Category: Corporate & Sovereign Strategy

The 24 shareholders of the Bolsa Mexicana de Valores exchange have approved plans to list the company’s shares through an IPO. They have also authorized a restructuring of the company’s different business units, including the Bolsa’s acquisition of stakes in the Mexican derivatives exchange and a securities clearinghouse business. The exchange said it will continue with its plans to list, pending approval from financial authorities. A date has not yet been set. BBVA and UBS Pactual have been hired to advise the Bolsa on the IPO process, which has been estimated to be capable of raising more than $1bn.

Moody’s has downgraded IUSA’s $200m in 2016 bonds to Caa1 (negative outlook) from B3, indicating a high probability of default. “Moody’s is concerned that the issuer and the guarantors of the notes may not have sufficient cash and operating cash flow to fund all coupon payments due over the next two years,” says the agency. “The rating also incorporates our expectation that IUSA is unlikely to receive dividends or other cash transfers from subsidiaries that do not provide guarantees for the notes,” it adds. Assets reported by IUSA and guarantors provide more than three times coverage of total debt outstanding, although Moody’s expects that the market value would be substantially less than book value. It also cut the ratings of the Mexican industrial group to B3 from B2, and assigned a negative outlook. The agency sees continued volume pressure in the next few years due to weaknesses in the US construction sector. Over 65% of IUSA’s sales are to end markets in the US, mostly in the construction industry. A further downgrade would be likely if IUSA is unable to renew credit facilities available to its US subsidiaries, or if cash drops below 1.7x debt. IUSA is one of Mexico’s largest diversified industrial groups, manufacturing a wide range of copper-based and electrical products for the housing and electrical power sectors mainly in Mexico and the US.

The global default rate is at its lowest level in over two decades, but a sharp rise is expected this year, according to Moody’s. The global speculative-grade default rate drifted lower closed 2007 at 0.9% – lowest since December 1981 – down from 1.7% a year ago, Moody’s says. “We believe December 2007 likely marks the low point of the current default rate cycle as several issuers have missed interest payments in recent weeks, which should translate into upward pressure on default rates as the 30-day grace periods on these issuers’ bonds expire and they become actual defaulters” says Moody’s director of corporate default research Kenneth Emery. The agency predicts that the global speculative-grade default rate will jump to 4.8 % by the end of 2008. By end-2009, the model forecasts that the global default rate will reach its’ historical average of 5%. “Both weaker macroeconomic fundamentals and a modest worsening in the ratings mix of Moody’s speculative-grade issuers are contributing to recent increases in forecasted default rates for year-end 2008,” adds Emery. Low rated corporate bond issuance, which picked up pace in 2007, might start to present problems.