't been able to reach anyone from the otherwise responsive company. We have now learnt that Stoneway may be seeking to exchange its 2027 bonds due to financial troubles arising from longer-than-usual delay in payments from the government-run wholesale energy company CAMMESA (usually 45-60 days).

    Back in October 2019 when the dispute between Siemens and Stoneway arose, regarding an alleged event of default related to missed payments to Siemens, Stoneway initially dismissed the claims and published a statement saying that the dispute had been resolved "in good faith". In fact, news reports citing sources close to the matter said that the US$25mn dispute has not been settled and is currently in arbitration at the International Chamber of Commerce, and that Siemens has escalated the matter to the US Courts. 

    Further, according to the news report, Stoneway itself filed a brief in New York’s Southern District Court asking for an injunction to stop Siemens from issuing any further default notices to the Trustee – The Bank of New York Mellon (BONY) – during the time the companies remain in arbitration. It also appears that Stoneway has requested a declaration that no default shall have occurred prior to the termination of the arbitration, consistent with the press releases that the company issued late last year.

    As a response to these motions, it appears that Siemens has asked the US court for Stoneway to post a US$133.5mn bond to "secure it against immediate losses it will incur if an injunction is issued". This amount would correspond to cUS$25.2mn unpaid to date, plus an additional US$108.3mn corresponding to future amounts owed to complete the contract.

    Finally, to complete the round of bad news, it appears that Stoneway might be "months away” from reaching Commercial Operations Date (COD) on the full conversion to combined cycle of its San Pedro plant – the company told us back in December 2019 that completion was only "a couple of weeks away". At around the same time, Stoneway had reached a deal with CAMMESA to postpone the payment deadline to April 2020.

    We believe that Stoneway is indeed facing serious financial problems both from CAMMESA's delayed payments and from payments allegedly owed to Siemens. We also have reason to believe that management's refusal to respond to inquiries regarding the matter gives more credibility to the news reports than not. If indeed Stoneway cannot come up with the cUS$50mn in coupon and amortisation coming due, a restructuring, "re-profiling" or exchange might become necessary.

    We reiterate our Sell recommendation on Stoneway.