Price expectations on Mexico’s Banco Interacciones have widened to 130bp-150bp over TIIE, for its MXP1.5bn 3-year unsecured bond, according to the bank. Interacciones CEO, Gerardo Salazar, had previously told LatinFinance it would look for a spread of flat to 85bp over TIIE on a 13-36 month bond. The bonds are rated A1 on a national scale. Interacciones is targeting institutional and high net worth Mexican investors with the deal, from a senior debt program of up to MXP10bn. Interacciones expects to price the bond November 30. Interacciones and HSBC are joint leads on the deal. The bonds will be used to finance the expansion of its credit portfolio. It will also issue MXP650m in 10-year subordinated debt before December 15, in a self-led deal, adds the bank. The price guidance is in the 200bp over TIIE area. Salazar had previously told LatinFinance that Interacciones would pay a minimum of 175bp over TIIE. Proceeds from the bond sale will fund tier 2 capital to strengthen its capital base. Grupo Interacciones specializes in sub-national and public infrastructure financing in Mexico.
Category: Corporate & Sovereign Strategy
Tariffs Hinder India/LatAm Investment
Tariffs between LatAm and India are hindering trade, according to a study by the IDB. India represents only 1% of the region’s overall trade, compared to 10% with China. Reducing tariffs on Indian imports by just 10% would likely increase imports of Indian goods into Chile and Argentina by as much as 36%, the IDB says. India’s average tariff on LatAm agricultural goods is 65%, more than 5 times China’s 12.5% tariff, says the IDB. Even though Latin American tariffs on Indian goods are not as high – reaching 9.8% in the case of manufactured products – they are well above the 4% to 6% OECD range, the study said. A 10% reduction in average tariffs (i.e., reducing a 6% tariff on a good by 0.6%) imposed on Indian products, for example, would likely increase imports of Indian goods by 36% in Chile and Argentina. Cutting transportation costs will also boost trade. A 10% reduction in shipping costs would likely increase trade between Chile and Argentina by 46% and 47%, respectively, according to the IDB. High trade costs are also preventing LatAm from reaping full benefits from its current trade with India and undermining the flow of investments between the 2 regions. Today a 1% growth in China’s gross domestic product generates a 2.4% increase in this region’s exports to China. Meanwhile, a 1% rise in India’s GDP yields just a 1.3% growth in the region’s sales to the country. The study also finds that India could be a significant competitor with LatAm countries. In terms of low-technology goods, India has been boosting exports of textiles and apparel. It has now 3% of the U.S. market for these goods, which is twice that of Brazil’s (1.5%), higher than Central America’s (2.4%), and fast approaching Mexico’s dwindling share (7%).
Ultrabursatiles Plans Colombia PE Fund
Colombia-based brokerage Ultrabursatiles is launching a private equity unit, Ultracapital. Its first fund will acquire and lease commercial real estate, CEO Susana Gomez tells LatinFinance. “We expect to raise COP200bn ($109m) and to have a first closing in February,” Gomez says. Ultrabursatiles will begin marketing the fund this month and will approach local and foreign institutional investors, she says. A portion of proceeds from the leases will go to repay investors. Gomez, who expects returns of about 9% per year, says that the fund will invest in Colombia’s largest cities.
Ecuador Plans Big Infrastructure Spend
Ecuador plans to spend over $1.4bn in new infrastructure projects in 2011, according to the government. Almost half, $742m, will go toward constructing a new network of motorways stretching from the mountains to the Pacific Coast. The country is also spending $523m to fix the Manta Port. Although the government declines to comment on how it plans to fund next year’s projects, market participants say the mayor of Manta has gone on a financing trip to China.
Moody’s Upgrades KCSM
Moody’s has upgraded railway company Kansas City Mexico (KCSM) to B1 from B2. The rating was raised in recognition of dramatically improved operating results realized in 2010 at both the parent and subsidiary level, and expectations that both entities will continue to exhibit robust financial performance over the next few years as demand will continue to grow in most freight groups at the railroads in a robust pricing environment. The outlook is positive.
Stefanini Targets US Buy
Brazil’s Stefanini IT Solutions has launched a tender offer for all outstanding shares of common stock in TechTeam. Stefanini made an $8.35 per share tender offer, net of cash, for the US IT outsourcing and BPO company. The per share offer implies an aggregate deal value of $93.44m. TechTeam does not return calls for comment. The Brazilian IT solutions provider’s offer will expire December 10.
Honduras Gets Fiscal Reform Loan
Honduras will receive $45.8m from the IDB to support the country’s fiscal reforms, and improve its tax system and state utility revenues. The financing will consist of a $32.06m, 30-year loan with a 5.50-year grace period and a fixed income rate, and a $13.74m, 40-year loan with a 5.50-year grace period and an annual interest rate of 0.25%.The financing will be disbursed in 2 tranches of $22.9m. The first will come after the approval of a tax reform designed to increase collection rates, efficiency and equity in the tax system. The second tranche will come after the approval of other tax regulations. The country will also enact a law against tax evasion. In addition, the government will take steps to raise the revenues of the state-owned electricity company, Enee, and the telecommunications company, Hondutel.
Bimbo Leverage Rises With Sarah Lee
Grupo Bimbo, the Mexican food company, was placed on negative watch by S&P after its announced $959m acquisition of Sara Lee’s North American bakery division and plans to raise debt to finance the deal. Bimbo is rated BBB on a global scale and mxAAA on a national scale. Moody’s is also changing its outlook on Bimbo from positive to on review for possible downgrade. S&P says that if the company’s ratings were downgraded, they would likely be limited to a single-notch move. Debt-to-Ebitda levels are expected to rise to 3.0x, from its current level of 2.4x. Prior to the acquisition, S&P had expected Bimbo to generate an operating income-to-debt ratio of 34% at the end of 2011, and is now revising its pro-forma forecast to 23%. Moody’s will review Bimbo’s plans to increase margins at the acquired business while extracting synergies. The acquired unit currently generates $108m in adjusted Ebitda on $2bn in revenues. Moody’s has Bimbo at Baa2 on a global scale and Aa1.mx for the local scale. A Deutsche research report says that Bimbo management estimates it needs to raise an additional $700m in addition to its existing long-term credit facilities to fund the transaction, but that this number will likely fall to $500m over the 7-8 months needed to finalize the deal, with the difference being funded by Bimbo’s cash generation.
Valepar Names Flores Vale Chairman
Valepar has nominated Ricardo Jose da Costa Flores to chair Vale’s board of directors. Valepar is Vale’s controlling shareholder. Flores is president of Previ, Banco do Brasil’s pension fund and Valepar’s controlling shareholder. Previously, Flores was VP of credit, and director of operating assets restructuring at Banco do Brasil. He was also chairman of the board of Banco Nossa Caixa and member of the board of executive officers of Febraban. Flores is also chairman of the board of Brasilcap Capitalizacao, president of Fenacap, and VP of the Confederacao Nacional das Empresas de Seguros Gerais, Previdencia Privada e Vida and CNSeg. Flores will replace Sergio Rosa, who has been chairman since May 2003.
Fitch downgrades Posadas to B
Fitch has downgraded Mexico’s Grupo Posadas’ local currency and foreign currency IDR to B from B+ and national scale rating to BB+ from BBB+, with a stable outlook. The ratings action reflects continued deterioration on operating performance and financial indicators due to higher indebtedness, operating trends that have not improved as anticipated and the sale of Nuevo Grupo Aeronautico (NGA), including the airline carrier Mexicana, says Fitch. These factors have resulted in the company’s inability to gradually reduce leverage, adds the ratings agency. “Posadas’ ratings are supported by the company’s solid business position, strong brand name and multiple hotel formats,” says Fitch in a release. “Conversely, the ratings are tempered by increased leverage, exposure to currency fluctuation which can pressure liquidity and industry cyclicality,” it adds. Posadas has experienced weak operating results, which Fitch says is a result of lower vacation club revenues, and lower revenue per available room in its coastal hotels in part due to the perception of violence in Mexico and stabilization of urban destinations. This has not been able to compensate increased indebtedness and extraordinary charges due to the sale of NGA. The ratings also take into consideration the industry’s high correlation to economic cycles, which negatively affects operating indicators in downturns. Fitch adds that the company’s liquidity position is manageable and Posadas’ cash levels, excluding cash needed for operations, and credit facilities allow it to cover margin calls.