S&P has affirmed its BBB (negative) long-term corporate credit rating on Cemex and its key operating subsidiaries Cemex Espana, Cemex Mexico and Cemex Inc. The affirmations reflect the agency’s expectation that although Cemex was not able to reach the 20% funds from operations-to-net adjusted debt ratio target 12 months after the acquisition of Australia-based Rinker, it will hit it during the next couple of quarters. “The progress the company has shown during the past couple of weeks in terms of asset sales and its debt reduction to date supports this expectation. We also believe that Cemex’s performance has been reasonable in light of the weakness in some of its key markets, particularly the US,” S&P says. The ratings action comes at the same time that Venezuelan media reports the announcement of a takeover by force of the Cemex assets after negotiations over nationalization of the company stalled.
Category: Topics
CS Raises Peru GDP Growth Estimate
Credit Suisse has revised upwards its 2008 GDP growth estimate for Peru to 8.5% from 7.0%. “What we saw is the economy is decelerating but at a lower pace that we had expected,” says the shop’s Andean economist Carola Sandy. Real GDP growth was 10.3% yoy in the first 6 months of the year. Growth in areas other than agriculture, mining and gas remains strong. However, a slowdown is expected because of a tightening in monetary policy, she adds.
Mexican Paper Meets Scissors
Bonds in Mexican paper and packaging company Corporacion Durango have tumbled into the low 40s – implying a high probability of default – down around 40% since the start of July. Distressed experts are heard positioning in the $520m 10.5% of 2017 – which was sold at par in October 2007 – in the hopes of a snap back or ample recovery if the company defaults. It was quoted at 42.75-43.75 Monday, up slightly from 42.50-45.00 Friday, in sporadic flow. The dive from the mid-70s July 1 is attributed to offloading by hedge funds needing cash but struggling to find a bid. On October 5, the company is scheduled to make a $26.5m coupon payment on notes due 2017. “I don’t think [bond prices] reflect any logical recovery value,” says Jim Harper, head of corporate research at BCP Securities, which has a strong buy recommendation on the bonds. “I expect them to make the [October 5] payment,” he adds. Durango ended June 30 with $35m in cash and marketable securities and $12m of short-term debt, according to Fitch, which rates the firm CC, implying 31%-50% recovery in the event of a default. Payment of the coupon is in the balance. “It has nothing to do with Ebitda this quarter – they have enough cash already – but rather their outlook for the business,” says a US-based distressed investor who asked not to be identified. He adds that if the owners see costs moderating and price increases sticking, Durango may well muddle through. But if 2009 looks bleak, it may choose to restructure. “Recoveries through a restructuring should be over 80 cents in PV of debt with more equity added in,” estimates the analyst. Durango launched the struggling B+ rated 10NC5 issue last year via Merrill Lynch to refinance debt. It was seen as something of a comeback for the company, which has since hit hard times. “We expect results to remain weak,” says Miguel Rincón, Durango’s chairman and CEO in a Q2 earnings statement.
Colombia Buoys Interest Rate
In a unanimous decision, the Colombian central bank left its benchmark interest rate unchanged at 10% on its policy meeting Friday, citing a slight increase in yearly inflation compared to last month, a small drop in non-food inflation and overall deceleration in the world economy. Going forward, the bank should adopt a more prospective view on inflation as at the current 10% level the policy rate is already contributing to a soft landing of the economy, which should in due time mitigate inflation risk as the output gap increases, according to Goldman Sachs. “However, if inflation continues to surprise on the upside and inflation expectations worsen we do not rule out additional monetary tightening before year-end, but at this stage that does not seem very probable,” Goldman adds. The bank may to leave the rate unchanged for awhile, the shop states.
LatAm Equity Suffers Biggest Redemptions
LatAm equity funds suffered redemptions of $504.0m in the week ended August 13, according to EPFR Global, which calls it the week’s worst performing major fund group. LatAm posted a collective 6.26% loss, extending a 10-week, $3.45 billion losing streak that has been fueled by steady outflows from Brazil equity, says EPFR. Brazil funds lost $47.0m, which helped bring AUM to $12.3bn. So far this year, Brazil funds have seen net inflows of $257m. “With some commodity prices hitting 6-month lows and the price of oil dropping briefly below $113 a barrel, investors pulled more money out,” says the service. The asset class as tracked by EPFR has a total $27.9bn in assets under management (AUM) and has lost $1.81bn so far this year.
Equity Fund Returns Wilt
LatAm equity funds followed the trend from last week and lost 4.02% in the week ending August 14, according to Lipper, worse than EM overall. China region funds sank 2.36% while EM funds dropped 1.94%. Gold oriented funds took the biggest hit of the week, losing 5.69%, while diversified leverage funds bagged the highest gain, at 6.26%. LatAm funds experienced a drop of 4.92% last week, and have dropped 11.68% year to date, Lipper data shows. EM equity funds have sunk 20.89% year to date.
S&P Sees Strength in T&T
S&P has raised Trinidad and Tobago to A (stable) from A minus to reflect continued strengthening of fiscal and external accounts. Backed by a booming energy market, the economy has grown an average of 9.3% annually since 2003 and that is expected to grow about 7% in 2008. The stable outlook represents the needs to do further economic diversification, a key step to reducing vulnerabilities that the non-energy deficit continues to highlight, the agency states. “Improvements in transparency and governance, in particular among the public-sector enterprises, could further strengthen Trinidad and Tobago’s creditworthiness,” S&P says. “Slippages in the pace of restructuring government-owned entities or significant increases in an already-high level of fiscal spending could lead to an unfavorable rating action,” the agency warns.
Mexico Tightening Seen Nearing End
Last week’s 25bp rate hike to 8.25% in Mexico, accompanied by a more dovish message, signals an end is near to the hawkish phase, say analysts. “The tightening cycle may be over,” says Lehman. “We still think that they may need to hike once more before year-end if inflation continues to surprise to the upside, precluding the anchoring of inflation expectations, but this decision will be highly dependent on new data.” A recently revised inflation projection and declining global commodities gives room to pause at following meetings, the shop adds. Goldman Sachs meanwhile predicts that after an October 25bp rise, Banxico will keep the TdF at 8.50% until Q4 2009. “If by then inflation declines toward or below the projected path, then there is scope for Banxico cutting the TdF twice by 25bp per meeting, to 8.00% by December 2009,” says Goldman, echoing a previous forecast. Out on a limb is Credit Suisse, which calls 8.25% as the top. “This was the third consecutive 25bp monthly rise, but it is likely to be the last one in this cycle,” says the shop. “An overnight rate of 8.25% seems to be high enough for inflation to be within the bank’s projected path over the 2-year policy horizon,” it adds. Barclays also expects the rate to be left unchanged for some months. “We might be seeing the end of the hike cycle,” says Rodrigo Valdes, the shop’s chief economist for LatAm.
Mexico’s Collado Slashes Bond Size
Market conditions continue to challenge Mexican debt issuers, as Grupo Collado managed to place just MXP400m of an issue originally set for MXP1.2bn. The steel processor priced MXP200m in 2011 bonds last week at TIIE plus 290bp, and MXP211m in 2010 bonds at TIIE plus 195bp. Collado scrapped altogether a third tranche with a tenor of up to 5 years. It is heard aiming to still sell a third tranche, as the offering was intended to repay some MXP700m in expensive debt maturing this year. Ixe managed the transaction, rated A minus on a national scale.
Peru Sponsors Ready Infrastructure Bond
Ecuadorian concession operator Hidalgo & Hidalgo, through its Peruvian subsidiary CASA, is heard close to launching bond financing for the fifth and final leg of Peru’s Interoceanica highways, or IIRSA Tramo 5. The dollar-denominated PPP bond is expected in the $200m size area, and will feature the basic characteristics of the CRPAO structure, in which Peru’s government guarantees payment on notes issued from a trust. BNP Paribas is leading the deal, having structured previous financings for Peruvian toll roads. The transaction – set to meet the same tough market conditions as all other LatAm issuers, as well as investor aversion to complex structured deals – is heard to include novel features like a delayed draw, which adds flexibility to the borrower’s access to funds. In a typical CRPAO structure, notes are issued from a trust and proceeds sit in a remote vehicle, which feeds cash in increments to the concessionaire as it meets construction milestones. Deutsche Bank has been active in these deals, completing at least one this year that was redistributed in the form of CLNs to EM institutional investors. In one transaction, Grana y Montero – the Peruvian developer – and JJC Contratistas raised $193m through a trust that has an 18.5-year life and can issue debt and derivatives.