Category: Regions

A reform of Mexican state-owned oil giant Pemex, set for voting in mid-August, won’t result in the company’s ability to sell an equity stake to private or public investors, government officials tell LatinFinance. “It is highly unlikely that Pemex will eventually be able issue any kind of equity,” Marco Oviedo, general adjunct director for public debt at Mexico’s Hacienda, tells LatinFinance. Instead, the reform will target measures that allow Pemex to take on debt at the corporate level, he adds. Today, as a state-owned entity, Pemex’s indebtedness levels are capped at virtually zero. It uses off-balance sheet vehicles to issue notes and raise bank debt. Ability to raise additional debt on its own balance sheet would help it fund an increase in production, which is steadily dropping, says Oviedo. Other changes being considered include allowing Pemex to outsource some of its production and exploration business to third parties. An extraordinary session in congress is scheduled for mid-August, when the proposal for a change in the rules governing Pemex will be presented to the country’s various political factions. Most of these are openly opposed to anything resembling a privatization of the oil company. Pemex has a mandate to invest up to roughly 2% of Mexico’s annual GDP in E&P.

Borrowers in Mexico’s small business sector and the lower portions of the housing markets will offer the greatest lending growth opportunity in the country’s competitive financial services sector, Alejandro Valenzuela, CEO of Banorte tells LatinFinance. The only remaining large Mexican-owned bank is increasing its SME portfolio through new bank account and payroll products. Valenzuela believes there is plenty of space in the market for banks willing to write mortgages for the lower end of the housing scale. “The premium segments tend to be more crowded because that’s where all the banks find good returns with lower risk,” Valenzuela says. “The C and D markets will be the next stage of development and that’s totally under-banked. Managing the risks correctly, the potential there is tremendous.” Lacking ties to one of the troubled global powerhouses, his bank is able to concentrate on careful expansion, he explains. For the full interview with Valenzuela, go to LatinFinance.com.

Agropecuaria Santa Genoveva (AGSA) has placed a MXP1.65bn in 2028 securities backed by future flows from wood sales. In what bankers claim to be a novel transaction for the Mexican market, AGSA will pay holders 40% of the revenue from its sales of teak wood, a specialty product used in building outdoor furniture. That is a different pricing method than the traditional yield or coupon format. In the transaction, approximately MXP400m of the proceeds will be used to purchase zero-coupon government bonds that will be worth MXP1.65bn in 2028, which will go toward repaying principal. The remaining MXP1.25bn will be used to expand AGSA’s asset base, with new teak tree acreage going into the existing trust along with the assets at the time of issue. The quasi-equity nature of the deal is important for the issuer’s business plan, as most of the trees in the trust have yet to be planted. The teak trees involved take 18-20 years to reach maturity. AGSA expects sales revenue to approach MXP6bn by 2027, up from MXP100m in 2007, according to a regulatory filing. Demand for the deal matched the issue size of 1.65bn, according to a banker involved in the transaction. The issue was placed exclusively with pension funds, and was designed with the pension regulator’s ABS guidelines in mind. The transaction was rated AAA, based on the use of the government bonds to guarantee repayment of the principal. Credit Suisse managed the sale.

Moody’s has downgraded Mexico’s Libramiento de Matehuala toll road national scale rating to Aa2.mx from Aaa.mx and placed the rating under review for further downgrade. The global scale local currency and underlying ratings remain Baa3. The downgrade follows the recent downgrade of the project’s global scale rating to Baa3 from A2. The review will consider the expectations for the project’s future financial and operating performance in light of recent historical results and how the project compares to other Baa3 rated toll roads in Mexico. Another important factor is whether the downgrade of the project ‘s insurer XL to B2 from A2 could have any direct impact on the underlying credit profile. Libramiento Matehuala is a 14 km long toll road built as an alternative to Boulevard Matehuala, which bisects the city of Matehuala, Mexico.

Oceanografia, a Mexican marine-contractor, squeezed out a $335m high-yield bond Wednesday, defying a hostile market that sent at least one other issuer home empty-handed. The company placed the 11.25% 2015 NC4 bond at 98.814 to yield 11.50% with a handful of accounts, many of them risk-hungry hedge funds, according to one buysider who did not participate. The B+ 144a Reg S offering is the first dollar bond for the contractor, which is highly dependent on Pemex. Bankers away from the deal commend Oceanografia’s ability to get its deal done, but note a Mexican B+ should command a tighter spread, all other things being equal. Initial guidance was heard inside the 11.50% launch level. One buysider says EM new issues have more often than not performed poorly lately, owing to poor placement and pricing. Proceeds will go toward paying down maturing loans. Morgan Stanley managed the sale.