Mexican glassmaker Vitro says its derivatives instruments have a negative position of $227m. It has complied with the necessary coverage requirements so far, it says, but is “maintaining close communication with counterparties,” to assure continued payment. Vitro added that a $33m portion of its position covering FX and interest rates, have not varied significantly during the last 10 days. Manufacturer Grupo Saltillo announced an MXP600m negative position this week, after retailer CCM saw its ratings chopped on similar liquidity concerns.
Category: Regions
Posted inDaily Brief
COP at Market’s Mercy
The Colombian authorities have exhausted all their resources for keeping the country’s currency from devaluating further, say local analysts. “They’ve done what they can do. Now it’s out of their hands,” says Francisco Chavez, an analyst at Colombian broker Corredores Associados. Last week, Banrep lifted capital restrictions on investments in TES bonds and other local fixed income instruments in an effort to increase the bid for the COP, which has depreciated 25% since August 1. Also last week it lifted the requirement for local borrowers to deposit the equivalent of 50% of any new dollar denominated debt at the central bank to facilitate their access to dollars. And in the last week of August the central bank removed a capital control on foreign investments in local equities. The COP closed Friday at 2,252 per dollar.
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Gissa to Write Down MXP600m
Mexican manufacturer Grupo Industrial Saltillo expects to register a writedown of a little under MXP600m in Q3 as a result of derivatives losses. Gissa says the mark-to-market-based charge does not represent a cash outflow. The producer of engine parts and iron-based construction products says about half of its sales are in dollars, which also helps to cushion adverse effects of this week’s peso slide. After hedging worries in Brazil last month, concern has now spread to Mexico. Earlier this week, retailer CCM said it was negotiating with creditors related to derivative-based losses. Issuers including Cemex, Urbi, Banco Compartamos, Dine, Sanluis and ICA all moved Thursday to reassure investors they have no FX-based derivatives or precarious dollar-debt positions.
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Mexico’s Arca Plans Local Bond
Mexican bottler Embotelladora Arca is planning to issue up to MXP2bn in bonds on the local market. The issuer has filed for up to MXP1bn in 2011 floating-rate notes and up to MXP1bn in 2018 fixed-rate notes. Fitch has assigned a rating of AAA on a national scale. The bottler of Coca Cola and other products faces a MXP1bn maturity this month and will use proceeds to refinance the debt and also pay for acquisitions. BBVA is managing the sale, with HSBC as co-manager. The timing of pricing is unclear, as conditions in September and October have seen even the strongest Mexican corporates put off DCM plans.
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IFC Launches Mexican RMBS Support Facility
The IFC plans to launch a $150m debt facility to help mitigate potential liquidity shortfalls in Mexico’s housing finance sector. The Mexican Housing Finance Intervention Facility was structured in collaboration with SHF and the IDB and allows the IFC to purchase up to 15% of RMBS to offset future shortfalls in investor demand for these securities. The IFC can also provide credit enhancements to RMBS in the form of partial credit guarantees, in coordination with SHF, or by purchasing RMBS mezzanine risk tranches. “If there is an interruption in the local capital markets, our debt facility can step in and provide comfort to other investors that we are prepared to take senior as well as mezzanine risk, in order to encourage them to keep financing,” Atul Mehta, the IFC’s director for LatAm and Caribbean, tells LatinFinance. The IDB is considering a similar $150m facility, subject to approval next month. The IFC hopes the facility will serve as a model for products in other markets threatened by lack of liquidity. Since 2001, IFC has invested $531m to support Mexico’s housing finance sector.
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IMF Forecasts Sharper Regional Deceleration
Growth in the LatAm and Caribbean region will slow more than previously expected, according to the IMF’s latest World Economic Outlook, which cuts the global growth outlook to 3%. Regional GDP growth is projected to drop to 4.50% in 2008 from 5.50% in 2007, falling again to 3.25% in 2009. Argentina and Venezuela look set for the biggest fall, while Mexican and Brazilian growth are forecast to ease to 1.8% and 3.5%, respectively, in 2009. “The somewhat sharper deceleration in 2009 than envisaged in the July 2008 World Economic Outlook update reflects the weaker global outlook, softer commodity prices, and more difficult external financial conditions,” says the fund. “Growth in Brazil would come down below trend, and activity would remain sluggish in Mexico as exports and remittances are dampened by the US slowdown. Growth in Central America and the Caribbean is also expected to ease, reflecting the impact of slow U.S. growth on remittances, trade, and tourism, as well as high fuel costs,” it adds. The IMF notes that domestic demand has held up, but should be dampened as the global economy slows and monetary policy tightens to contain inflation. Headline inflation for the region as a whole rose to 8% in August, the highest in five years, although it is expected to moderate in the latter part of 2008 and 2009, helped by softening commodity prices, tighter monetary policy, and slowing demand growth, says the fund. “Inflation will remain at double-digit levels in a number of countries in the region, including Bolivia, Paraguay, Venezuela, and several Central American countries,” it adds.
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LatAm Seen Moving to Low Deficit
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.
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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.
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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.
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CCM Talks to Banks, Not Bondholders
Mexican retailer Controladora Comercial Mexicana (CCM) is in talks with bankers regarding the renegotiation of debt tied to foreign exchange, rather than bondholders. The company said Tuesday it is negotiating with creditors on how to meet its liabilities, after a slide in the Mexican peso. The negotiations are not expected to affect bondholders, says Jim Harper, director of corporate research at BCP Securities, who spoke with the company, as CCM’s liability issues have to do with a specific instrument tied to FX. The MXP closed at 13.04/USD Wednesday. The movements of the peso and BRL (2.39/USD Wednesday) so far this week are not seen yet impacting dollar-denominated debt payment ability for LatAm issuers, says Harper. Most benefit from being exporters earning at least some dollar income.