Pemex has continued its multi-market fundraising push with a reopening of its 3.5% of 2014 Swiss franc bonds for CHF150m. The notes originally sold in October were reopened at 101.751 to yield 3.086%, or mid-swaps plus 160bp. The transaction was heard driven by reverse inquiry from Swiss accounts. It priced about flat to secondary levels and the Mexican state-owned oil producer’s dollar curve, says a banker on the trade. Credit Suisse managed the deal. The original CHF350m sale priced to yield 3.525%, or mid-swaps plus 185bp. Pemex has raised $1bn from the dollar markets and MXP15bn from the local markets in the last month.
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Mexico Focuses on MXP Benchmark Liquidity
Mexico’s government hopes to broaden its investor base with a new domestic debt sale mechanism designed to foster liquidity in new peso benchmarks. “It’s a good opportunity to promote the local markets domestically and abroad,” Gerardo Rodriguez, Mexico’s deputy undersecretary for public credit, tells LatinFinance. Mexico will place the debt in a similar fashion to its external bonds, ensuring critical mass at the outset that also make the bonds eligible for fixed income indices. Mexico is targeting the week of February 22 for the first sale. The debt syndication, as the process is known, will have its first test with a sale of 8% coupon 2020 bonds, which Rodriguez says should come at a size of MXP15bn-MXP25bn. In Q2, the 2020 will return to be sold through the normal method of smaller auctions, he says. A 30-year government bond should be sold via syndication in March. The plan is for the system to apply to all benchmarks, he says, though 20 and 40-year domestic bonds are not planned for this year. Mexico has named Santander, JPMorgan, Bank of America Merrill Lynch and BBVA Bancomer as managers, with Banamex, ING and HSBC co-managers. Under the current system of smaller regular auctions, the government says it takes about 4-6 months for domestic bonds to reach the MXP15bn-MXP20bn considered adequate for good secondary liquidity. Debt syndication is used in several European countries, including Spain, Italy and the UK.
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Vale CFO Mulls Bond/Loan Combo
Vale is likely to come to the capital markets to raise funds following a series of acquisitions totaling $5.6bn. CFO Fabio Barbosa tells LatinFinance that Vale enjoys an array of available options to help it finance the purchases, including cashflow, existing credit lines with development banks and export agencies, as well as the bond and loan markets. “We will explore potential market opportunities,” Barbosa says, referring chiefly to the bond market, but adding bank loans will also be considered. “We’ll do whatever is most interesting for the company,” he adds. The CFO acknowledges that the bond market appears to be accommodating at the moment. Barbosa says Vale has a proven track record of generating strong cashflow, and company reported an $11bn Q4 cash position. Such sizable liquidity may help make the case for a syndicated loan, which is prepayable. In 2008, Vale signed a $5bn credit agreement with Nexi and JBIC and obtained access to a BRL7.3bn line from the BNDES for its 2008-2012 capex program. Investment banks and lenders are heard aggressively pitching the company for a combination of bonds and loans. Vale, which has an average maturity of 9 years on its debt, almost all of which is in dollars, is focused on constantly extending tenor and lowering average cost of capital. Its leverage stands at 2.5x. In between early January and last week, Vale announced acquisitions of stakes in Fosfertil and entities that hold stakes in the fertilizer operation, worth up $5.6bn.
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Codelco Board Gets Revamp
Chile’s outgoing president Michelle Bachelet has named a new board of directors at state-owned copper producer Codelco. The new board, to be chaired by current board member Nicolas Majiluf, will take office March 1. It will be responsible for choosing a CEO to succeed Jose Pablo Arellano, who has said he will not continue beyond March. The board includes former national budget director Alberto Arenas, former Codelco CEO Marcos Lima, Andres Sanfuentes and Marcos Buchi. Arenas, Sanfuentes and Majiluf will be on the board until May 11 this year, while Lima and Buchi will remain there until May 2011.
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Chile Rates to Stay Put
Chile’s central bank is seen keeping its monetary policy rate at 0.5% today and is not expected to hike it until at least 2Q, say Morgan Stanley and Barclays, in line with market consensus. “Although the central bank is likely to maintain the language regarding the stability of the policy rate at 0.5% until ‘at least Q2,’ it will probably at least highlight the recent peso depreciation in the accompanying statement,” Barclays says. The CLP has depreciated to CLP550 per USD on February 10 from CLP535 per USD February 1. Morgan Stanley believes that the ongoing economic recovery remains on track and broadly in line with the central bank’s base scenario. Although base effects should push annual inflation into positive territory as early as this month, it says price pressures remain largely muted. It forecasts annual inflation will reach 2.6% by the end of 2010, from a contraction of 1.4% at the end of 2009.
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Moody’s Cuts Industrial Sub Debt
Moody’s has lowered Banco Industrial’s foreign currency subordinated debt rating to B1 from Ba3. The outlook is stable. The action affects $35m on non-cumulative step-up Tier 1 capital notes issued by the Guatemalan bank. Moody’s explains that key features of the notes driving the rating outcome are a 60-year maturity, non-cumulative coupon skip mechanism, and deep subordination in liquidation. Coupon skip features include optional and mandatory cancellation of interest, the latter based on regulatory triggers. In the event of Industrial’s bankruptcy, liquidation, or dissolution under Guatemalan law, the notes will rank junior to all senior and subordinated debt, pari passu with the most junior subordinated debt and preferred stock, and senior only in priority to holders of common stock. All other Industrial ratings are unaffected by the downgrade, which is the result of a review initiated November 18. As of December 31, Industrial was the largest bank in Guatemala, with $5.5bn in assets and $490m in equity.
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Alto Parana on CreditWatch Negative
S&P has put Argentine forest company Alto Parana’s BB minus rating on credit watch with negative implications after tax authority Tribunal Fiscal de la Nacion (TFN) notified it of an adverse ruling on a tax claim. The total amount of the claim, regarding certain income tax deductions on a 2001 bond issuance is about $110m including principal, interest, and penalties, says S&P. The company made no provision for this claim in its financial statements and has announced that it will appeal. Nevertheless, S&P says it is likely that Alto Parana will have to pay about $80m, including principal and interest, before the courts determine whether the appeal is valid. Such a payment could hurt the company’s liquidity and stand-alone credit quality, say the agency. Alto Parana is a subsidiary of Celulosa Arauco y Constitucion.
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Pemex Weighs Diversified Financing Options
Pemex is considering a pair of new fundraising ideas that were floated last year: Bonos Ciudadandos and the CCD quasi-equity structure. In November, Mexico’s deputy minister of finance Alejandro Werner said Pemex was considering hybrid instruments with equity features to open up financing to equity-like exposure. “[The CCD structure] is something that we can contemplate for specific project financings, but it’s not something for Pemex general corporate fundraising,” Mauricio Alazraki, managing director of finance at Pemex, tells LatinFinance. He notes that there are no specific plans to go to that market at the moment. The state-owned oil producer and finance ministry are, however, developing the Bonos Ciudadanos as a means of offering performance-related returns. The retail bonds available in denominations small enough for individual investors should include both fixed and variable-rate components, Alazraki explains. Pemex is still deciding how they will be structured, and they are not considered in this year’s fundraising, he says. An eventual offer could be comparable in size to Pemex’s typical domestic DCM offerings, adds Alazraki.
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Mercatto Launching Offshore Funds
Brazil-based asset management firm Mercatto Investimentos is launching 2 offshore funds this year. One is focused on investing in equity listed on the BM&F Bovespa, and the other, macro fund, will invest in equity, foreign currency and derivatives, managing partner Thomas Tosta de Sa tells LatinFinance. He declines to state how much the shop expects to manage under the 2 funds. He adds that the funds will only be open to investors outside Brazil. Mercatto already has an equity fund and a macro fund in which Brazilian investors can invest, which were established in 1998. The equity fund has BRL154.6m in net assets and the macro BRL77.9m, according to company information. Mercatto has more than $1.5bn in total assets under management.
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EM M&A Trumps US/Europe; Mexico Shines
The volume of M&A deals announced in EM is beating that of the US and Europe so far this year, with 65% of activity in the asset class from LatAm, according to analysis from Thomson Reuters. “This marks the first instance on record that Emerging Market-targeted M&A constitutes a greater portion of global M&A than either the US or Europe,” says the firm. It also indicates that year-to-date announced M&A deals in EM account for 48% of deals ($93.3bn in deals) announced globally, the highest since the last peak of Q1 2008, when it was 24%. Mexican-targeted M&A accounted for 44.7% of global M&A activity for the year to date, while Brazil accounts for 16.2%, says Thomson Reuters. Telecoms is the most targeted industry for EM M&A year to date, comprising 39.7% of global activity. Among the largest deals to have been announced so far this year are America Movil’s intended acquisition of Telmex International for $6.6bn and Carso Global Telecom for $27.5bn, which essentially constitutes an internal Slim asset shuffle. In addition, there is Heineken’s purchase of Femsa’s beer unit for $7.3bn stock, Cosan’s acquisition of Shell International Petroleum in Brazil for $5.2bn and Braskem’s acquisition of Quattor Participacoes for $4.1bn.