Telefonica Lands Tight On Issuance Drought

Telefonica has raised MXP6bn through the sale of 4 and 10-year bonds. The Telefonica Finanzas Mexico unit priced MXP4bn in 2014 floaters at TIIE plus 55bp. It also did MXP2bn in 2020 fixed rate notes at 8.07% or Mbonos plus 134bp. Some investors say the spread for the 4-year tranche in particular was lower than expected, but that lack of domestic corporate supply meant both pieces were oversubscribed. Demand was 1.3x for the fixed tranche and 1.4x for the floater, according to bankers on the deal. “Pricing was too tight as it does not take into consideration the risk relating to the Vivo acquisition,” says a major Mexico-based investor. Both tranches priced in the middle of guidance, which was TIIE plus 45bp-65bp on the 2014 floater and 125bp-145bp over Mbonos for the 2020. “We were hoping to price at the tight end of guidance but this was not possible due to the recent international volatility that has affected the Mexican market,” says a banker at one of the leads. Some local portfolio managers say Mbonos plus 160bp-180bp and TIIE plus 100bp would have been more appropriate given the M&A risk. “The severe shortage of names in the domestic corporate space meant they were able to get the deal away at this level,” adds the Mexico-based investor. Mexican miner Penoles had been due to issue MXP6bn of bonds this month, though it pulled the transaction and is said to be looking instead at dollars. BBVA Bancomer, Santander and HSBC managed the Telefonica sale, rated AAA on a national scale. Proceeds are earmarked for debt refinancing. The transaction is the company’s first issuance in Mexico since 2006, when it raised MXP4.5bn in floaters due to mature in September.