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Debt capital markets: Fixed-income investors lap up Mexico

Televisa takes up global peso structure; Femsa returns to international market

Grupo Televisa’s $540 million-equivalent bond sale on May 7 demonstrates that the global peso structure (titulos de crédito extranjero) can extend beyond the only other issuer to date, América Móvil. When América Móvil pioneered the structure (which enables securities to be sold simultaneously to Mexican and international investors) in December 2012, lead bankers were circumspect about its applicability to credits that were not able to issue the scale of programme (circa $3 billion-equivalent in the next few years) to which América Móvil has committed itself.

However, Televisa’s potentially one-off transaction attracted demand more than five times the deal size, showing the strength in market appetite for Mexican credits and the Mexican peso. The BBB+ rated 30-year bond was priced at 99.757 with a 7.250% coupon to yield 7.270%, equivalent to mbonos (the sovereign benchmark) plus 185 basis points.


The deal was led by Citi/Banamex, Deutsche Bank, HSBC and Morgan Stanley, with about 70% sold to US-based investors.

Citi was also involved (along with BBVA and Goldman Sachs) on Femsa’s return to the international markets after a 14-year absence. The BBB+/A- rated Mexican company (which operates convenience stores, as well as having a 20% stake in Heineken and a 49% stake in bottler Coca Cola Femsa) demonstrated the attractive levels available in the dollar-denominated international market. Femsa sold a $300 million 10-year bond that priced at US treasuries plus 112.5bp and a $700 million 30-year bond that priced at treasuries plus 145bp.

Francisco Romano, local debt capital markets director at Banamex in Mexico, says that the markets are offering financing at levels that make it sensible for companies to pre-fund.

"If we see a signal from the Fed that there will be continuing liquidity, then spreads could stay [at present levels] or even go down in some cases," he says. "If we continue to see those levels, then companies will definitely consider prefunding." He expects Mexican companies to seek to take advantage of the arbitrage opportunities available by raising funds in international markets, which are more pronounced for the lower-rated credits.

Carlos Garcia Moreno, CFO at América Móvil, added to the call for Mexican companies to consider raising capital from the international markets while liquidity remains. Speaking to Euromoney’s sister publication, Latin Finance, in mid-May, he said Mexican companies should take advantage of the "windows of opportunity to raise funds at relatively cheap rates in the capital markets – or risk a dramatic worsening of the climate that could come sooner than many expect".

Romano believes interest in Mexican companies will remain high. "There is appetite for Mexican companies from both local and international investors," he says. "Some of the investors that have taken Mexican sovereign risk have now decided to participate in corporate bonds." Romano says the titulos de crédito extranjero structure has been particularly attractive because of the enhanced liquidity that is provided by pooling local and international investors.

Mexico continues to benefit from investors’ favourable comparison of its macro economy with Brazil’s. Despite a slowdown in GDP growth from 3.2% year on year in the fourth quarter of 2012 to 0.8% in the first quarter of 2013, economists are bullish on Mexico as its government plans reforms to its labour laws, competition laws and possibly the banking and energy-sectors. Mexico is also expected to benefit from a recovering US.

"On the face of it, the sharp slowdown in the Mexican GDP growth... is alarming," says a report by Capital Economics. "But we suspect the slowdown was just a blip rather than the start of a trend. On the contrary, we expect output to expand by about 3.5% this year and for Mexico to outperform."


However, Brazil retains its ability to attract international investors and it was powerfully demonstrated by the record-breaking Petrobras transaction, which came to market in mid-May. Shrugging off macro concerns and growing questions about Petrobras’ long-term profitability and its huge capex programme, which is governed by tough local-content-procurement requirements, the oil company sold $11 billion in six tranches, attracting $45 billion of orders. The deal beats Petrobras’ $7 billion offering last year as the largest-ever emerging market corporate dollar-denominated deal. The state-controlled oil producer sold 2016s, 2019s, 2023s and 2043s in fixed-rate paper, as well as 2016 and 2019 floating-rate notes.

The $3.5 billion 10-year note attracted most interest, with over 600 accounts participating. Bank of America Merrill Lynch, Banco do Brasil, Citi, HSBC, Itaú BBA, JPMorgan and Morgan Stanley managed the transaction. Petrobras is rated A3 by Moody’s, with a negative outlook, due to the rapid increase in its debt since 2010.

"Petrobras’ flattish production profile over the next few years will pose a challenge during this period of higher capital spending," says the rating agency. "Petrobras’ management faces a difficult balancing act. The company must keep its capital program on track while reducing costs and limiting leverage increases. Achieving this balance will be critical to stabilizing Petrobras’ rating outlook in the medium term."

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