Category: Regions

Mexico’s central bank has kept its monetary policy rate unchanged at 4.50%, as expected by the market. “For now, the permanence of a wide output gap and relatively contained inflation expectations (2010 year-end inflation expectations stand at 4.01% according to the central bank’s latest survey) allows us to anticipate that Banxico will extend the pause for the rest of 2009,” says Bank of America-Merrill Lynch. Meanwhile, Goldman Sachs says it will “maintain our forecast that Banxico will keep the [rate] unchanged at 4.50% for the foreseeable future. In addition, the risk to this forecast is unequivocally toward a hike, possibly as early as in Q1 2010.”

An upcoming 2024 domestic bond from Mexico’s CFE has been given a Aaa rating, Moody’s says. It expects the UDI-denominated sale to weigh in at MXP2.75bn. The issue is the third from a MXP12bn program, and will help fund certain public works investments. ING is managing the sale, expected as soon as September 30.

Mexico has knocked out a considerable portion of its financing needs with a $1.75bn retap of its 2019 and 2040 bonds done at a generous concession. In its first issue since a 5-year February transaction where it also scrapped a 20-year tranche, the sovereign played it safe, poking its head out Friday morning with the 2019 tap before later announcing 2040 supply on reverse inquiry. It priced $1bn in 5.95% of 2019s at 106.125 to yield 5.126%, in line with 5.159%, or 105.875, area guidance. The $750m in 6.05% of 2040s reopened at 100.10 to yield 6.042%, with no guidance given. A banker managing the deal says the 2040 was reopened for a few minutes based on reverse inquiry, with little oversubscription. The 2019 tranche saw about $4bn in demand, he adds. The 2019s traded up at 106.25-106.50 Friday afternoon, while the 2040s were heard up at 101. “Clearly the emphasis was on amount over price,” says Siobhan Morden, fixed-income strategist at RBS, spotting about a point of concession on each tranche and noting this was wider than its last 10-year deal in December. A banker on the deal spots the concession on the 2019 at 0.75 points and the 2040 at 1 point. “This certainly positions Mexico well in terms of pre-funding,” Morden adds. The issue comes at a time when a tax reform proposal to boost revenues is on the table and there is the looming possibility of a downgrade, an EM investor says, indicating there is some risk being passed on to buyers. Barclays and JPMorgan managed the sale. Mexico had indicated prior to the issue that it would raise to do about $1.75bn before the end of the year. Mexico is rated BBB+.

A new 2014 bond from Mexican homebuilder Corporacion Geo was heard up 2 points in the gray Friday afternoon, after pricing Friday morning. Geo priced $250m of the Ba3/BB minus notes at 99.505 with an 8.875% coupon to yield 9.000%, or UST plus 659.6bp, through initial 9.500% area guidance, which was revised to 9.375% area. The book was heard at $750m-$1bn. “If you believe that Mexico will follow the US in an upswing, it’s an attractive credit,” says a New York-based EM investor, who sees 50bp-100bp further tightening in the bond. Proceeds will be used to refinance existing debt as well as for working capital. Morgan Stanley and Santander managed the sale.

Mexico’s central bank is expected to keep its monetary policy rate at 4.5% Friday, in line with the trend seen in other LatAm countries such as Peru and Chile. “With inflation on a clear downtrend and consistent with the central bank’s near-term forecast path, the authorities are likely to keep the overnight target at 4.5% through year-end,” says Morgan Stanley. Mexico’s annual inflation stood at 5.08% in August, according to the central bank. Bank of America-Merrill Lynch agrees, saying the bank will not make any cuts in this meeting and that it expects it to stay on hold until Q1 2010 before considering reversing the monetary policy cycle.

Mexico’s Corporation GEO has launched at 9% yield a $250m 2014 bond set to price and allocate this morning, according to investors. The homebuilder had given guidance of 9.50%-area Wednesday, but brought it in after the order book topped $750m by midday, according to investors. “The underlying demographic is pretty compelling, with most names rallying in the last few months,” says a New York-based EM investor, noting that even at 9%, Geo offers some spread versus comparables trading in the mid-8%s. Proceeds will be used to refinance existing debt as well as for working capital needs. Morgan Stanley and Santander are managing the sale.

Mexican telecom Axtel has sold $300m in oversubscribed junk rated 2019 NC5 bonds well through early talk, proving enduring hunger for yield from a cash-rich buyside. Orders for the deal, rated Ba2, topped $3bn and the price was 9%, more than 100bp through whispers of low 10%s. Guidance was 9.00%-9.25% and it came at par with a 9.0% coupon, or US Treasuries plus approximately 560bp, investors say. The bonds were heard trading up 2.0-2.5 points in the gray. “It’s a good way for the company to re-profile its debt and reduce its cost of funding,” says Diego Torres, corporate debt analyst at ING. He spots the concession at about 25bp-30bp, based on Axtel’s 2017s trading to yield about UST+500bp, and adding the extension pickup. “It is clear there is not enough product to meet demand – you see this across all products and asset classes,” says a banker on the deal. Credit Suisse and Bank of America-Merrill Lynch managed the sale, which will fund a repurchase offer for holders of Axtel’s 13% of 2011 bonds, and was allocated to more than 200 accounts, according to a banker on it. Axtel says it received consent from holders of 79% of the $162.5m outstanding principal amount as of Thursday, with the offer closing at the end of the month. It is expected to call any remaining at the end of the year. Axtel, Mexico’s second-largest fixed-line player after Telmex, got a boost this week from regulators who approved it to offer video services in a “triple play” package. It has also been the subject of takeover target rumors recently, though an EM investor who attended this week’s roadshow notes company officials say they are not interested in selling.