Analysts expect Mexico’s central bank to leave its monetary policy rate untouched at 4.5% today. Between September 2008 and December 2009, Banxico eased 375bp. BofA-Merrill believes the bank will begin hiking rates in Q3. The shop also believes it will hit 5.5% by year-end. Morgan Stanley, meanwhile, predicts Banxico will keep its policy stance unchanged over the course of 2010, given a still recovering economy and low risk of inflation.
Category: Regions
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Jamaica Launches $8bn Exchange
Following the prime minister’s address Wednesday night and a meeting with investors Thursday morning, Jamaica has launched an exchange for JAD700bn ($7.86bn) of its local bonds, representing all categories of local debt except for treasury bills. In the deal, which does not involve reduction in principal, the government aims to extend maturities and save JMD40bn annually in interest payments. The maturity extension should be an average 2.5 years, according to RBS. Interest rates – which run as high as 28% – should be lowered from an average of 18%-19% to 12%. Over 350 securities would be consolidated into 23 new benchmark bonds in the deal, according to Fitch. This includes the introduction of inflation indexed bonds. Much is riding on the success of the offer, which will remain open until January 26 and be finalized by February 16. A $1.25bn standby loan from the IMF depends on the swap’s success. “There is likely to be a high rate of participation in this transaction, given strong moral suasion from authorities,” RBS says. “Retail investors would be harder to bring into the fold, but the government is “suggesting” a surtax on those that don’t participate in the deal,” it adds. The shop notes that IMF financing – likely negotiated with assurances of a near-100% participation – is key to making the debt exchange work, as part of it will be used to set up a $450m liquidity support facility for financial institutions that eventually face liquidity pressures as a consequence of their participation. “You can’t just cut interest rates almost in half without someone taking a hit,” says a US investor holding Jamaican external debt. He notes that local brokers and banks will absorb much of the loss, and also be vulnerable to secondary effects of the exchange, such as pressure on the currency. “The concern is that if you plug one hole, you can create leaks elsewhere,” he adds of the possible impact on the broader economy. Citi has been advising Jamaica on its options and is
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Slim Bundles Fixed, Mobile in Bid for Efficiency
Mexican magnate Carlos Slim plans to merge his fixed-line operations into America Movil (AMX) in what insiders say is an attempt to bolster the entire company’s competitive edge throughout LatAm. “With the purchase [of Telmex and Telmex International stakes] by America Movil, we will be able to compete better with international players [that already house both operations under one roof,”] says a senior official at one of Slim’s companies. The plan involves a share swap whereby Carso Global Telecom (CGT) will receive 2.0474 AMX shares for every CGT unit. That gives AMX the 59.4% stake in Telmex that belongs to CGT and a 60.7% stake in Telmex International (TI). In addition, AMX will tender for the 39.3% of TI that is held by public investors at a rate of 0.373 AMX shares for every TI share, which values each TI share at MXP11.66, according to a company statement. TI shares closed at MXP11.40. Using market caps based on Wednesday closing prices, when the deal was first announced, the value of the proposed transaction is $22.9bn. “The minority shareholders [of Telmex and TI] will probably oppose the offer,” says a local telecoms banker. He speculates that the relatively small premium Slim is offering on the shares is likely to be received coolly by investors. The executive believes the ratio may need to be improved for both bids. Meanwhile, AMX minority investors may also be displeased to see that the company’s earnings growth – steeper than the fixed line businesses – will be diluted with the bundling of the businesses under one roof, adds the telecom banker. From a debt perspective, the move is neutral for AMX bonds and positive for Telmex bonds, according to Barclays, which says it is not overly concerned about increases in leverage resulting from the combination. No banks were hired as advisors for the process, but the company executive says AMX would turn to Inbursa if it needs assistance with the share buyback. Fitch put CGT and TI on watch positive following the
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Pemex Plots Local Bond Issue
Pemex is preparing an issue of bonds in Mexico’s domestic market, according to regulatory filings. The size has not been specified, but the state-owned oil producer can choose among 5-year peso floaters and 10-year fixed-rate notes denominated in MXP or the UDI inflation-linked unit. Proceeds are marked for debt repayment, investment and general corporate purposes. BBVA, HSBC and Santander have been hired to lead the sale, rated AAA on a national scale. A major issue from Pemex – last year it sold MXP10bn in April and MXP10bn in May – could help stimulate the Mexican domestic bond market. It slowed considerably last year as a dispute between institutional investors and issuers made pricing difficult for all but the bluest-chip borrowers. The buyside wanted tighter covenants because of the crisis, including balance sheet-related restrictions and procedural changes for transactions, such as setting the price range on debt deals 48 hours before pricing.
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Mexico Tips Bond Balance Toward Price
Mexico scored among its lowest-ever 10-year yields in a $1bn 2020 bond sold Monday, its public credit director says. The sovereign, helped by lower financing needs, is focusing on price rather than size. “We were keen on having something priced tightly, taking advantage of the very strong beginning of the year that the new issue market has had, and strike a good balance with investors,” Gerardo Rodriguez, Mexico’s deputy undersecretary for public credit, tells LatinFinance. “Having a relatively low external financing requirement, in our case, we could tilt the balance more in favor of price rather than size,” he adds. The deal priced to yield 5.25%. Mexico plans to borrow $2.bn-$3.0bn in 2010. It faces $2.4bn in maturities following debt sales of more than $3bn in 2009. “Market consensus is pointing to higher yields for the next few months and in the second half of the year – but people have been saying that for some time and it hasn’t happened yet,” says Rodriguez. “We try not to take a strong view on the direction of markets, but rather take advantage of opportunities,” he adds. The new 2020 was heard trading between reoffer and down 0.25 points at the close Wednesday, according to traders. Rodriguez notes that Mexico will continue to seek diversification this year, including considering a non-guaranteed Samurai bond – if conditions permit, to follow a December issue guaranteed by JBIC – as well as a EUR-denominated issue. On the domestic front, he says February should see Mexico’s first ever sale of local debt through a 1-day syndication format, rather than via auctions, with the aim of establishing new benchmarks instantly. A 10-year MXP bond and 30-year Udibono should be the first to test the format, with specific details due in coming weeks.
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Urbi Expands Issue on Hefty Demand
Mexico’s Urbi has sold $300m in new 10-year bonds, upsizing from $250m on the back of $1.1bn in demand from more than 100 investors. The 2020 NC5 sale hit the tight end of yield guidance and continues the trend of successful Mexican cross-border taps from the homebuilding sector. “There has been a lot of interest in the sector, and Urbi is the best among its peers operationally,” says a European-based EM investor looking at the deal, noting that the concern that many buysiders might be filled up on homebuilders does not seem to have borne out. The Ba3/BB deal priced at 98.424 with a 9.500% coupon to yield 9.750%, or UST plus 596bp, the tight end of 9.875% price guidance and of 10%-area early whispers. The yield matches what Ba3/BB minus compatriot Homex scored on its $250m 2020 NC5 in December. That note trades to yield about 9%, according to a trader. “From a relative value perspective, they paid less of a premium than Homex did in December,” says a banker on the deal. He spots a spread of 90bp versus Uribi’s 2016s, compared to the 120bp-130bp spread between Homex’s 2016s and its new 2020s at issue. The trader adds better market conditions and increased investor familiarity may have also helped Urbi. Deutsche Bank and Santander managed the sale. Urbi’s deal marked its first dollar sale since a $150m 8.500% 2016 sold in 2006 via Merrill Lynch and UBS, according to Dealogic.
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Bolivia Plans Mega Oil Investment
Bolivia president Evo Morales says his government will invest $11bn over a 5-year period in the country’s oil and gas company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB). The country is trying to bring the producer to par with other state-run oil and gas giants such as Petrobras or PDVSA, according to Bolivia’s news agency ABI. Morales says financing will come from “government funds, external debt and foreign firms [that partner with YPBF].”
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Jamaica Preps Exchange Offer
Jamaica is set to announce today details of a domestic debt exchange offer that aim to lower its interest payments by JMD40bn ($450m) in the next fiscal year. The offer should launch Thursday, the government says, and will be structured as a 1-for-1 exchange with no haircut. “The government is obligated to repay every dollar of the principal borrowed,” says the Jamaican government in a statement. Full details are due Wednesday on the transaction, which the debtor says is essential to securing a $1.3bn IMF stand-by. “The program is aimed at bringing into a sustainable range, the amount of government resources devoted to servicing local debt, and reducing the debt in a manner that is fair to all holders of government paper,” says Jamaica. The IMF is scheduled to approve Jamaica’s program January 27 if the offer succeeds and the government says it will only accept “substantially, 100% participation.” The government also plans to use $40m from the IMF and multilateral funding to create a financial sector support fund, to provide a source of liquidity to eligible financial institutions affected by issuing new bonds in the exchange. “The news is positive for external debt, and in line with our longstanding view that any form of liability management would be restricted to domestic debt,” says JPMorgan. “However, a failed domestic debt exchange would significantly increase the probability of a comprehensive debt restructuring,” it adds. The shop remains overweight Jamaica in its model EMBIG portfolio, noting a 7.5% return from Jamaican global bonds since late November. Jamaica is out with a 60-day government note paying 12%.
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Pacific Rubiales Signs Colombia Pipe Deal
Canada’s Pacific Rubiales Energy Corp has entered into a $190m agreement with Colombia’s Oleoducto Central (Ocensa) to acquire preferential rights to use capacity on the latter’s pipeline system. It will be allowed to ship up to 160m barrels of oil for a 10 year period beginning February 1. The pair also executed a related transportation contract to regulate the operating aspects of transporting oil through the Ocensa system. These volumes will be delivered by the company to Ocensa at either the Cusiana station or the El Porvenir station and will be pumped through to the Covenas terminal for which the company will pay the transportation tariff as set by the Ministry of Mines and Energy of Colombia for each segment of the Ocensa pipeline. “Given the anticipated growth of production from the entire Llanos basin and other basins in Colombia, and the limitations on existing transportation infrastructure, this agreement is a key initiative for us to secure the continuous flow of oil production from the Rubiales and Quifa blocks at a low and competitive transportation cost,” says Pacific Rubiales CEO Ronald Pantin. Pacific Rubiales owns 100% of Meta Petroleum Corp, a Colombian oil operator working with Ecopetrol.
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Urbi Aims for Under 10%
Price talk on a new 2020 bond from Mexican homebuilder Urbi is in the 10% area, investors say. The Ba3/BB issuer is set to conclude today investor meetings pitching the $250m issue, with pricing as soon as tomorrow. Deutsche Bank and Santander are managing the sale. In a report assigning a BB rating, Fitch notes a strong market position in a fragmented industry, geographic diversification and a significant land reserve. On the downside, Urbi’s business depends a lot on government-related mortgage funding of low-income homes, and it has high working capital requirements.