CFE, the Mexican state-owned power utility, had the option to flex the pricing on its $2bn 3-year loan, launched at Libor plus 40bp. But it refused to do so, insisting instead that it could raise the money with its relationship banks. Some of those banks either left or reduced their commitments, while the five-bank bookrunning group, which pledged a combined $1.25bn – $250m each – apparently also politely declined to increase its commitment level, despite being asked. CFE resorted to marketing the deal directly to potential participants, playing its already worn and tattered relationship card. “This is good for all banks to see that to be successful, a deal needs to be properly priced to clear today’s market,” says a banker involved in the syndication. Whether it is successful or not, CFE has provided a clear example of how changing markets and the expectations of some high grade borrowers are at odds. Something has to give, and in this case, CFE chose to raise less over setting a precedent of wider pricing. “The market flex is new culture that needs to be implemented,” said a banker away from the process. The borrower may walk away from this deal with a bruised ego, having realized its ability to pressure lenders has been weakened.
Yearly Archives: 2008
Fitch Raises Outlook to Brazil’s Samarco
Fitch has upgraded the outlook to positive from stable on Brazilin borrower Samarco’s AA+ rating on the local scale. The agency also affirmed the foreign currency issuer and local currency IDR rating at BBB with a stable outlook. The actions reflect Samarco’s strong financial profile and solid ownership structure. “The ratings also consider Samarco’s favorable competitive position as low-cost producer and exporter of iron ore pellets, as well as the positive outlook for the iron ore industry over the near to medium-term,” Fitch says. Samarco’s export revenues relative to dollar-denominated debt allow the company to be rated BBB on a foreign currency basis, or one notch above the BBB- country ceiling of Brazil, the agency adds. Samarco is the third-largest iron ore miner in Brazil and ranks as the world’s second-largest exporter of iron ore pellets, says Fitch.
Banamex’s Ratings Dented by Citi Woes
Fitch has downgraded Banamex on the local scale to A from A+ following demotion for Citi to AA- from AA. “Banamex’s financial condition remains sound and its individual and national-scale ratings are affirmed at B/C and AAA (mex), respectively,” says Fitch. Moody’s, on the other hand, affirmed its ratings on Banamex, including the bank financial strength rating of C+, the Aa2 global local currency (GLC) deposit rating, and the Baa1/Prime-2 foreign currency deposit ratings. The outlook on these ratings remains stable. “Banamex continues to be a highly strategic asset for Citigroup and we believe that the willingness of the latter to provide support, if needed, is very high,” Fitch says. “However, the downward trend in Citigroup’s financial strength evident in its recent downgrades reflects a somewhat diminished capacity to provide support.” At the same time, Banamex’s financial condition and franchise remain sound, Fitch says. Citi posted losses of $5.11bn on Friday, as it announced it plans to cut 9,000 jobs, citing billions of dollars in write-downs tied to the US subprime crisis.
Metrofinanciera Short-Term Rating Lowered
Moody’s has downgraded Metrofinanciera’s short-term national scale rating to MX-3 from MX-2, while affirming its Baa2.mx national scale issuer and B1 global scale local currency issuer ratings, it said. The impact of the US subprime crisis in Mexico means higher borrowing costs, and the new mark “reflects the company’s still high exposure to short-term maturities with more than MXP1.6bn in commercial paper due in 2008,” it said. “Metro will be challenged in the medium-term to refinance its maturities. Moody’s believes that the company will be able to meet its short-term debt maturities, but a higher cost to its growth plans and future profitability.” The outlook is negative, with the lender needing to replace short-term debt with long-term debt and improving operating margins needed for a return to stable.
LatAm Equity Trades up Despite Outflows
Despite seeing net outflows, LatAm equity funds were the biggest gainers of the week ending April 17, soaring 3.23% according to Lipper, with a year to date net gain of 6.53%. LatAm equity funds saw an outflow of $168m in the week ended April 16, according to EPFR Global. The trend was not isolated to LatAm. Lipper reports EM market funds rose 1.76% while EPFR’s diversified GEM equity funds category reported a net outflow of $100m. “The outflows occurred despite the fourth straight week of positive performance for the GEM, Asia ex-Japan and Latin America Funds,” says EPFR. The service cites weak US data, the impact of appreciating currencies on exporters and the effect that rising food prices are having on national finances, consumer confidence and inflation rates as contributors to a cooling sentiment towards EM equity.
EM Debt Experiences Marginal Returns
EM debt funds returned 0.14% on the week ending April 17, taking them to a 1.47% ytd gain, according to Lipper. International income funds lost 0.19%, while global income funds sank 0.30%. Loan participation funds saw the biggest increase of the week, with a return of 0.59%, while GNMA funds experienced the biggest loss, at 0.88%.
Paraguay Policy Seen Unchanged by Elections
No changes are expected in the Paraguayan economy after the presidential elections held Sunday. “Our base scenario is that, regardless of who wins, there will not be changes in economic policies,” Gabriel Torres, an analyst at Moody’s told LatinFinance Friday. “If the opposition wins, it’ll be something very positive for the country, since it would demonstrate that politics don’t depend on one party,” Torres says. The Colorado party has been in power for 61 years, more than any other political party in the world. “Paraguay could use a [Vicente] Fox”, the analyst states, “a president of another party that maintains public policies.” Polls show a consistent lead for ex-Catholic bishop Fernando Lugo, who proclaims himself independent. Trailing behind are Blanca Olevar from the ruling party and former general Lino Oviedo. In his campaign, Lugo has vowed to increase the rate that Brazil pays for electricity out of the Itaipu dam, one of the biggest in the world, which provides 20% of Brazil’s electrical needs. Moody’s recently upgraded Paraguay to B3 based on improvements in the economy, underpinned by soy and relatively good economic policies. “Paraguay has almost no taxes for exports, and practically are no taxes for the agricultural sector,” Torres says. Paraguay plans to return to international debt markets in 2009 and is currently implementing measures to improve the rating and overall fiscal scenario.
Fonacot Preps Local Bonds
Instituto Fonacot, Mexico’s state-run lender, is planning to sell MXP1.95bn in 2010 floating-rate bonds, according to a regulatory filing. The AAA locally-rated sale is set for May 28. Proceeds will increase the bank’s ability to provide credit to its clients. Scotia is managing the transaction. Fonacot placed MXP2bn in notes in a consumer credit securitization in March. The 2011 notes priced at TIIE plus 3bp.
Gafisa to Sell BRL200m Bonds
Brazilian builder Gafisa is preparing to launch two series of debentures each worth BRL100m, according to the local registry. The transaction is pending regulatory approval, and no further details were made available. Banco do Brasil is managing the sale.
Mexico Leaves Rate Alone; Inflation Worries
Mexico’s central bank held interest rates steady at 7.5% for the sixth straight month, on concerns about increasing inflation and knock-on effects from the US slowdown. “On one hand, inflation pressures continue to increase in the world and in Mexico, despite the fact that Mexico has seen less inflation than many other countries,” Banxico says in a statement. “On the other hand, the risks to our country’s economy have increased considerably.” Banxico says food and commodities prices were rising so fast that it will have to revise the inflation forecast in its next inflation report April 30. “The tone of the statement and the actual policy decision lead us to believe that the upward revisions to the inflation forecasts will be modest and that they will only cover a relatively short period,” says Alonso Cervera, economist at Credit Suisse, in a report. “Otherwise, we think the central bank would have already tightened or would have issued a more hawkish communiqué.”