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Capital Markets

Mexico: Bimbo warms up large equity follow-on

$600 million Canada Bread financing; ‘only Mexican by zip code’.

Mexican multinational baking company Grupo Bimbo is targeting a $600 million follow-on transaction to finance part of its June $1.7 billion acquisition of Canada Bread. The company, which has a market capitalization of $14.9 billion, has mandated Banamex/Citi, Bank of America Merrill Lynch, BBVA, Citi, HSBC, Santander and JPMorgan in what will be a boost to the quiet Latin American market for new equity issuance.

Bimbo-large

Diego Mondragon, investor relations director at Grupo Bimbo, says that the company’s international profile creates huge investor appeal.

“The only Mexican thing about the company is the zip code,” says Mondragon. “We have grown exponentially in the past 10 years, acquiring 45 companies and brands and we are now present in 22 countries.”

The bulk of Grupo Bimbo’s revenues come from Mexico (38%) and the US and Canada (46%) but the company has significant operations in Latin America (13%) and has a foothold in Europe (3%). The latest acquisition, Canada Bread, also included a UK subsidiary which “is a small operation but a good opportunity in a good market.”

Leverage

The acquisition raised the company’s leverage to a total debt-to-ebitda ratio of 3.1 times, and management’s focus is now on lowering this to slightly above two times in the coming years. The company plans to use the follow-on proceeds to partly pay back the $816 million outstanding on the revolving credit facility it took to buy the Canadian baker, which costs 1% over Libor on the dollar portion, 75bp over the TIIE on the peso tranche and 1% over CDOR on the Canadian dollar debt.

The company’s free-float is just 23% and there is expectation that the sale will attract investors keen for exposure to Mexican equities, as well as consumer staples cross-over investors.

Grupo Bimbo’s treasurer, Roberto Cejudo, says the development of fixed-income investors’ perception of the company since it first tapped the international capital markets for $800 million in June 2010 is instructive.

“[In 2010] we were an unknown Mexican company and a lot of investors were not at all acquainted with our name,” says Cejudo. “When we introduced the company and they saw some of the brands they had some recognition but it was an effort. Then, in 2012, we returned and showed our commitment to the market. We strengthened the curve and there were some questions about whether the investors should be using Telmex or Amex as comparisons, or whether it should be as Nestlé and Craft. The last time – in 2014 – not once did we have to introduce the company. And some EM investors opted out because we priced in line with global peers rather than as an EM credit.”

The activity of new Mexican equity issuance contrasts
starkly with the inactivity of the Brazilian market

Bimbo’s last international transaction had two tranches: a $500 million, 30-year sale that yielded 4.991% and $800 million of 10-year notes that yielded 3.925%.

While equity investors will also be attracted to the multinational profile of the business, the new offering will also attract investors who are keen to add Mexican risk to their portfolios.

Growth in Mexico, Latin America’s second largest market, is picking up and with the government introducing structural reforms the long term GDP growth trend is projected to hit 5% by 2018. Mexican building materials group Elementia has recently filed to conduct an IPO (led by Banamex, BBVA Bancomer, Credit Suisse, HSBC, Inbursa, Santander and Ve por Más), while construction firm Vinte is preparing to list on the Mexican exchange.

Meanwhile Santa Fe Grupo Hotelero conducted a small $56 million-equivalent IPO in September and Terrafina and Fibra Macquarie priced follow-ons in September, joining the Mexican domination of equity transactions, with Pinfra, Alsea and Fibra Uno all conducting follow-ons since June and Fibra Prologis a $526 million-equivalent IPO. Bankers report that other Mexican companies are expected to make announcements soon to take advantage of investor appetite for Mexican risk.

Inactivity

The activity of new Mexican equity issuance contrasts starkly with the inactivity of the Brazilian market. No new companies have listed on the São Paulo stock exchange this year and low GDP growth forecasts and expectations of currency devaluation have weakened international investors’ short-term perspectives on allocating any fresh capital to Brazilian equities.

The one exception to this rule is JBS, which plans to raise a targeted $1.8 billion-equivalent sale of its food unit, which incorporates its pork, poultry and food-processing operations. The unit, which will be called JBS Foods, accounted for about 10% of the company’s last annual revenues of $40 billion. Despite the deal being pulled from the market in June, when falling investor confidence weakened demand, the company was understood to be considering a risky return in October – possibly even pricing between the first and second rounds of the presidential election.

Banco do Brasil, BTG Pactual, Bradesco, Itaú, JPMorgan, Morgan Stanley and Santander are understood to be working on the transaction for JBS, which bankers say has the name recognition – the company is the world’s largest meat packer – and the deal will have the size and liquidity that international investors require. Should the transaction materialize its success will be closely watched.

Cellphone tower operator T4U Holding Brasil and vet product manufacturer Ouro Fino Saúde Animal Participações have recently filed for IPOs but with incumbent president Dilma Rousseff edging ahead of her rival Marin Silva at the end of September, the possibility for companies to take advantage of a bounce in optimism caused by a fresh administration is questionable.



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