The State of Mexico is arranging a 19.9 year MXP610m enhanced loan from Banorte, which will pay a spread of 125bp over TIIE, which closed at 4.8450 yesterday. Moody’s has assigned a Baa3/Aa2.mx rating. The loan is payable through a trust, to which the state has pledged the flows and rights to 100% of its federal participation revenues and to 25% of its revenues from the Fondo de Apoyo para el Fortalecimiento de las Entidades Federativas. The rating reflects the underlying creditworthiness of the State of Mexico, which has a Baa2/A2.mx rating, as well as the features of the loan. These include a strong trust structure, estimates that cash flows generated will provide strong debt service coverage ratios, a moderate level of reserves and strong historical cash flows. The last rating action Moody’s took with respect to the State of Mexico was on August 27 2010, when Moody’s assigned ratings of Baa3/ Aa2.mx to its MXP2bn Municipal Lending Program.
Category: Economy & Policy
Chile Expected to Tighten Rate
Morgan Stanley says in a research report that after 4 consecutive months of 50bp rate hikes, the central bank is likely to slow the pace of tightening to 25bp, tightening to 2.75%, a possibility it considered before during the September 16 meeting. The main driver behind the lower increase is the rally in the real exchange rate, which represents a disinflationary factor while there is still very low inflation, Morgan Stanley adds. Local bank Celfin also believes the central bank will opt for 25bp over 50bp. It forecasts that the rate will reach 3.25% by year-end.
Inbursa Hits Bond Target
Inbursa has sold MXP5bn in 3-year bonds on an orderbook that was 1.7x oversubscribed, according to a banker at one of the leads. The bonds pay a spread of TIIE plus 20bp, in line with guidance. Bank treasuries and mutual funds were the main buyers, with some participation also coming from private banks. Use of proceeds is to maintain the bank’s liquidity profile, says the banker. The transaction was through Inbursa and BBVA Bancomer and is rated AAA on a national scale. The deal follows on from the bank’s August bond issue, its first since it was set up in 1993. The bank issued MXP5bn in 5-year paper at TIIE plus 24bp.
Scotia Sinks, Compartamos Swims
Scotiabank Tuesday raised MXP2.67bn in Mexico, short of the MXP3.5bn it was aiming to issue and wide to expectations. The bank issued a $2.312bn 5-year at TIIE plus 40bp and a MXP358m 7-year at TIIE plus 49bp. Price talk for the AAA rated bonds had been in the 35bp area for both tranches according to an investor. Another investor adds that several banks have already issued this year, and so the buyside has sufficient AAA rated and bank paper. The bonds were issued to refinance MXP2bn that was due in September, MXP700m maturing in November and MXP800m due in December, according to investors. Meanwhile, Banco Compartamos was oversubscribed, as investors considered the spread and the AA rating attractive. The microfinancing bank that lends only to women issued a 2015 bond at 130bp, with the book 1.6x oversubscribed and closed in under an hour, according to a banker at sole lead BBVA Bancomer. Guidance had been 125bp-135bp, refined from an earlier 130bp-140bp over TIIE. The bonds are 50% amortizing in the 4th year and 50% amortizing in the 5th year. Compartamos was sold to banks, private banks and asset managers. It is the longest tenor issued by the bank, with previous bond issues only going up to 3 years, adds the banker. Proceeds will be used to extend its lending portfolio.
Davivienda Issues Local Bonds
Colombian bank Davivienda issued COP500bn ($208m) in local bonds in 4 series. A COP91.6bn 2-year tranche pays 1.10% over IBR, a COP92.3bn piece pays 1.31% over IBR, a 5-year COP120.2bn pays 3.14% over IPC, and a 7-year COP196.1bn tranche pays 3.63% over IPC. Total demand for the AAA rated notes soared to 3.1x the amount offered, says a banker away from the deal. Davivalores, the bank’s brokerage, managed the sale.
Peru Surprises With No Change
Contrary to market expectations, Peru’s central bank left its monetary policy rate unchanged at 3.00%, citing a small drop in inflation. Morgan Stanley forecast it would tighten by 25bp to 3.25%, a lower hike than the 50bp increase seen in August and September, due to low inflation, which is around 2.0%. Barclays also expected a 25bp hike, with the rate ending at 3.5% by the end of the year. Bank of America Merrill Lynch expected the bank to continue the trend with a 50bp hike.
Peru Rate Hike Expected
Peru’s central bank is expected to tighten its monetary policy rate today. Morgan Stanley forecasts it will hike 25bp to 3.25%, less than the 50bp increase seen in August and September, due to low inflation. Barclays also expects a 225bp hike, with the rate ending at 3.5% by the end of the year. Bank of America Merrill Lynch meanwhile predicts a 50bp hike. It expects Peru to end the year at 4.25%.
Brazil Hikes IOF to Stem BRL Rally
In its attempt to contain BRL appreciation, Brazil’s finance ministry increased the IOF financial transaction tax on foreign investor inflows into domestic fixed income securities to 4% from 2%. Market consensus points to only a short-term effect on the BRL. Luis Cezario, an economist with Goldman Sachs, believes the BRL could weaken slightly to BRL1.70-BRL1.80 per USD within the next 1-2 months from a current range of BRL1.65-BRL1.75. RBC agrees, saying that the tax hike will induce some short-term weakness in BRL initially. “However we expect this effect to be transitory and that appreciation pressures should remain fairly strong given the pace of capital inflows are unlikely to be altered materially by this tax change in the current context of G4 currency weakness, quantitative easing and significant excess global liquidity in the world’s financial markets,” the shop says. Domestic bond yields could spike 20bp-40bp along the curve with foreigners’ large holdings of issues in the long-end likely having a larger impact there, encouraging a steepening of the yield curve in the immediate future, RBC adds. On Tuesday, BRL closed 2.4% stronger at BRL1.66 per USD. This is not the first time the ministry has hiked the IOF tax to contain BRL appreciation. Credit Suisse, which also agrees that the effect will be temporary, says that in March 2008 the IOF rate was increased to 1.5% from 0.0%, reduced back to zero in October 2008 and then raised to 2.0% in October 2009. The new change, which took effect yesterday, will not affect equity investments, for which the IOF tax remains at 2%.
Banorte Lends To Oaxaca and Naucalpan
The Municipality of Naucalpan will receive an enhanced loan for MXN486m from Banorte. The loan has a maturity of 20 years and will pay a spread of TIIE plus 175bp. The loan will be used to refinance an existing loan at a lower cost. Moody’s has assigned a debt rating of Aa1 on a national scale. Banorte will also give the State of Oaxaca a MXP250m 10 year enhanced loan, to which Moody’s has assigned a Aa2 rating on a national scale. The loan will pay a spread over TIIE. The loans are payable through trusts, to which the municipalities have pledged the flows of a portion of their federal participation revenues. The ratings actions are based on the underlying creditworthiness of the states and the strong trust structures, as well as estimated cashflows.
LatAm Erodes Ratings Gap
Latin America has narrowed the ratings gap with other regions and the trend is likely to continue, says Moody’s. “After lagging behind other regions through most of the decade, the sovereign ratings in Latin America have strengthened, thanks to an improving macroeconomic picture, rising economic growth and a trend in favor of diminishing government debt burdens that are better managed,” says Moody’s analyst Sergio Valderrama. Seven LatAm sovereigns were upgraded this year, the most in any region in the world. Another 3 are on review for possible upgrades, indicating the likelihood of further improvements this year. However, Moody’s notes that the median sovereign rating for LatAm is Ba2, 3 notches below the median for all sovereigns it rates. Moreover, the region has the highest share of countries in the B-Caa category and the highest number of defaults since December 2000. “Even though improvements in debt numbers and economic growth vary by subregion, the upward ratings trend is undeniable and we expect it will persist at least for the near term,” says Valderrama.