Category: Regions

Mexico has cancelled an auction for the Paquete del Pacifico tollroad package, also known as Farac II, after extending twice. Bids for the estimated MXP40bn network were due Friday, but the transport ministry says the 2 received fell short of the minimum. Bids were received from a consortium of Controladora de Operaciones de Infraestructura and Caminos y Carreteras del Mayab – both units of Grupo ICA – and Promotora del Desarrollo de America Latina. Letters of apology for not participating were sent from Obrascon Huarte Lain and a consortium made up of Global Via Infraestructuras, Mexicana de Global Via Infraestructuras, and HSH Investments Limited. The ministry says it will work with Banobras and Fonadin to alter the package in response to market conditions. The deal is seen as one of the cornerstones of president Calderon’s infrastructure push.

US government participation in Citi is unlikely to trigger an immediate sale of Banamex, but under Mexican law the finance ministry will decide, say local attorneys. Participation in the capital stock of a Mexican bank by a foreign government could force divestment, says Rodrigo Conesa Labastida, partner at Ritch Mueller in Mexico City. “The ministry of finance may order the sale of the shares owned by the government to the Mexican bank,” says Conesa. He adds that the price would be 50% of the lowest of either book value or market value of the shares. “Proceeds from the sale would be kept by the Mexican government as a fine,” says the lawyer. However, he adds that this will likely not happen. “In practice this is not possible because the participation of the US Treasury in the capital stock of Banamex is indirect, so the ministry of finance cannot order the sale of the shares,” says Conesa. “Revoking the banking license is a theoretical possibility, in practice this will never happen,” he adds. The government is therefore challenged with interpreting the banking law in the light of the current crisis. “I don’t think [the US government stake] will trigger, from a legal point of view, that Banamex should be sold,” says Rafael Robles, a partner at Galicia y Robles, noting that if the US government equity is only supporting the bank, it may not be found to violate the law. Even if there is no legal imperative, 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 to do the rounds. Itau is also mentioned as a potential bidder if Citi opts to sell.

Cemex is expected to price a BB/BB+ benchmark-size bond this week, likely paying a yield of 13%-15%, according to investors following the transaction. The troubled Mexican cement producer, relegated to high-yield territory and facing an urgent need to roll over debt, is set to wrap-up meetings with investors Wednesday. With leads BBVA, Citi, HSBC, RBS and Santander recently managing $4bn in loan restructurings, the group of banks is heard prepared to take a majority of the issue if necessary, selling it later in the secondary. “It’s more that the banks are looking to offload exposure than anything else,” says an EM debt manager who holds Cemex paper. He notes that a deal would be positive for existing holders, as it will establish a much-needed price reference for the credit, and possibly tighten its other bonds. Buysiders expect a tenor of 5 years. The last LatAm high-yield corporate issue was B+ rated Mexican marine contractor Oceanografia, pricing in July a $335m 11.25% 2015 bond to yield 11.50%. Cemex refinanced $4bn in short-term debt in January, terming out 2009 and 2010 bilateral loan maturities until February 2011. It plans to lower net debt by at least $3.6bn this year to $14.3bn, primarily through asset sales.

S&P has lowered the credit rating of Mexican mortgage lender Su Casita to BB- from BB, and its national scale mark to A minus from A. “The downgrade reflects the continuing deterioration in Su Casita’s asset quality, negative pressures on its profitability and low levels of capitalization,” the agency says. Particularly troublesome is the rate of non-performing assets in the lender’s portfolio, which S&P estimates final 2008 results will show to be more than the 5.4% seen in September. Despite the recent MXP500m raised from existing shareholders, S&P still finds Su Casita’s Capitalization to be low. The outlook is stable.

Mexico’s Megacable is in a good position to acquire competitors, say analysts eyeing the credit. “Megacable has the flexibility to acquire assets in its sector in accordance with its consolidation strategy,” according to Banif Ixe, pointing to net debt reduction of 35% in the past year, with a leverage ratio of 0.5x and interest coverage ratio of 14.6x. The cable company’s shopping spree over the past 2 years includes 11 purchases of smaller local competitors. With a 31% share of the Mexican paid subscriber market, Megacable is the country’s largest operator, but still holds a relatively small portion of the national market. Among larger independent companies in Mexico are privately held Grupo Hevi, which has 600,000 subscribers, and Cablecom, with 300,000, notes Rajneesh Jhawar, media and telecom analyst at JPMorgan. “These companies are highly levered,” he adds, referring to Mexican cable companies in general. “Having this debt during a downturn makes them more susceptible to considering an equity investment or acquisition,” he adds. Historically, Telmex, one of the region’s biggest telecom acquirers, has paid between $1,000-$1,200 per subscriber, though since its last spree, public equity valuations have tumbled by some 50%, says Jhawar. As such, a company like Grupo Hevi might command an equity price tag of anywhere from $300m to $600m.