Mexico’s sale of $1.25bn in notional value of warrants was well bid Thursday, highlighting robust investor interest in rotating from legacy hard currency paper into domestic debt. The transaction, which continues Mexico’s ongoing liability strategy, gives the option to exchange UMS bonds denominated in foreign currency for domestic notes. Warrants with a notional value totaling $1bn allow investors to swap 21 series of USD, EUR, Deutsche Mark and Italian Lire denominated notes for 2014, 2017 and 2036 Mbonos priced at $23.00 each, versus a $17.50 minimum. The second series, totaling $250m and swapping the same 21 series for 2017 and 2035 bonds denominated in UDIs – the first time UMS has offered the inflation-linked unit in a warrant deal – priced at $19, versus a $10 minimum. Demand reached $3.2bn for the first series and $962m for the second. The price was lower than the estimates given before the sale, such as $48 and $41 expected by Lehman. However, more important than the price, notes a DCM banker away from the deal, was the oversubscription, as the value is in the exchange of foreign debt for domestic, rather than in cash collected in the sale of the warrants themselves. The exchange will occur October 9. Barclays and Merrill Lynch managed the transaction.
Category: Regions
Real Money Awaits Next Peru Promotion
It may take a while before investment grade-only investors start piling into Peruvian assets en masse, since most need another endorsement. “Many investors will still need an upgrade from a second ratings agency in order to invest in Peru,” says the head of strategy at a leading US-based shop, adding that the ability to allocate depends on each fund’s covenants. S&P has Peru at BB+, one notch below investment grade, while Moody’s rates it Ba2, two notches below. Fitch yesterday upgraded Peru to BBB minus. S&P is likely to raise Peru in the next 12 months, says Goldman, which notes “the upgrade to investment grade is likely to attract additional investment inflows into Peru in terms of both FDI and portfolio inflows, increasing the already strong pressures for the PES to appreciate.” One tangible benefit for Peru should be increased stability as it lures a higher class investor. “From a risk-reward point of view, it will become a less volatile country because of the nature of the investors that will be entering [the bonds,]” says the head of strategy at the Wall Street firm.
Mexican Banks Sound in Downturn, Fitch Says
The Mexican banking system has maintained sound performance, and the outlook remains adequate for the foreseeable future, Fitch says in a report. However, strong loan growth domestically has affected delinquency ratios, and global capital markets conditions put pressure on the cost of credit and funding, as well as liquidity. “While continued asset quality deterioration may be of some concern, banks with the worst-performing retail portfolios are gradually tightening lending acceptance criteria, while risk-adjusted profitability remains sound,” the agency says. Fitch expects adequate performance from the major banks, spurred by continued double-digit loan growth, despite the likelihood that profitability will decline from recent historic highs.
Moody’s Chops Mexico’s GMAC
Moody’s has lowered the ratings of the senior certificates MXMACFW 07U issued under the MXMAC program established by GMAC Financiera in Mexico to Baa3 from A3 on the global scale. The agency also cut the senior certificates MXMACFW 06U of the same program to Baa3 from A3 in the global scale and placed it on review for further downgrade. “This rating action is based on the continued weaker than expected performance of the collateral assigned to the transaction,” says Moody’s.
UMS to Launch Exchange Warrants
Mexico is set to launch the sale of debt exchange warrants with a total notional value of $1.25bn allowing investors to exchange foreign currency debt for peso debt. Today and tomorrow, investors can buy two classes of warrant allowing the exchange of 21 series of dollar, euro, deutschemark and Italian lira-denominated bonds with maturities between 2009 and 2034 for local bonds. The first warrant has a notional value of about $1bn and offers peso-denominated bonds due 2014, 2017 and 2036. The second is worth roughly $250m and offers 2017 and 2035 debt denominated in UDIs. Holders of the warrants will be able to receive their new bonds on October 9. Barclays and Merrill Lynch are managing the transaction.
ISA Authorizes $300m Bonds
Colombia’s state-controlled power grid operator Interconexion Electrica plans to sell as much as $300m in bonds to finance expansion. A debt plan approved by shareholders allows for domestic and/or international issuance at any point in the next 12 months. The debt will mainly be used to refinance short-term borrowing to cover recent acquisitions, a spokeswoman tells LatinFinance.
Posadas Waits a Week with Dual-Tranche
Mexico’s Grupo Posadas expects to price up to MXP3bn in 2018 fixed and 2013 floating-rate notes April 8, according to bankers managing the sale. The hotel operator had originally set a date of April 1 for the offer, according to regulatory filings. But a banker on the deal says that was only a provisional date. Posadas plans to use proceeds from the mxA/mxA- offering to fund a buyback of dollar-denominated debt. As of March 31, it had received tender commitments from a majority of holders of its $225m outstanding 8.75% 2011 bonds, in an offer expiring April 11. Credit Suisse is dealer manager on the tender and also managing the debt sale.
Ecuador Sues Colombia Over Spraying
Ecuador has filed suit at the International Court of Justice (ICJ) in The Hague against Colombia, in an effort to stop or restrict aerial anti-coca spraying which has allegedly sickened people on the Ecuadorian side of the border and harmed livestock, farmland, and sensitive, ecologically diverse jungle areas. The suit follows last month’s diplomatic crisis between Colombia, Venezuela and Ecuador that subsided with little lasting damage. Ecuador is represented by Paul S. Reichler, partner at law firm Foley Hoag. “Fumigations conducted by the government of Colombia constitute a grave violation of the sovereignty of Ecuador and of the most basic principles of international law,” says Ecuadorian foreign minister Maria Isabel Salvador. Ecuador seeks an order that Colombia pay reparations to Ecuador for damage caused by the spraying. Around 4% of Colombian exports go to Ecuador, including roughly 10% of manufacturing exports. Reichler is also counsel in three other current cases before the ICJ. He represents Uruguay in a dispute with Argentina concerning the River Uruguay, which forms part of their joint border. He also represents Nicaragua in separate disputes with Colombia, over maritime borders, and with Costa Rica, over navigation rights on the San Juan River.
Cemex Sheds Axtel Shares for $257m
Cemex has sold most of its stake in Mexican telecom Axtel, netting $257m. The 119m shares represent 9.5% of Axtel’s total equity capital and 90% of the stake the cement producer held in Axtel as part of a long-term investment strategy. CFO Rodrigo Trevino says proceeds will be used to repay debt, and that the forward contracts used in the transaction will allow Cemex to benefit from future appreciation in the shares. Separately, Cemex is preparing to sell MXP3bn in peso-denominated bonds this month.
Posadas Set for Bond Pricing
Mexico’s Grupo Posadas is expected to sell up to MXP3bn in 2018 fixed and 2013 floating-rate notes today. Proceeds from the mxA/mxA+ transaction will help fund a repurchase of up to $225m in 8.75% 2011 bonds. Separately, the hotel operator has received the consent of a majority of the issue’s holders at the time of its early consent date. The offer launched March 17 pays $1,035 per $1,000, and expires April 11. Holders tendering before March 28 received $1,050 per $1,000. Credit Suisse is dealer manager on the tender and also managing the debt sale.