Category: Regions

Darby Overseas is nearing a close on its Mexico infrastructure fund, which officials familiar with the matter estimate will be worth at least $500m. The vehicle is designed to invest in medium-sized projects in the country, whose government has made infrastructure a top priority. In Mexico, Darby targets projects that can return up to around 25%. “We feel that many institutional investors want to enter emerging markets via infrastructure to achieve more stable returns,” says Fernando Gentil, Darby’s chief Brazil investment officer. “We want to leverage our know-how in infrastructure and in EM.”

Blue chip Mexican issuer Cemex has postponed the sale of up to MXP3bn in 2010 floating-rate notes because of poor market conditions, say bankers managing it. The transaction, which had been scheduled for this week, is now expected in October. Proceeds from the issue, rated AA+ on a national scale, were scheduled to repay a short-term bank credit priced at Libor+35bp that was used to refinance debt. HSBC is managing the transaction. The sale would be the 10th from a MXP30bn shelf and follows a MXP1bn 2010 bond priced in April at TIIE+36bp via ING and Santander. Some analysts are questioning the strength of Cemex amid declining demand for cement in Spain, the UK and US. In particular, some say it has developed an over-exposure to markets like California, Arizona and Florida. Short tenors and smaller issuance amounts are reflective of a Mexican market that had already been slowing before this month’s world financial markets meltdown. With the exception of Wednesday’s MXP1.5bn 2010 ABS from GMAC Mexicana, Mexican DCM has come to a standstill. Debt transactions from corporates including Molymet, Pinfra and Metrofinanciera have also been shelved.

UBS Pactual is recommending investors sell equity holdings of Mexican retailer Walmex, which the shop claims is now more exposed to bear market fundamentals. With same store sales expected to hit their lowest point in a decade in the four weeks in September, revenues are likely to suffer, with Ebitda in the second half being hit additionally by operating leverage and factors such as cost competition that reduce marginal sales. The shop maintains the risks are largely macroeconomic, which means other consumer businesses in Mexico should also suffer.

Consumer portfolios in Mexico are the worst performing among comparable LatAm peers and Mexican banks are suffering deteriorating asset quality, climbing provisions and low and volatile trading results, says Fitch. But strong margins, revenue diversification and contained operating costs have sustained adequate profitability for the main Mexican financial institutions, the agency adds. “Banks are facing challenges from their rapid incursion into new retail segments, a worsening economic environment and the global liquidity crunch,” says Fitch, speaking of Mexico. “Analysts anticipate the performance of these banks will continue weakening until asset quality problems are fully contained but do not anticipate downward pressure on the major banks’ Issuer Default Ratings in the near future,” it adds. Fitch says other rating factors like capital adequacy and liquidity have not materially worsened and remain robust. “The decline in families’ available income and increasing unemployment will likely continue to impact the asset quality of the retail portfolio and, to a lesser extent, commercial loans,” adds the agency. Consumer loans grew year-on-year by roughly 7% as of July. Commercial lending remains the primary driver of loan growth, at 24% year-on-year, while mortgages increased at a robust 14%, says Fitch. “Loan growth will likely remain at double-digit rates in real terms, underscored by the lending to commercial and industrial sectors,” it adds. Fitch’s report covers BBVA, Bancomer, Banamex, Santander, HSBC, Banorte and Inbursa.

Fitch has downgraded Mexico’s Sanluis to CC from B minus. The auto parts manufacturer had been on negative review since June due to a weak liquidity position and plummeting Ebitda projections. Last week, Sanluis entered into a standstill agreement with creditors as it looks to reorganize the payment schedule on its 2010 bonds. “Revised Ebitda expectation for 2008, the probability of higher interest rate costs and Fitch’s expectation of further deterioration in the North American auto industry has caused Sanluis’ risk profile to worsen,” the agency says. It adds that refinancing risk in 2010 remains high.

Sumitomo Mitsui is planning to open a representative office in Mexico City before the end of the year, according to an official at its New York base. The bank is trying to grow in LatAm and expand its project finance capabilities. It recently hired former WestLB banker Isaac Deutsch as deputy general manager and head of LatAm structured and corporate finance to spearhead the move. Sumitomo has had a subsidiary in Brazil for 50 years.