Category: Regions

Foreign governments can own stakes in Mexican banks given the crisis in global financial markets, Mexico’s finance ministry says. Though the Hacienda statement issued Thursday does not name specific banks, the decision means it would not force Citi to sell Banamex. “The law does not cover emergencies derived from the global crisis,” the ministry says in a statement, referring to legislation that prohibits foreign governments from owning Mexican banks. The status of Banamex has been in question since the US government upped its stake in Citi, prompting speculation of a sale. The ministry says the government will propose a change to the banking laws to provide for exceptions to the foreign government ownership limits, but that it would also keep in place a general ban. Markets have long been speculating about a sale of the lucrative Banamex operations. Local lawyers did not expect Hacienda to force a sale on legal grounds. Nonetheless, political pressure may become too great. Banamex is a sensitive case, as an iconic institution that has for many years been a leading domestic bank. It operates 19% of the Mexican system, according to Moody’s. Talk of local groups forming to buy Banamex continue. Itau is also mentioned as a potential bidder if Citi opts to sell. Citi says it is not planning to sell Banamex. It closed Thursday at $2.60, well clear of the $0.97 low it scraped March 5.

Mexican beer giant Grupo Modelo’s arbitration with Anheuser-Busch (AB) and owner InBev could well yield a jumbo loan, say LatAm bankers. Modelo is protesting InBev’s July 2008 acquisition of AB, which allows the Brazilian-Belgian behemoth to inherit AB’s 50.2% Modelo stake. InBev is a direct competitor of Modelo’s in the LatAm beer market. A process that began in mid-October in the Southern District Court of New York is ongoing, say company officials. The uproar leads market participants to believe Modelo’s controlling shareholders will try and buy out AB. “I think they would like to acquire the Anheuser stake at a really cheap price,” says a senior LatAm M&A banker familiar with Modelo’s situation. He adds that public valuations are especially compelling for a purchaser. Modelo’s Mexican listed shares have fallen 14% so far this year, and 30% since last May. Other bankers say the company’s market cap, which Thursday stood at MXP127bn, would not necessarily be a good indicator of an eventual price for the stake. They say that a discussion between almost equal partners presents a different dynamic to typical divestiture talks, which could mean a substantial divergence to market pricing. Modelo is rumored to be in talks with banks to arrange a sizeable loan, and bankers away from the supposed discussions say there is no reason for the company to raise debt other than to buy the stake. Modelo had a cash equivalent balance of MXP34.9bn in Q308. It has zero net debt, with no outstanding short or long term bank loans, according to its latest SEC filing. That gives it substantial capacity to take on new liabilities, though convincing banks to extend capital remains challenging. A $1.7bn Bimbo loan, still moving slowly through retail syndication, would likely provide the best benchmark for Modelo. Bimbo pays margins of Libor/TIIE plus 275bp for 3 years, and 325bp over for 5 years. AB owns a 50.2% financial stake and 44.0% of the voting shares in Modelo, while the controllin

Fitch has cut Mexico’s Grupo Senda’s ratings and placed them on rating watch negative. The agency downgraded Senda’s foreign and local currency IDRs to B minus from B+. It also downgraded to B minus/RR4 from B+/RR4 the rating on $150m senior secured guaranteed notes. The cut reflects the transportation company’s increased leverage as a result of lower profitability coupled with the MXP devaluation against the USD, as well as the challenging operating environment the company faces in the near term, Fitch says. It implies 31%-50% recovery in the event of default. As of December 31, the company had cash and equivalents of MXP191m and short-term debt of MXP372m, from which approximately MXP201m are revolving bank credit facilities and the rest are maturities of long-term debt, says Fitch. Grupo Senda relies on successfully rolling over short-term debt given the current pressure on its cash flow generation, it adds. Senda specializes in bus transportation and package delivery services.

Mexican equities have fallen out of favor after enjoying a brief bump in overweight positions, according to the latest Merrill Lynch GEM fund manager survey. A month ago, the poll, which is conducted with over 30 investors representing roughly $50bn in AUM, showed investors putting Mexico in the net overweight category, making it the fifth most sought after EM destination after having been on the underweight side in January. But in the most recent results released March 18, Mexico fell firmly back into negative territory. “A big problem for Mexico has been the currency,” says Michael Hartnett head of Merrill’s international equity strategy team, speaking on a call Wednesday. “There has been a revaluation of how long the recession will last and that directly impacts Mexico as well,” adds the strategist. Brazil, meanwhile, rose to become EM’s second most favored destination after China, after trailing Turkey in third place in the previous month. “The real story here is China. People are more optimistic on China and Brazil is a more obvious way to play that than Mexico is,” says Hartnett. A related conclusion that emerges from the results is that EM equity investors are once again excited about BRIC markets. They have apparently flowed back into all of the four main countries, with a special interest in those that can benefit from an improvement in demand from China.