On the back of last week’s Fitch upgrade to BB+, Costa Rica’s finance ministry has announced it will seek congressional approval for a $2bn international bond program. The markets have been expecting a new bond from the sovereign, as it faces a budget shortfall and upcoming maturities, and the government had previously indicated plans for an international issuance. “We expect the authorities to issue four $500m bonds between 2011 and 2014 in order to roll over the corresponding $250m annual maturities during the same period,” Nomura says in a report. The firm expects Costa Rica to seek maturities of 15-plus years, and says first deal would likely happen not happen before Q4, due to the government’s prioritizing a fiscal reform package. DCM bankers expect a formal RFP process after congressional approval. Baa3/BB Costa Rica’s last cross-border bond was a $250m 10-year in 2004, according to Dealogic.
Category: Corporate & Sovereign Strategy
Fitch Downgrades Urbi
Fitch has downgraded Mexican homebuilder, Urbi Desarrollos Urbanos (Urbi) to BB- from BB on a local scale, with a stable outlook. The downgrade is due to an increase in the company’s debt to cover high working capital costs from its aggressive growth strategy, says Fitch. The company’s total debt increased to MXP10.9bn by the end of December 2010 from MXP7.7bn in December 2009. The company’s EBITDA remained relatively stable at MXP4.1bn by the end of 2010, says Fitch. Gross leverage was 2.7x by the end of December 2010, compared to1.9x by the end of December 2009.
NR Finance on Upgrade Review – Moody’s
Moody’s has put NR Finance de Mexico, the car leasing subsidiary of Nissan, on review for possible upgrade, it said in a release. Its long term rating on a national scale is Aa1. The action follows the parent company, Nissan Motor Acceptance Corporation (NMAC), also being put on review for an upgrade from its Baa2 on a national scale rating. NR Finance’s debt ratings are based on guarantees provided by NMAC, says Moody’s.
S&P Improves Puerto Rico GO Rating
S&P has upgraded Puerto Rico’s general obligation (GO) rating to BBB from BBB minus. The outlook is stable. The upgrade reflects the commonwealth’s recent revenue performance and continued efforts to achieve fiscal and budgetary balance. The agency says that governor Luis Fortuno’s fiscal stabilization plan, which includes a 17% reduction in payroll expenditures, is an important step toward budget stability. However, S&P does not anticipate the achievement of a structurally balanced budget until the 2013 fiscal year.
Fitch Upgrades Costa Rica
Fitch has upgraded Costa Rica’s issuer rating to BB+ from BB, with a stable outlook. The rationale for the ratings upgrade includes better than expected resilience to the financial crisis, improved macroeconomic stability, lower inflation and modest external debt. Fitch says that while the fiscal deficit has worsened since 2009, to 30% of GDP at the end of 2010, it is below the BBB/BB medians at 35% and 30% respectively. However, it adds that development of the local markets will improve Costa Rica’s flexibility in financing its debt. It adds that reforms to increase the government’s revenue base are necessary, which would benefit its creditworthiness.
Iguatemi Local Comes Tight
Brazilian shopping center manager Iguatemi has finalized a sale of BRL330m in domestic bonds, upsizing from an originally planned BRL300m, according to the CVM. The 2016 bonds pay the DI rate plus 1.35%, coming in under the DI plus 1.55% target it had set in its initial filings. Iguatemi is raising funds to finance its investment plan. Itau and BTG Pactual managed the sale, rated AA on a national scale.
MENA Troubles May Firm LatAm Currencies
Currencies of LatAm countries with strong oil and gas industries could benefit from the turmoil in the Middle East and North Africa as Brent crude prices edge towards $120 per barrel. “We believe high oil prices will be particularly positive for the COP,” says Nomura, adding that the “BRL should be counted among the winners given the huge potential in oil production.” The MXP, meanwhile, “is likely to be a marginal winner,” Nomura says. However, if oil prices rise above $3.50 per gallon – the average now is $3.19 – the US economy may be hurt, affecting growth in some LatAm economies, Nomura explains. “On balance, in the case of an oil-shock-induced global recession, the CLP, MXP and PES are likely to be impacted more negatively than the BRL and COP.” In terms of exposure to a global slowdown, Nomura says Chile, where net imports of oil amount to 5.2% of GDP, seems particularly vulnerable as non-oil exports represent around 35% of GDP. Chile is followed by Mexico (25%), Peru (23%) and Argentina (18%). Brazil and Colombia appear less exposed to a significant deceleration in global growth, as non-oil exports represent less than 10% of their GDP.
OHL Mexico CFO Exits
Rafael Lira has left his post as CFO of OHL Mexico, the company says, citing personal reasons. For the moment, his duties will be taken up by CEO Juan Luis Osuna, it says. The Mexican subsidiary of Spanish builder and concession operator OHL also says that Alberto Guajardo has been named director of investor relations. OHL Mexico raised MXP11.20bn in its IPO in November.
Banxico Keeps Rates Steady
As expected, Mexico’s central bank maintained its rate at 4.5% Friday. The bank is expected to maintain rates at this level for the rest of the year. “With inflation within the target band of 2%-4% and the output gap expected to be barely positive in H2 2011, we believe Banxico will keep the policy rate unchanged this year,” according to Nomura. Barclays agrees, noting a slightly more hawkish tone from the minutes but says it still believes Mexico will maintain its rate for the rest of the year.
Colombia, Peru Could See Investment Grade
Brazil and Colombia could see their sovereign ratings increased before the summer, according to a Moody’s analyst. Patrick Esteruelas, Moody’s senior analyst for LatAm sovereign risk, says the ratings agency will decide on the ratings for the two countries before the summer. Brazil is rated Baa3, while Colombia is rated Ba1 by Moody’s and was raised to a positive outlook in September. Esteruelas says Peru is also on a path for further upgrades. It is also rated Ba1 by the agency. Esteruelas spoke before the Venezuela, Peru, Ecuador and Colombia America Associations in New York Thursday.