Turbulence in the global economy may erode cushions that have been built up over the past few years in LatAm and the Caribbean, according to the IMF’s latest World Economic Outlook. “The region’s current account balance is expected to move to deficit in 2008 and 2009, after being in surplus since 2003, but the deficit will remain quite low,” says the fund. “Moreover, reserve levels are high, and flexible exchange rates provide room to maneuver in a number of countries,” it adds. The fund also notes that a combination of tighter conditions for dollar funding and a sustained drop in commodity prices could stretch macroeconomic policy frameworks. “A deeper downturn in global growth could trigger a sharp drop in commodity prices, while external financing conditions facing Latin America could continue to tighten. Such a scenario would slow growth in the region even more, and although inflation would moderate considerably, external positions could come under serious stress,” says the IMF. Policymakers need to be ready to adapt policies as needed to preserve macro stability and growth. Those with very strong fiscal positions may have some scope for a countercyclical fiscal response. “Flexible exchange rate management would provide resilience in the face of potentially volatile foreign exchange flows,” the fund adds.
Category: Regions
Calderon Megaport May Have to Wait
Mexico’s government has delayed the bidding deadline for its Punta Colonet port project until January. Bidding for the greenfield port and rail complex in Baja California, which could cost more than $5bn, opened in August. The ministry of transportation aims to give interested bidders – initially numbering over 60 – more time, due to poor conditions in financial markets. The complex is hoped to be the largest project in the Calderon administration’s ambitions infrastructure plan, easing container traffic congestion at the ports of Long Beach and Los Angeles, some 200 miles north. Mexican builders ICA and IDEAL were both preparing bids, as were other builders, and rail and port operators from around the world. Lenders, before long-term financing conditions became prohibitive last month, were anticipating a winner needing innovative local and domestic debt financing solutions.
Agencies Turn on CCM
Volatility in the peso that has undermined retailer Controladora Comercial Mexicana’s (CCM) credit profile is worrying Moody’s and S&P, and the latter is considering making it junk. S&P put CCM’s BBB minus foreign currency corporate credit rating on negative credit watch, amid concerns about losses. “A downgrade could exceed one notch,” says the agency. Moody’s meanwhile put Mexico’s third largest food and general merchandise retailer’s senior unsecured Baa2 global and Aa2.mx national scale ratings on review for downgrade. This affects MXP3bn in 8.7% coupon senior unsecured notes due 2027 and $200m 6.625% senior unsecured notes due 2015. CCM said Tuesday it is in talks with creditors after FX volatility significantly raised the value of its foreign currency debt. The MXP flared to a new low around MXP14.30/USD Wednesday. In a filing with the Bolsa, CCM says it is negotiating with creditors on how to meet its liabilities. “The review of Comerci’s ratings will primarily focus on the company’s overall exposure to derivatives instruments and counterparty risk, the degree of potential impact on the company’s leverage and liquidity and the company’s risk controls and board supervision,” says Moody’s. “Depending on the severity of exposures ratings could be downgraded by more than one notch,” adds the agency, which expects to conclude the review within a week. Moody’s notes negative free cash flow driven by high investments in store network growth, increased short-term debt and the lack of availability under committed credit facilities for backup purposes. As of June 30, 2008, $167m in cash reserves covered $162m in short term debt 1.03x, says Moody’s, adding that coverage has likely weakened during Q3 because of continued investment spending.
Buenaventura May Issue $350m Debt
Peruvian miner Buenaventura announced in a regulatory filing that its board has been authorized to issue unsecured debt for $350m. The company’s board will be in charge of establishing the actual amount to be issued and the terms. However, the company notes that, given current market conditions, it is still unknown if the issuance will take place.
Mexico’s CCM Talks to Creditors
Mexican retailer Controladora Comercial Mexicana (CCM) is in talks with creditors after FX volatility significantly raised the value of its foreign currency debt. The MXP flared to a new low around MXP12.30/USD Tuesday. In a filing with the Bolsa, CCM says it is negotiating with creditors on how to meet its liabilities. It does not specify the amounts or currencies involved. CCM has a $200m 6.625% of 2015 that was trading just below par last week. It is rated BBB–/Baa2. The news follows the previous session’s announcement that Corporacion Durango had filed for bankruptcy protection in Mexico after missing a coupon payment on 10.5% coupon senior notes due 2017. The company filed for protection in Mexico, with an auxiliary process in the US, and plans to restructure $1.52bn in debt, including $509m in public obligations and around $1bn in liabilities at subsidiaries. As the first big LatAm corporate default in several years, Durango could mark the start of a new cycle of troubled firms throwing in the towel, as external markets continue to deteriorate. Others on the distressed funds watch list include Argentina’s Mastellone Hermanos, Impsa and Autopistas del Sol; Brazil’s Gol and Bertin; Colombia’s Transtel and Mexico’s Desmet, Industrias Unidas, Iusacell and Satmex. Desmet, which was recently trading in the mid-20s, has a November payment that looks unlikely to be met.
Mexico Offers to Roll Bonos
The Mexican government is offering to swap up to MXP10bn in 8% coupon bonos due in December for new bonds with maturities ranging from 2009 to 2011. The December 2009 issue has a 9% coupon, the December 2010 pays 8% and the December 2011 has a 9% coupon. The Bank of Mexico, which acts as a financial agent for the federal government, will conduct the swap auction Wednesday for Friday settlement. Besides rolling over debt coming due, Mexico is also looking to raise liquidity in benchmark local issues.
Fitch Takes Bigger Slice of Colombia Agency
Fitch has reached agreement to acquire a majority stake in Duff and Phelps de Colombia (DCR), the local rating agency. “Our additional investment in DCR Colombia reaffirms our commitment to grow within the emerging markets,” says Charles Prescott, group MD for financial institutions at Fitch. A predecessor of Fitch partnered with DCR Colombia at its inception in 1994, and the US agency has provided technical support and training. The deal, subject to approval by the local regulator, would allow Fitch to start operating under its own brand in Colombia.
World Bank Inks $301m Mexico Loan
The World Bank has approved a $300.75m fixed spread loan to help Mexico improve environmental protection by promoting sustainable consumption. The loan has a 15 year grace period and total repayment period of 15 years. The front end fee is equivalent to 0.25% of the loan, says the multilateral.
Banco General Eyes Perp
Panama’s Banco General is planning to sell a perpetual bond, its first, in the local market. “We’re considering for later this year an offering of a perpetual bond in Panama,” Raul Aleman, the bank’s executive vice president and general manager, tells LatinFinance. General, the country’s largest bank by assets following last year’s merger with Continental, has not yet set a size for the offering, but has filed for up to $200m, Aleman says. He adds that the deal could be offered in tranches. “Institutional financing going forward will be scarce and expensive,” he explains, adding that General is also looking at medium-term financing with the IFC. It raised $160m through a syndicated loan in June at Libor plus 75bp and 85bp for tranches of two and three years, respectively.
Ecuador Debt Talk Rattles Markets
The negative rhetoric continues in Ecuador, with hints from Correa that some of the debt may still be deemed illegitimate. Analysts expect noise to pick up during the election. “If Correa’s political support declines, he might adopt a more radical stance and threaten to restructure the external bonds,” says Credit Suisse. Meanwhile, UBS notes that the weekend referendum result in favor of a new constitution is a negative for investors. “Lots of spending is set to be added if all the new constitutional rights and mandates are fulfilled. Its text guarantees expensive social rights and undertakings,” says the shop. It adds that the new constitution cites the state’s right to refute debts declared illegitimate and to pursue arbitration when disputes arise, directly affecting the 2012 and 2030 issues outstanding. “We do not expect an immediate halt to external debt service payments, as the capacity to pay remains strong and debt service is quite manageable,” says Goldman Sachs. “However, we are of the view that the very weak willingness to pay could create an unfavorable market event in a situation of potential fiscal distress,” it adds.