Category: Mexico

The buyside has aggressively added to positions in Mexico, according to JPMorgan, which last week surveyed investors managing $511bn in EM fixed income and FX assets. The move was driven by significant reduction in underweights by real money accounts, while JPM also notes that trading accounts are now just into overweight, for the first time since early 2003. “Mexico sovereign supply continues to be a positive for the credit, as not only is no supply anticipated, but the warrant maturities should reduce still further the stock of debt outstanding.” Investors also added to Chile, while small reductions were seen in Ecuador and Venezuela, says JPM, which maintains external debt technicals at positive. “Local markets exposure by international investors are at their highest levels this year. Dedicated investors increased from 28.7% to 29.1%, while trading accounts increased from 41.4% to 41.8%,” it adds. The shop estimate year-to-date inflows to EM FX and fixed income stand at $11bn, but it sees downside risks to the full year forecast of $20-25bn. Investors say they expect the JPM GBI-EM Global Diversified index to return another 3.4% this year, with duration contributing 75% and FX contributing 25%, implying full year returns of 8.6%, below JPM’s 11% house forecast. Investors also expect the benchmark EMBI Global to return 1.7% through year-end. “Supply risks are concentrated in the corporate sector, in our view, with about $41bn of issuance remaining. Sovereign issuance may total $17bn for the remainder of the year, versus EMBI Global index cashflows of $10bn for the rest of the year,” says JPMorgan.

WisdomTree Asset Management plans to launch 25 new exchange-traded funds (ETFs), including funds exposed to the Chilean and Mexican pesos, as well as an overall LatAm local currency vehicle. The funds will provide exposure to changes in the value of the local currency peso relative to USD by investing in short term securities and instruments designed to provide exposure to local FX and rates. They will do this by primarily investing in short term US money market securities and forward currency contracts and swaps to create positions economically similar to a money market security denominated in pesos. They will maintain a weighted average portfolio maturity of 90 days or less and will not purchase any security with a remaining maturity of more than 397 calendar days. Performance is expected to be closely tied to social, political, and economic conditions in Chile and Mexico, and be more volatile than more geographically diversified funds, says Wisdom Tree. Dreyfus, a unit of Bank of New York Mellon, will be the sub-adviser of the ETFs. WisdomTree is also launching separate BRIC and LatAm currency funds. The LatAm vehicle will pick a basket of up to 10 currencies from a pool of eligible currencies to provide a representative and diversified proxy, balancing liquidity and geographic and economic diversity. David Kwan and Zandra Zelaya will be the portfolio managers of the proposed ETFs.

Banif Ixe is maintaining its buy recommendation on Cemex and has a year-end target price of MXP27.00 for the company’s shares. “Although we see as negative that last night the Venezuelan government took over the operations of Cemex in Venezuela, the impact of the lost ebitda is not enough to change our recommendation,” says the shop. The nationalization of the company’s assets will reduce Cemex consolidated ebitda by around 3.7%, add the analysts. A takeover implying firm value to Ebitda multiple of 6.2x would make for a favorable transaction for Cemex, says Banif Ixe. “If this happens, Cemex will receive approximately $1.02bn from the Venezuelan government, with a neutral impact on the company.”

GMAC Mexicana is preparing to sell floating-rate MXP-denominated bonds backed by a pool of auto loans. The size and tenor have not yet been defined, but the offering will consist of at least one subordinated tranche. 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 transaction, expected in the next one to two months, according to executives close to the process.

The seizure of the Venezuelan assets of Cemex by the Chavez government will not have a huge impact on the Mexican firm’s overall financial performance, according to analysts. “The Venezuela business is very small in the big scheme of things,” says Revisson Bonfim, an analyst at Fitch. “We believe that in the end of the day Cemex will end up selling the entire company to the government. The big question is whether or not they will receive market value for those assets,” he adds. Production from Venezuela represented only 3.7% of the consolidated Ebitda of Cemex, Rodrigo Herrera Matarazzo, an analyst with Ixe Casa de Bolsa in Mexico City says. “Even though this process of negotiation could be extended, we don’t see a mayor effect on consolidated results,” he says. Previous businesses nationalized in Venezuela went for a reasonable price, notes Bonfim. However, Matarazzo is cautious on the outcome of negotiations. “Once the agreement has been reached, then we can qualify whether it is good or bad [for Cemex],” he adds. Yesterday, S&P affirmed its BBB (negative) long-term corporate credit rating on Cemex and subsidiaries based on expectations that the company will reach financial targets in the next two quarters.

Fitch has downgraded Mexican mortgage company Metrofinanciera’s individual rating to D/E from D (stable), given continued pressure on capital adequacy, asset quality, liquidity and refinancing needs. The downgrade of the individual rating reflects continued weakening of asset quality, liquidity, capital adequacy, profitability and business risk. Asset quality in both the mortgage and construction loan portfolios has deteriorated at a relatively fast pace and the worsening credit environment puts on additional pressure. Fitch also affirmed the foreign currency long-term IDR at B+ (stable. Last week, Metrofinanciera filed to issue MXP1.6bn equivalent in 2033 notes denominated in the UDI inflation-linked unit and MXP769m in MXP-denominated 2038 notes. The company is also planning to issue MBS worth approximately MXP2.3bn, despite choppy markets, competing large issues and financial troubles.

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.

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.

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.

Banco Compartamos plans to ask its shareholders to approve a MXP700m share buyback fund. The Mexican microfinance bank’s shareholders will vote August 26 on transfer of retained earnings to a special buyback fund, to be used without a time limit. The program would help “maintain a market for the company’s shares,” it says.