Category: Mexico

Blue chip Mexican issuer Cemex has postponed the sale of up to MXP3bn in 2010 floating-rate notes because of poor market conditions, say bankers managing it. The transaction, which had been scheduled for this week, is now expected in October. Proceeds from the issue, rated AA+ on a national scale, were scheduled to repay a short-term bank credit priced at Libor+35bp that was used to refinance debt. HSBC is managing the transaction. The sale would be the 10th from a MXP30bn shelf and follows a MXP1bn 2010 bond priced in April at TIIE+36bp via ING and Santander. Some analysts are questioning the strength of Cemex amid declining demand for cement in Spain, the UK and US. In particular, some say it has developed an over-exposure to markets like California, Arizona and Florida. Short tenors and smaller issuance amounts are reflective of a Mexican market that had already been slowing before this month’s world financial markets meltdown. With the exception of Wednesday’s MXP1.5bn 2010 ABS from GMAC Mexicana, Mexican DCM has come to a standstill. Debt transactions from corporates including Molymet, Pinfra and Metrofinanciera have also been shelved.

UBS Pactual is recommending investors sell equity holdings of Mexican retailer Walmex, which the shop claims is now more exposed to bear market fundamentals. With same store sales expected to hit their lowest point in a decade in the four weeks in September, revenues are likely to suffer, with Ebitda in the second half being hit additionally by operating leverage and factors such as cost competition that reduce marginal sales. The shop maintains the risks are largely macroeconomic, which means other consumer businesses in Mexico should also suffer.

Consumer portfolios in Mexico are the worst performing among comparable LatAm peers and Mexican banks are suffering deteriorating asset quality, climbing provisions and low and volatile trading results, says Fitch. But strong margins, revenue diversification and contained operating costs have sustained adequate profitability for the main Mexican financial institutions, the agency adds. “Banks are facing challenges from their rapid incursion into new retail segments, a worsening economic environment and the global liquidity crunch,” says Fitch, speaking of Mexico. “Analysts anticipate the performance of these banks will continue weakening until asset quality problems are fully contained but do not anticipate downward pressure on the major banks’ Issuer Default Ratings in the near future,” it adds. Fitch says other rating factors like capital adequacy and liquidity have not materially worsened and remain robust. “The decline in families’ available income and increasing unemployment will likely continue to impact the asset quality of the retail portfolio and, to a lesser extent, commercial loans,” adds the agency. Consumer loans grew year-on-year by roughly 7% as of July. Commercial lending remains the primary driver of loan growth, at 24% year-on-year, while mortgages increased at a robust 14%, says Fitch. “Loan growth will likely remain at double-digit rates in real terms, underscored by the lending to commercial and industrial sectors,” it adds. Fitch’s report covers BBVA, Bancomer, Banamex, Santander, HSBC, Banorte and Inbursa.

Fitch has downgraded Mexico’s Sanluis to CC from B minus. The auto parts manufacturer had been on negative review since June due to a weak liquidity position and plummeting Ebitda projections. Last week, Sanluis entered into a standstill agreement with creditors as it looks to reorganize the payment schedule on its 2010 bonds. “Revised Ebitda expectation for 2008, the probability of higher interest rate costs and Fitch’s expectation of further deterioration in the North American auto industry has caused Sanluis’ risk profile to worsen,” the agency says. It adds that refinancing risk in 2010 remains high.

Sumitomo Mitsui is planning to open a representative office in Mexico City before the end of the year, according to an official at its New York base. The bank is trying to grow in LatAm and expand its project finance capabilities. It recently hired former WestLB banker Isaac Deutsch as deputy general manager and head of LatAm structured and corporate finance to spearhead the move. Sumitomo has had a subsidiary in Brazil for 50 years.

Mexico kept its policy rate unchanged Friday at 8.25%, saying the global economic deceleration has intensified. “During the first half, economic activity indicators in Mexico didn’t reflect the weakening of the US economy. However, more recent data suggest a deterioration, especially in private consumption growth and employment,” it says. The government expects inflation to approach its target of 3% during 2010, noting that it will likely moderate in the medium term thanks to the recent drop in commodities. Credit Suisse does not find the statement to be hawkish, but nor does it see the bank getting closer to easing policy. The shop estimates that Mexico’s year-on-year inflation will rise to an average of 5.8% in 4Q2008 from an average of 5.5% in 3Q, and that Mexico’s real GDP growth is likely to worsen in upcoming months. “We don’t think the central bank will be anywhere close to a position of easing monetary policy to address this problem until inflation gets much closer to the 4.0% level,” CS says. “We think this could happen by the middle of next year, at the earliest.”

Phoenix Capital, the Colombian packaging company with assets in the US, Mexico and Venezuela, closed yesterday an $85m facility with tenors of 5 and 7 years. The deal, led by Standard Bank, is heard to have counted on the support of 10 banks, mostly based in the region, including in Colombia and Panama, say executives on it. The company is levered 4.6x and pricing is on a grid. A 5-year tranche pays Libor plus 425 out of the box, while a 7-year piece offers 525bp over Libor. The company is expected to reduce its debt starting this year. When it hits 2.5x leverage, it pays 275bp on the 5-year and 375bp on the 7-year. The deal follows a similar financing for Colombian chemical and plastics maker done in May – a $60m loan with two tranches: a $25m 5-year at Libor plus 285bp and a $35m 7-year at Libor plus 362.5bp out of the box. Standard also led that one.

HSBC plans to divest its entire MXP1.45bn (18.7%) stake in Mexican microfinance lender Financiera Independencia. Two trusts operated by the lender’s controlling shareholders intend to acquire 77m of the 127m shares HSBC will sell. The controlling shareholders subsequently plan to reduce the company’s equity through the amortization of 50m million shares at the same price as the purchase from HSBC. The two transactions will boost the controlling shareholders’ stake in the company to 81.2% from 63.9%. HSBC is selling its stake to focus on core banking activities, and its Mexican unit will increase Independencia’s outstanding credit line to MXP2.5bn from MXP2.0bn. Independencia shares closed at MXP11.45 Thursday.

GMAC Mexicana is preparing to sell up to MXP1.6bn in 2010 floating-rate bonds backed by a pool of auto loans. The transaction is set to price September 24 and will include a 2010 subordinated piece of around MXP400m. Although GMAC’s Financiera and Hipotecaria units have issued MBS in Mexico, this offering would be the first securitization by GMAC Mexicana, the auto loan unit. Scotia is managing the sale.

ICA, the integrated Mexican construction firm, is mulling its strategy regarding the $4bn+ port at Punta Colonet in Baja California. “It’s quite important, we’re studying it, we’re looking for partners,” Alonso Quintana, CFO at ICA, tells LatinFinance. Mexico’s government opened bidding late August for the contract to build LatAm’s first greenfield port. Quintana adds that a natural partner would be Goldman Sachs Infrastructure Partners, with which ICA worked on the first Farac project. “It’s a bit more interesting as a construction project than as the whole concession, but we would still be looking at the concession as well,” says the CFO. Quintana expects the winner to use traditional project finance to fund the deal. “Once the cashflows are transparent enough and visible for the banks, there’s ever more creative ways of putting the money in,” says the official. The government says the project should be ready to start construction next year for completion in 2012. Some analysts say it could cost as much as $7bn. The West Coast facility is the biggest in president Calderon’s infrastructure plan and should divert container traffic away from the congested US ports of Long Beach and LA, via a planned rail connection to the US. Carlos Slim’s IDEAL has formed a consortium to bid with Grupo Ferromex and cargo terminal operator MTC Holdings. The government says it has more than 50 interested bidders. Hutchison Port Holdings, SSA Marine, DP World, Union Pacific and BNSF are also expected to participate.