Category: Regions

Moody’s has upgraded the issuer ratings of the State of Baja California to Baa1 (Global Scale, local currency) and Aa1.mx (Mexican National Scale) from Baa3 and Aa3.mx, respectively. The rating action was prompted by the state’s good financial performance, moderate debt profile and the expectation that the state’s water companies will not require financial aid from the state despite their relatively large and increasing debt levels. The rating action also took into account an agreement reached between the state government and its labor unions to increase both parties’ contributions to the state social security system, ISSTECALI, which will make the state’s annual payment obligation more predictable. During the past five years the state’s direct debt levels have remained fairly stable, at around 6% of revenues. This year, the state expects to obtain loans for Ps 1,150 million to finance several capital investment projects, which will increase its direct debt to 10% of revenues and debt service requirements to a still modest 2% of revenues for several years.

Mexico reopened its 2017 and 2034 sovereign bonds Monday afternoon, marking the first significant cross border offering since the market meltdown began in late July. Bankers on the deal say the book was 4x oversubscribed and that robust demand allowed for a tightening of pricing from where the taps were whispered. A $500m reopening of the UMS 2017 came at 99.55, a spread of 105bp over the comparable US Treasury, to yield 5.687%. That represented a 3/4 point discount from the bond’s trading level Monday, compared to the unofficial guidance of a discount of one point, says a banker on the deal. A simultaneous $500m tap of the 2034s came at 108.25, a spread of 122bp over the 30-year UST, to yield 6.122%. That was 1.25 below the secondary level, compared to the 1.25-1.50 point discount that was reportedly floated to investors, says a banker on the deal. Bankers both on and away from the transaction say the discounts were bigger than what Mexico would have paid in a better market, but appropriate given the fact this was the first deal out. However, some saw the premium paid as overly steep given the sovereign’s recent history. “Some people might be shocked,” says a veteran banker familiar with the credit. Proceeds were used to replenish Mexico’s coffers following a $4bn bond buyback in January. Merrill Lynch and UBS were joint bookrunners on the deal.

Mexico’s Secretaría de Hacienda y Crédito Público has named Javier Gavito Mohar as the new director general of the Sociedad Hipotecaria Federal, the mortgage arm of the government’s development bank. He was previously director of the Banco del Ahorro Nacional y Servicios Financieros. The secretariat also announced that Jaime González Aguadé will replace Gavito as the director of Bansefi, when Gavito takes the new position October 15.

Despite concerns that it may have overpaid slightly, Monday’s comeback complements Mexico’s strategy of maintaining a regular presence in the dollar market to strengthen benchmark bonds. “It was a very good transaction for us,” Mexico’s head of public credit, Gerardo Rodriguez, tells LatinFinance. “In terms of yields this is near the lowest we’ve seen for our bonds,” he adds. Rodriguez says the transaction capitalizes on the recent passing of fiscal reform in Mexico and subsequent Fitch upgrade to BBB+. According to Rodriguez, the offer came “well inside higher rated US corporates,” on strong demand and a high quality order book.

Aeromexico’s board members believe Banamex’s MXP1.68 per share offer for a controlling stake in the airline is “reasonable from a financial point of view,” according to a company statement. The offer, worth $151m, trumps a bid from the Saba family of MXP1.10 per share, representing a 53% premium. Hotel operator Grupo Posadas is reportedly also be considering an offer.

Mexican microfinance bank Banco Compartamos has prepaid the outstanding balance on MXP500m in debt, it said in a filing with the Mexican stock exchange. Compartamos sold MXP190m in five-year bonds in 2004 and MXP310m in 2005. Taking out these deals is part of a strategy to improve its overall borrowing conditions, it says.

Banobras, the Mexican public works development bank, has signed onto the FARAC deal as a bookrunner, taking a $500m peso equivalent ticket for the MXP31bn loan. The institution is the second bank to take a bookrunner slot after the deal was launched to MLAs. Banorte joined as bookrunner the week ended September 14. Santander, Dexia and NordLB, which make up the original bookrunning group, expect the top-heavy deal to fund on time on October 1, but so far, only Inbursa has confirmed its participation as an MLA. A handful of Mexican banks are looking at the MLA tier, while even more non-locals have opted to wait for the general syndication, which will take place after the funding, because the $300m peso-denominated MLA tickets are seen as too hefty a hold. The biggest local currency syndication to date is a 7-year stepping up from 165bp over Libor in year one to 185bp in years two and three, 200bp in years four and five, and 225bp in years six and seven.

As expected, Mexico’s central bank held its main interest rate steady for a fifth month at 7.25 % and its “corto” reserve rate at MXP79m. It based the decision on rising inflationary risks and US market volatility. “The increase in the risks to inflation raised the risk that later in the year Banxico may have to tighten if inflation rises,” says Goldman Sachs. The shop finds that an easing in the near term is unlikely, regardless of actions by the US Fed.