Category: Mexico

After a successful dollar debt offering in January, the present volatility in the credit markets has Mexico focused on cleaning up its peso debt curve, head of public credit Gerardo Rodriguez tells LatinFinance. Among new initiatives is one aimed at strengthening liquidity in the bonds denominated in the UDI inflation-linked unit. “Mexico has a long tradition of inflation-linked instruments, which now represent 13% of our local market,” Rodriguez says. “We think we have conditions for that market to be more liquid.” Mexico introduced a 3-year Udibono last year and stopped issuing 20-year Udibonos to focus on 3, 10 and 30-year points on the curve. It plans to incorporate the securities into a successful market makers program. Boosting liquidity was also the motivation for including UDIs in the most recent, well-bid exchange warrants transaction, he says. “The country’s infrastructure program will require the intensive use of the local capital markets, and the inflation-linked instruments need more efficient pricing,” says Rodriguez.

As investors in Mexico rethink their appetite for risk, mortgage companies are feeling the pinch, according to S&P. “For this year, we expect lower growth rates and pressures on profitability levels,” says S&P credit analyst Francisco Suarez. Market sentiment has changed dramatically and exhibited two of the industry’s clearest vulnerabilities: its reliance on volatile funding sources and limitations to adequately manage market, funding, and liquidity risks. “These factors have been reflected in increasing refinancing risk for the industry,” says the agency.

Darby, the EM private equity shop, says it is looking at putting together a dedicated vehicle of substantial size for Mexican infrastructure investment. “We are interested in targeting mid-market projects,” Alejandro Schwendhelm, a Washington-based MD for Darby, tells LatinFinance. He adds that large infrastructure projects tend to be very competitive and as a result, not always as high yielding. In Mexico, Darby targets projects that can return up to roughly 25%. Mexico recently established a MXP270bn national infrastructure fund, Fonadin. It will start with MXP40bn from last year’s FARAC toll road project and channel approximately MXP270bn into infrastructure over the next 5 years. Darby is also in the process of finalizing vehicles targeting mezzanine, Brazil infrastructure and Central American banks. Schwendhelm declined to specify expected fund sizes or closing dates.

Mexico’s Nemak plans to reopen a 2014 floater bonds in an offering expected in the next few weeks. The auto parts maker controlled by Grupo Alfa sold MXP2.5bn in the AA rated notes in November. It has not indicated the size of the new offering, to be led by HSBC. Meanwhile, Telmex has indicated in a regulatory filing that it plans to sell up to MXP2.5bn in 2018 fixed-rate notes this month, possibly accompanied by a floating-rate tranche, in a AAA rated sale led by Inbursa and HSBC. The issuers join a steady pipeline already featuring Cemex, awaiting the sale of MXP3bn in 2018 fixed and 2010 floating AA+ bonds via Santander. Bottler Arca has also refiled for a MXP6bn 5-year shelf, with BBVA listed as the lead.

Moody’s has upgraded the local rating of the State of Mexico to A3.mx from Baa1.mx and a bond issue is anticipated soon. The state’s global scale rating remains at Ba3 but the outlook has been changed to positive from stable, the agency states. “The change in the national scale rating and the outlook for the global scale rating stems from the state’s positive trends in its debt and financial indicators, and the expectation that these trends will continue,” Moody’s says. The state is heard lining up a large MXP 30-year fixed rate issue with a partial guarantee from Banobras. Proceeds are destined to restructure debt and a transaction is expected this month.

The energy reform proposal sent to the Mexican congress by president Felipe Calderon is an important first step to improving the country’s oil sector, Fitch’s senior director of foreign ratings Shelly Shetty tells LatinFinance. “We’ve seen a decline in production levels in Mexico and clearly a reform is needed to maintain and boost both investment and production levels in the oil sector,” she says. But this is not an optimal reform, Shetty says, since it does not permit full scale private sector participation. “However, it does allow for greater financial and budgetary flexibility for Pemex, and allows for enhanced corporate governance which should help the company to increase investment in the sector,” the analyst states. If the reform were to pass, it would have a pretty important symbolic importance, given the continuous opposition in Mexico to allowing any form of private participation in the oil sector. “One has to monitor the political debate,” Shetty says. Impact on Pemex and sovereign bonds will depend on how far the proposal advances in congress, says Alfredo Coutino, senior economist for LatAm at Moody’s Economy.com. “If there is a lot of resistance, we will not see a positive answer in the bonds and in the ratings of the country and the company,” Coutino says. However, if the reform is approved even with modifications, bonds will receive a positive boost. “In the medium to long term the answer will be positive for the bonds,” he adds.

Metrofinanciera is preparing to sell MXP2.5bn in 6-year bonds backed by construction bridge loans this month. The floating-rate offering denominated in UDIs or pesos will include an A tranche and a subordinated B tranche, the proportions of which have not been determined. Ixe is managing the sale.

Colombia’s finance ministry is considering starting a national infrastructure fund similar to Mexico’s Fonadin, finance minister Oscar Ivan Zuluaga tells LatinFinance. Encouraged by the recent appearance of private equity in the country, he explains, the government would like to start a vehicle where public and private money would join to fund infrastructure projects. Colombia is in discussions with banks about possible advisory roles in such a fund. Zuluaga declined to comment on the size of the fund, or a timetable for its creation. The government is planning a roadshow in the coming months to promote both its sovereign credit and investment in its infrastructure projects. Public credit director Viviana Lara tells LatinFinance that the finance ministry is not planning to issue any new debt at this time, as its funding needs are met. It may, in the second half of the year, begin considering COP debt options, with the goal of getting its peso debt to 60% of its total debt from the present level, around 40%.

Federico Patino will run Mexico’s new MXP270bn national infrastructure fund, Fonadin, which should be up and running within weeks. The fund is part of Banobras and Patino, formerly at Nafinsa, will report to Alonso Garcia Tames, Mexico’s public credit head Gerardo Rodriguez tells LatinFinance. It will start with MXP40bn from last year’s FARAC toll road auction and channel approximately MXP270bn into infrastructure projects over the next five years. It will invest through guarantees, subordinated debt, risk capital and other vehicles that support loss-making projects. Mexico sees infrastructure investment as part of a counter-cyclical economic policy and an important measure to counter the negative impact of a US slowdown this year.

Mexico has no plans to issue debt in the overseas markets to break the sovereign logjam, head of public credit Gerardo Rodriguez tells LatinFinance. “We very have a very good dialogue with all the banks, we try to get them involved in our strategy,” says Rodriguez, who was at IDB meetings in Miami this weekend. “We are in a relatively comfortable position of not needing funds,” says the official. “Perhaps what makes sense, with all this uncertainty in this environment, would be to wait and see how markets go back to a more normal dynamic,” he adds. State oil giant Pemex plans to raise $5bn in 2008, including $2bn from local and international capital markets. “Most of that can be done in the local markets,” says Rodriguez. “They are taking a look as usual at external potential funding activities but markets would need to go back to more normal dynamics.”