Category: Mexico

HSBC plans to issue as soon as Thursday MXP7bn in debt backed by payments from a loan made by Dexia to the Mexico City government. The 40-year notes match the tenor of the loan package and pay TIIE plus 53bp, with a 25-year grace period for the repayment of principal. The deal is rated Aaa/AAA on a local scale, due to the fact that Mexico’s federal government guarantees DF’s debt payments. Proceeds will be used by HSBC to fund the purchase from Dexia of the rights to the loan contract, signed in August 2007, as well as the rights to receive payment on debt service.

Investors increased their exposure to the Mexican peso in December, according to a JPMorgan investor survey, which recently polled 157 accounts representing $419bn under management. The report indicates that overweight positions increased by 40% during the period, which marks the largest jump in positions since May 2007. The move, concurrent with a big drop in equities, was largely driven by locals. Overall, JPM kept debt market technicals at neutral and estimates that there were $2 billion of net inflows into EM debt since the beginning of 2008. At the country level, it downgraded technicals to negative from neutral in Peru. Meanwhile, buysiders scaled back on Mexican real rates, while ramping up their exposure in nominal rates. “Locals reduced their exposure the most with a minus 5.7 point decline to a 5.8 underweight,” notes JPM, referring to its system of evaluating relative portfolio positions. “[Locals] had previously played more on the defensive side in December by increasing their real rates positions,” says the report, adding that foreigners did not change their position very much during the period.

Citi has upgraded Mexico equity to overweight within LatAm, elevating it to the bank’s top pick in the region. The promotion is based on severe underperformance since end-2006, as well as the fact that the Bolsa has fallen close to Citi’s “US recession” target of 25,000. Also supportive is the fact that GDP growth is now forecast at 2.9% in 2008 and rates are set to fall 75bp to 6.75%. “At 11.4x forward earnings, Mexico is 10% below its recent average and at its cheapest relative to Brazil since late-2002,” says Citi. “Mexico has many stocks that we feel are now too attractive and too inexpensive to ignore. To play our upgrade, we highlight America Movil, Walmex, Femsa, Bimbo, Homex, Asur, ICA and Mexichem. Citi is keeping Brazil at overweight, saying that it is more risky but attractive for the long-term. “However, it is now further away from our “US recession” target of 50,000, while there is a growing risk that rates may rise later this year,” says the shop.

S&P has placed three Mexican residential mortgage-backed securities insured by Ambac on ratings watch negative. The AAA-rated securities include a $100m issue from Su Casita and issues from Patrimonio of MXP990m, 264m in UDIs and 224m in UDIs. A total of 22 EM securities were put on ratings watch negative, including debt from Banco Itau Holding Financiera of Brazil and Banco de Credito del Peru backed by future cash receivables. S&P placed bond insurer Ambac Assurance’s financial strength, financial enhancement and issuer ratings on negative watch, after Ambac announced it would not proceed with a planned $1bn equity offering. Fitch has already downgraded Ambac two notches to AA.

BBVA Bancomer has cut its estimate for 2008 Mexican GDP growth to 2.7% from 3.4%. It cites concerns over falling external demand, most recently prompted by lower manufacturing activity reported for November and December. The bank added it expects the government to announce an updated forecast of about 3.0%. Banamex has also lowered its forecast, to 2.9% from 3.6%.

A majority of LatAm finance managers surveyed by Fitch expect US growth of 1%-2% in 2008, indicating a slowdown that won’t become a recession. Those from Argentina, Mexico and Venezuela were among the most bullish – with more than 50% of respondents from those countries expect US economic growth to exceed 2%, the survey says. A clear majority of respondents also felt their country’s economy and businesses are now better insulated from a US slowdown than in the past. Most rank concern about their domestic economies above worries about the US and China. Most of the managers surveyed expect double-digit revenue growth and higher profit for their corporations in 2008 compared to 2007. The cautious optimism was also evident in their financing plans. More than 70% plan to borrow funds this year, with most indicating an inclination for domestic capital markets.

Mexico’s Central Bank Monetary Policy Committee has left the policy rate unchanged at 7.50%, in line with Wall Street forecasts. The accompanying policy statement was taken as relatively more dovish than in November. Goldman Sachs predicts that Mexico will likely keep the policy rate (TdF) unchanged at 7.50% for a relatively long period of time, possibly all the way through end-2008). “The higher risks for activity going forward (spillover from external shocks) and the widening domestic-foreign interest rate differential (we expect the Fed to push the Fed Funds Rate to 2.5% by 3Q2008) reduces the odds of monetary tightening despite still somewhat challenging inflation dynamics,” says Goldman.

On the same day it was downgraded to Ba3 by Moody’s, Mexico’s CIE launched an offer to buy back up to $186m in 8.875% notes due 2015. The entertainment operator has about $130m in excess cash, Jorge Padilla, investor relations director, tells LatinFinance. Last year CIE sold an interest in its local gaming operations to Spain’s Codere and sold off a controlling stake in its South American business. Padilla says that any additional funds needed to finance the buyback will come through a bridge loan provided by dealer-manager Citi. The offer of $1,025 per $1,000 in principal amount tendered runs through February 15. CIE will also pay a $30 premium for every $1,000 tendered before January 31.

Mexico’s central bank is expected keep the Tasa de Fondeo at 7.50% at its Friday monetary policy meeting. In addition, some analysts expect a softer tone regarding inflation in the press release that will accompany the decision. “We think that the Friday policy statement may have a more dovish feel than most recent ones even at a time the central bank may be far from easing monetary policy.” notes Credit Suisse. “Banxico might acknowledge higher downward risks to activity stemming from the increasing likelihood of a recession in the US,” notes Goldman Sachs.