Corruption Case = Risk Rating Downgrade

As a result of the corruption case in Costa Rica involving a shareholder of Constructora MECO, Fitch Ratings downgraded the company's long-term national rating to "A-(pan)" from "AA-(pan)", and at the same time placed it on Negative Watch.

Monday, June 21, 2021

On the morning of June 14, 2021, some 700 agents of the Judicial Investigation Agency (OIJ) and the Public Prosecutor's Office (prosecutors) raided 21 homes, Casa Presidencial, Ministry of Public Works and Transportation (MOPT), National Viability Council (Conavi) and Public Transportation Council (CTP).

The authorities' goal was to dismantle a network of apparent corruption that is accused of illicitly obtaining contracts for road maintenance.

The downgrade responds to the potential impact on the company's operations, results and reputation in relation to the investigation for alleged public corruption in matters of road maintenance and conservation, informed the rating agency.

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This investigation caused the arrest of officials of the Government of the Republic of Costa Rica and of several individuals related to companies in the construction sector, including in the latter group a shareholder of Constructora Meco.

According to Fitch's analysis "... the Negative Watch reflects uncertainty regarding Meco's financial and business performance in Costa Rica and other countries. As the investigation progresses, key areas of focus for the agency include:

-High concentration of Meco's project portfolio (backlog) in government sector;
-Potential for suspensions, delays or partial write-offs of existing receivables and claims;
-Increased scrutiny of any existing or future contracts;
-Possibility of weakening the company's ability to participate in future projects with governmental and private entities preventing at least the renewal of the project portfolio;
-Possible limitation on access to financing with private banks and/or related governmental and multilateral entities;
-Potential economic sanctions.

Fitch will monitor the situation closely. Expects more clarity on these issues as the investigation unfolds. It will pay particular attention to the company's liquidity, the rating agency noted.

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