Category: Regions

Grupo Mexico shares dropped 15% Thursday after a Texas judge ordered a subsidiary to pay damages to Asarco that the intended recipient values at $6.04bn. According to Asarco, the ruling stems from a judge’s decision last August that Americas Mining Corporation (AMC), a subsidiary of Grupo Mexico, had fraudulently transferred to itself Asarco’s 54.18% interest in Southern Peru Copper Corporation (SPCC). The judge has ordered that AMC return to Asarco 260m shares of SPCC, which based on Wednesday’s closing price is worth approximately $4.68bn, and pay damages of approximately $1.35bn. The cash damages are comprised of dividends AMC received of $1.94bn and prejudgment interest on those dividends of $329m, less the $747m that AMC had paid for SPCC in the 2003 transfer, together with $164m interest on the payment. Asarco says it will own an approximate 30% equity interest in SPCC. “The award represents return to Asarco of the value of equity interest that it lost in the fraudulent conveyance, plus post-transfer dividends that Asarco would have been paid over the past 6 years had the transfer not taken place, and pre-judgment interest on those dividends,” says Asarco. “This award is for the benefit of Asarco’s creditors in the bankruptcy and should assist the company in its efforts to successfully emerge from Chapter 11 in the coming months,” says Joseph Lapinsky, president and CEO of Asarco. India’s Sterlite Industries said last month that it is buying the operating assets of US-based Asarco from Grupo Mexico for $1.1bn in cash and $600m in notes. Grupo Mexico bought Asarco in 1999 for $1.2bn, and Asarco subsequently went bankrupt. It is unclear how Grupo Mexico could raise enough funds to pay the damages. The company’s market cap was around $6.14bn Thursday.

Sanofi Aventis’s Mexican subsidiary has acquired local generic drug maker Laboratorios Kendrick. Although it did not disclose financial terms, analyst Linda Bannister of Edward Jones believes this is a small deal for Sanofi, as Kendrick’s sales for 2008 amount to MXP500m. Sanofi’s Mexico operations generated about €600m in 2008 sales, according to company information. Bannister, who has a hold recommendation on Sanofi stock, says it is possible this was a cash deal. The company claims to have about €4bn in cash.

Mexican paper giant Durango says it has reached a tentative agreement with some 92% of its creditors to restructure its debt. In October, the company said it would look to restructure some $1.5bn, including over $500m at the holdco level and around $1bn at its subsidiaries. In 2007, the company issued $520m in 10.5% notes via Merrill Lynch, and in its Thursday statement, Durango says it has gained preliminary consent from the main group of holders. “This restructuring will allow the company to substantially reduce its debt, having achieved an equitable agreement which guarantees it a future of growth and development,” says Miguel Rincon Arredondo, CEO of Durango, in the statement filed with the Bolsa. The remarks lead one restructuring expert away from the process to speculate that means the deal involves a haircut, though details of the deal have to be unveiled. The company was heard to have hired at the time PriceWaterhouseCoopers, Rothschild and White & Case for advice. Durango underwent a messy restructuring in 2004 and the 2007 bond issue was supposed to have marked a comeback. Company officials did not return calls seeking comment.

Mexico’s Grupo Iusacell says it will stop servicing dollar bonds while it seeks to restructure its debt. It will continue to service its MXP denominated paper. Company officials did not return repeated calls, but a sellside analyst watching the credit estimates the company’s 3 tranches of notes total close to $400m. A 2011 note pays Libor plus 400bp, while another two notes due 2012 and 2013 pay 10%, says the analyst. The problem, claims the company, was generated by a depreciation of the MXP against the dollar, likely a euphemism for an FX derivative-related loss. Iusacell is Mexico’s fourth largest cell phone operator by customers. Iusacell’s long term debt stood at MX9.9bn at the end of 2008, of which MXP6.8bn is in the form of bonds, according to its most recent financial statement.

Vitro says that it has completed the refinancing of a 2-tranche trade receivables securitization for 2 of wholly owned subsidiaries. The senior tranche is a MXP550m variable rate investment grade bond funded by Ixe Banco, Institucion de Banca Multiple, and Ixe Grupo Financiero. The subordinate tranche is an unrated $19m fixed rate bond funded by a multinational investor with recourse back to Vitro. Finacity Corporation structured the transaction, and will act as master servicer, servicer and bond administrator. “The funding of the senior tranche with private institutions provides Vitro’s glass containers business unit with enhanced liquidity to successfully continue its normal operations,” says Vitro. The company said last month that it has reached stay agreements with derivatives counterparties Credit Suisse, Calyon, Merrill Lynch, Barclays and Citi. They have agreed to extend the deadline on a filling of Vitro’s initial responsive pledging in the supreme court of the state of New York and a stay of the litigation processes until April 24, allowing more time to negotiate agreement. Vitro said in January that its failure to pay approximately $293m, including approximately $80m held as cash collateral by counterparties, constitutes a default under its derivatives agreements. This triggered cross-default clauses for Vitro, which last year reported a net loss of approximately $358m, not including accrued interest. Blackstone is advising Vitro on a restructuring.

Mexico is requesting a $47bn 1-year flexible credit line (FCL) from the IMF, marking the first LatAm use of the new facility. The deal – equivalent to 10 times Mexico’s fund quota – along with expectations that the government will use a $30bn Fed swap arrangement to help corporates with external amortizations, boosted Mexican markets Wednesday. “An FCL could play an important role in supporting Mexico’s economic policies and in bolstering confidence in this very difficult global environment,” says Dominique Strauss-Kahn, MD of the IMF. “Mexico is an excellent candidate to pioneer this new facility, and I therefore intend to move ahead rapidly in seeking board approval,” he adds. The IMF launched the FCL on March 24 to replace its short-term liquidity facility, calling it an insurance policy for strong performers that can be fully disbursed as needed, rather than conditional on compliance with policy targets. “This is very positive development for the currency and rates,” says Goldman Sachs. “Despite the challenging macro outlook Mexico’s fiscal and balance of payments picture is resilient enough to withstand the current external shocks and the domestic cyclical downturn,” it adds. According to Goldman, other qualified countries for the FCL are Brazil, Chile, Colombia and Peru. However, it says that Argentina, Ecuador and Venezuela would not be eligible. The private sector was last year calling for the fund to reinstate a contingent credit line (CCL) as a backstop for EM countries, and Chile had been heard interested. The fund’s CCL was floated without success earlier this decade, partly due to the fact that countries feared the perceived negative stigma that would be attached. The proposed facility also failed due to excessive conditionality. Mexico was one of the prime candidates for a CCL, but it ended up not signing one. The peso and local stock market rallied on news of the FCL Wednesday.

Mexico’s proposed $47bn 1-year flexible credit line (FCL) from the IMF signifies cheap and unconditional backup funds for the sovereign, according to the government. “The cost to Mexico of having this credit line open is very low compared to other alternatives for increasing available international reserves,” the finance ministry and central bank say in a joint statement. “Once approved, access to funds is not subject to any condition,” it adds. The FCL’s repayment period is 3.25-5.00 years and the line can be renewed. The cost is 15bp for drawing up to 200% of quota, 30bp for 200%-1,000%, and 60bp beyond that. Banxico says the facility has an initial fee and that if it is drawn for less than 36 months, the cost would be approximately 2.84%. Mexico says it does not intend to draw from the line, as it is taking it only as a preventive measure. Barclays believes there is a good chance Mexico will not use the funds at all. It adds that by boosting investor confidence, the FCL may become redundant. “The line should dispel concerns about the country’s ability to face the mounting fiscal and external challenges of the current and next year,” says Barclays. “Given that the line is oriented toward countries with a solid macroeconomic framework, the “stigma” traditionally associated with tapping IMF funds has virtually been converted into a “seal of approval”,” it adds. The shop’s baseline scenario for the 2009 balance of payments entails a projected current account deficit of about $20bn and private sector external debt falling due in $35bn, to be financed with $10bn in oil hedge proceeds, $10bn in net public external borrowing, $12bn in net FDI flows. It also expects the private sector to roll over 100% of trade and bank obligations, and less than 60% of non-trade corporate debt falling due this year.