News that China may loosen the currency peg to allow controlled appreciation could be positive for LatAm short-term, though the lasting impact is unclear, say strategists. Morgan Stanley believes the impact on LatAm will be modest, although positive, and adds that there is still uncertainty over how far the Chinese will permit its currency to strengthen in coming months. The shop expects CNY/USD to be at 6.60 by year-end 2010, and 6.20 by the end of 2011, which would represent a gain of just under 10% over the next 18 months. In 2005, China allowed the CNY to gain about 20% over a 3-year period, Morgan Stanley says. Michael Woolfolk, senior currency strategist at the BNY Mellon, is somewhat skeptical about China’s move. He explains that China’s announcement comes shortly before the start of G20 talks and says the announcement may have been made to deflect criticism during the talks. He does believe that a stronger CNY would be beneficial for LatAm exporters, who would be able to better compete with Chinese exporters. However, he does not believe such appreciation will happen long-term. He forecasts the CNY/USD will be at 6.65 by the end of 2010 and 6.35 by the end of 2011. It closed at 6.80 June 24.
Category: Regions
IFC Financing Jamaica Energy Expansion
The IFC is lead arranger on a $95m syndicated loan to finance expansion of Jamaica Energy Partners’ power generation capacity by 65MW to 190MW, says an IFC official who declines to be identified. New York-based energy-focused private equity firm Conduit Capital is sponsoring the loan. Of the total amount, the IFC is lending $28m in 2 pieces. One is a senior loan for $19m and the other is a subordinated facility for $9m, the official says. He does not disclose terms, saying only that they will likely be long-term loans due in around 12 years. He adds that the IFC is still in talks with other banks for syndication and that ECAs and development finance institutions will probably be involved. Conduit bought Jamaica Energy Partners for less than $100m in June 2009. It had previously owned the company and sold it to Texas-based Basic Energy in December 2007 for $92.5m.
High Yield Bonds Back on Menu
Mexico’s Geo has sold the first LatAm high-yield cross-border bond in 8 weeks, pushing through a market window that appears to be growing wider. The homebuilder raised $250m through the sale of a 2020 NC5, upsizing by $50m on the back of an $800m-plus order book. The Ba3/BB minus bond priced at 98.409 with a 9.250% coupon to yield 9.50%, or UST plus 641.8bp, inside 9.75% area price talk. Investors say the yield offered a pickup to the company’s sparsely populated curve, as well as comparables like the Homex 2019 (8.9%-9.0%) and Urbi 2020 (around 8.6%). The bond traded up 1.5 points Friday afternoon, according to traders. Barclays sees the new bond tightening a further 30bp-50bp in the very near term since the 2014 trades 27bp tight to Homex 2015 and Geo has better fundamentals. Investors cite general upside in Mexico, along with the homebuilding sector’s government support, as motivations for buying. They add that there is money to spend on others coming to market, provided they have a convincing story to tell. Geo follows compatriots Bimbo and America Movil into the cross-border markets after a drought of several weeks, and investors see relative value in Mexico versus Brazil. “Mexico is in a sweet spot to do debt issuance this year,” says an EM corporate analyst at a participating buyside shop. He predicts upside from an anticipated growth rebound. Brazilians are also in the pipe, however, with CSN, Banco Votorantim and Banco Cruzeiro do Sul each meeting investors and seen pulling the trigger if market conditions hold. Geo plans to use proceeds to refinance short-term existing indebtedness. Citi, Morgan Stanley and Santander managed the sale. Geo’s last bond was a $250m 2014 priced in September to yield 9%.
Colombia Hydrocarbon Auction Beats Expectations
Bidding on a Colombian oil and gas concession surpassed the expectations of Colombia’s national hydrocarbon agency, ANH. Of the 228 onshore and offshore hydrocarbon exploration blocks available, about 80 were awarded. That translates into about $1bn in investments, according to ANH. ANH director Armando Zamora told LatinFinance previous to the auction that he expected about 40-50 of the blocks to be awarded, drawing investments of around $200m-$500m. State-owned oil company Ecopetrol walked away with 9 blocks out of the 10 it bid on. The company says it will invest $102m on the blocks over the next 3 years. Medellin-based brokerage Bolsa y Renta says the investment will not have a material impact on Ecopetrol’s balance sheet. Pacific Rubiales, via subsidiary Meta Petroleum, won 6 and expects to invest $99m in the next 3 years. The investment will be financed through cashflow, the company says.
Mexico Eyes Local Syndicated Debt Sale
Mexico’s government has laid out Q3 borrowing plans, which includes a syndicated sale of 5-year MBonos. The government has not provided specific details on the 5-year sale, done in a format used for the first time this year in MXP25bn 10-year Mbono and MXP10bn 30-year Udibono sales. The size is expected to be comparable to the first 2, and government officials have indicated September as the likely issue month. Also, the issuer is increasing amounts to be sold in certain Mbonos done through regular periodic auction, with the 10-year increased by MXP500m, to MXP7bn, the 20-year by MXP500m to MXP4bn, and the 30-year by MXP500m to MXP3.5bn. Mexico will cut the amount of 5-year Bondes D by MXP500m to MXP1bn.
Homebuilder Seeks to Reopen HY
Mexico’s Geo is looking to follow compatriot Bimbo into the dollar markets with a $200m 2020 NC5, as it wrapped up a roadshow this week. The homebuilder is targeting a 9.75% area yield for the bond, expected as soon as today after garnering at least $700m in orders, according to investors. Citi, Morgan Stanley and Santander are managing the transaction. Fitch rates the new notes BB minus, noting a strong market position, and diversification, but also 52% short term debt and dependence on government mortgage loans. Proceeds from the offer is expected to go to refinancing short-term debt, Fitch says. Geo’s last bond was a $250m 2014 sold in September to yield 9%.
Mexican Stars Relight DCM
Successful bond offers from Mexican blue chips America Movil and Bimbo are driving LatAm corporates back on the road for meetings with a cash-rich overseas buyside. However, volatility – while less than in May – is still present enough to be a factor in determining how many more deals materialize, as highlighted by Thursday’s sell-off. Mexican homebuilder Geo is heard pricing a $200m 2020 as soon as today, while Brazil’s Banco Cruzeiro do Sul looking to come with a 3-year next week. Others, such as Brazilians CSN and Banco Votorantim, are planning to visit the buyside with an eye on possible transactions. There are other LatAm issuers waiting in the wings, DCM bankers say. Wednesday’s successful Bimbo trade – the first external debt foray from a regional issuer in more than 7 weeks – as well as bonds from EM corporates beyond LatAm, are lifting jaded DCM spirits. Bimbo’s $800m 4.875% of 2020 tightened after issue, though widened back to around reoffer of UST+180bp in Thursday’s rout amid a spike in Greek CDS. “If there is a window, I would advise [issuers] to take it,” says a US West Coast-based EM fixed-income portfolio manager. The investor notes that the seasonal July-August hiatus is approaching, and there is still a significant amount of uncertainty about the rest of the year. There should be an opportunity next week, though markets will slow significantly in the latter part as the US heads to a July 4 long weekend. And the buyside is liquid and seeking opportunity. “It’s a good time, though I don’t feel like the markets are as good [this week] as they were last week,” says a DCM banker. He predicts an active July, though not a repeat of March or April’s flurry. Issuers who do go to market may have to concede more of a new issue premium because of the volatility, bankers note.
JPMorgan Invests in Ignia Fund
Mexico’s Ignia Fund has closed with $102m thanks to a $5m commitment from JPMorgan, Ignia says. Despite last year’s economic downturn, Ignia says it surpassed its initial fundraising target of $50-$75m. Its investments will support projects in the health, education, housing, and basic services sectors, among others. To date, Ignia has committed to invest $22m in 6 companies. Other investors contributing to the fund are the IFC, which is investing $10m, the Corporacion Mexicana de Inversiones de Capital, which is investing $7.5m and the IDB, which provided $25m in debt financing. Soros Economic Development and CAF also participated, says co-founder and managing partner Alvaro Rodriguez. The fund plans to hold investments for about 7-8 years and provide investors an IRR of about 25%, he adds.
Grupo Bimbo Buys Candy Maker
Mexican breadmaker Grupo Bimbo says it has agreed to acquire candy maker Dulces Vero for an undisclosed price. Vero posted sales of MXP1.1bn in 2009, Bimbo says. The buyer adds that the acquisition will allow it to strengthen its snacks subsidiary Barcel. Shortly after its $2.5bn acquisition of based Weston Foods’ US operations in December 2008, CFO Guillermo Quiroz had told LatinFinance that the company did not expect to make any large acquisitions for the following 2 years as it would focus on paying down debt acquired to buy Weston, and added that acquisitions under $50m might still be possible. The company has been paying down debt. According to S&P, debt-to-Ebitda stood at 2.6x at March 31, down from 4.2% a year before.
Mexican Oil Servicer Plans ABS Takeout
Mexican maritime logistics provider TMM is planning to replace 3 outstanding service contract receivable securitizations with a single MXP10.2bn ABS, according to a banker on the deal. TMM is aiming for late July to sell the 2030 bonds rated AA on a national scale and paying a spread over TIIE. Proceeds will repay MXP9bn in 3 outstanding series with an average maturity of 18 years, and also be used to refinance smaller bank debt and for working capital. The deal will make TMM’s debt profile all long-term and all in MXP, according to a banker on it. Unlike previous securitizations, the new one will be entirely non-recourse to TMM. Value Casa de Bolsa is managing the transaction, with Crecimiento Programado as structuring agent. In the largest and most recent of the 3 prior deals, TMM sold MXP4.39bn in 2028 bonds at TIIE plus 219bp in July 2008.TMM has a fleet of boats servicing offshore oil rigs, in addition to other transportation and port operation business lines.