Pemex pounced on attractive relative pricing in Europe Wednesday with a tightly priced EUR1bn 2017 issue, the first non-sovereign public deal from LatAm in that currency since 2005. The sale targeting European investors priced at 99.311 with a 5.500% coupon to yield 5.623%, or mid-swaps plus 250bp, following 255bp area guidance. Demand reached EUR2.6bn, according to bankers managing the Baa1/BBB+/BBB sale, who note participation from more than 270 accounts. “LatAm Euro-denominated issue has generally traded wide to dollars over the last few years. We began to see that relationship reverse about 5 weeks ago,” explains a banker on the deal, who estimates that the new bond priced 5bp-10bp through dollars. He adds that the transaction reopens the euro market for other high quality LatAm names with a reputation in Europe. “It’s flat to the dollar curve and very competitive,” says a banker at a competing shop. “It opens up a benchmark that might be followed,” he adds. The deal is the first Euro-denominated LatAm quasi sovereign since Pemex’s EUR1bn 2025 issue in 2005, according to Dealogic. It is the first from LatAm since a Brazil sovereign euro issue in early 2006. Deutsche Bank and Calyon managed this week’s sale. The state-owned oil producer appears eager to raise cash anywhere it sees liquidity, in order to cover an $18.6bn 2010 capex budget. Pemex sold $1.5bn in 2015s September 10 to yield 5.033%, followed by a CHF350m 2014 deal to yield 3.525%. It was in China last week, apparently seeking new sources of funding. This year has also featured an August EUR200m private placement of 5.779% 2017s from Pemex, as well as a GBP350m sale of 8.25% 2022s in May.
Category: Regions
Peru on Path to High Grade
Moody’s has placed Peru’s Ba1 bond rating on review for possible upgrade to reflect the sovereign’s track record of stable economic policymaking and reduced risks from the economy’s relatively high degree of dollarization. “The review reflects signs of increased shock-absorption capacity in the face of adverse external conditions,” said Mauro Leos, regional credit officer for LatAm. “The government’s enhanced policy flexibility is also evidenced by its successfully steering of the economy towards a ‘soft-landing’ after a period of above-trend growth,” he adds. The country’s Baa3/P-3 country ceilings for long- and short-term foreign currency debt and its Ba2 country ceiling for foreign currency deposits were also placed on review for possible upgrade. Moody’s last week upgraded Brazil to Baa3 from Ba1.
Veteran Mexico Economist Retires
Alfredo Thorne, Mexico chief economist for JPMorgan for the past 14 years is retiring and moving to his native Lima, confirms Gabriel Casillas, who is taking Thorne’s place. Casillas, who was previously with UBS and has been at JPMorgan 1 week, says that Thorne’s last official day with JPMorgan is today.
Carlyle Mexico MDs Launch New Venture
The 4 executives in charge of Carlyle Mexico Partners are setting up an independent private equity shop, EMX Capital, to focus fully on investing in Mexico, Joaquin Avila, one of the managing directors, tells LatinFinance. EMX, he says, will be in charge of investing what’s left of Carlyle’s $134.4m Mexico fund, spending $10m-$30m on a project that is likely to close in about 6-8 weeks. Avila adds that the majority of the fund is already invested. Some of the industries the fund might invest in, Avila adds, are education and healthcare. After the Carlyle fund is fully invested, Avila and his partners – Rodrigo Fonseca, Miguel Valenzuela and Andres Obregon – will continue to focus on Mexico with EMX, as Carlyle seeks to focus on establishing larger funds upwards of $500m in other markets such as Brazil. Avila denies that there was an MBO, as was rumored among Mexico City-based bankers. Carlyle will still hold a minority stake in EMX, which will operate from the same premises. A Carlyle spokesman declines to disclose the size of the remaining stake, and rejects local chatter that Carlyle is pulling out of Mexico. Carlyle Group co-founder David Rubenstein said last week that he is bullish on Brazil as risk aversion subsides, and he expects assets under management in the region to increase.
EPM Gets Investment Grade
Fitch has upgraded Colombian utility Empresas Publicas de Medellin’s (EPM) rating to BBB minus from BB+ with a stable outlook. The upgrade is due to “increased geographic diversification of the company, a result of the acquisition of 4 distribution companies during the past 2 years,” says Fitch. It adds that EPM’s ratings also take into consideration the company’s strong performance of and its continued operations with limited government intervention. EPM reported a consolidated Ebitda of approximately COP2,572bn ($1.3bn) and total consolidated debt of about COP3.3bn ($1.6bn).This translates into a leverage ratio of 1.3x, which Fitch considers strong for the rating category.
Bolivia Debt Metrics Improve
Moody’s has upgraded Bolivia to B2 (stable) from B3 amid general improvements in the main debt metrics and a reduction in the still-high levels of domestic political confrontation. “Years of above-trend growth and the benefits of external debt forgiveness have significantly improved most of Bolivia’s credit metrics,” says Gabriel Torres, a Moody’s VP and sovereign analyst. “Foreign reserves are now close to 50% of GDP, and government savings surpass 10% of GDP,” he adds. Political and policy differences between the government and the opposition are still wide in the run-up to December’s national election even though last year’s political turmoil has subsided, says Torres. “Going forward the political system will likely be tested to resolve these differences without affecting the strength of institutions or the implementation of public policy,” he adds. Moody’s notes that Bolivia last year grew over 6% and is likely to be among the few countries in the region to register expansion in 2009. However, it will be challenged to maintain recent growth rates given very low investment ratios.
Hacienda’s Escobar Takes Leave
Maria Catalina Escobar, director of external market financing at Colombia’s finance ministry, has left her position, ministry officials say. Escobar departed in August to finish a graduate degree, after which she is expected to return to the ministry. A replacement is expected to be named soon, officials say.
Colombia Surprises With Easing
Colombia’s central bank has cut the monetary policy rate by 50bp to 4.0%. Market consensus expected the bank would leave the rate unchanged at 4.5%. The central bank says the cut seeks to secure the economy’s recuperation and reduce possible negative effects on the economy caused by commercial restrictions and currency appreciation. Venezuela, one of Colombia’s major commercial partners, is threatening to block Colombian imports. RBS Securities says Colombia’s central bank is worried about the appreciation of the COP, up almost 25% since Q1. “We don’t expect additional cuts also because the economy seems to have bottomed out,” says the shop.
China Invests in Agriculture Play
In a move indicative of China’s interest in securing access to soft commodities, the China Investment Corporation (CIC), China’s $300bn sovereign wealth fund, has agreed to invest $850m in equity in agricultural logistics and commodity player Noble Group. The Hong Kong-based investor with a concentration of assets in LatAm plans to use the capital to pursue strategic investments in “key global agricultural markets,” it says. Noble describes the partnership for the purpose of jointly investing in infrastructure assets and supply chain management related to agricultural commodities. Noble owns agricultural assets in Brazil, Uruguay and Argentina as well as 5 port facilities in LatAm. Merrill advised Noble, while JPMorgan advised CIC.
LatAm Resilient to China Slowdown
Despite overall bullishness about growing trade links between LatAm and China continuing to drive LatAm growth, many countries in the region are not wholly dependent on it. “For the most part, countries are much more reliant on their own growth than on China’s growth,” says Doug Smith, economist at Standard Chartered. He explains a slowdown in China’s growth means commodity prices could suffer, and there would be less reserve accumulation, but most countries are net creditors. Brazil’s growth is particularly tied to domestic consumption, which would shield it from any drop in Chinese demand. “I’m quite pessimistic about the long-term outlook for China,” says Michael Pettis, professor at Beijing University, noting that the current investment boom is unsustainable, as trade balances readjust in the deleveraging following the crisis. Pettis notes, however, that even if the likely bumps ahead mean Chinese GDP growth of 5%-6% per year instead of 8-9%, that is still better than most economies. Both spoke on a panel at the LatinFinance Latin America China Investment Forum last week in Beijing.