BNP Paribas Cutting Peso Bond Sale Deepens Two-Month Slump: Mexico Credit

Mexican corporate bond sales are slowing to a one-year low as flagging U.S. growth and concern Greece may default reduce the allure of emerging-market assets.

Offerings in the local market totaled $1.6 billion in June and May, the smallest amount since the two-month period ended June 2010, according to data compiled by Bloomberg. BNP Paribas SA, France’s largest bank, cut an offering this week to 1.2 billion pesos from a planned 3 billion pesos as the Greece crisis crimped demand for higher-yielding debt.

Investors are turning to the safest assets as the Federal Reserve cuts its U.S. growth forecast and Greece struggles to meet terms for aid. The extra yield investors demand to own the Mexican government’s peso bonds due in 2024 instead of similar- maturity U.S. Treasuries widened 12 basis points since the end of May to 374, according to data compiled by Bloomberg.

“The global environment is less accepting to the placement of slightly riskier assets,” Enrique Alvarez, head of Latin American fixed-income research at IdeaGlobal in New York, said in a telephone interview. “People are so preoccupied with the potential for more tremors coming from the European sovereign situation. That’s the limiting factor.”

Cemex SAB, the Monterrey-based cement maker, scrapped a $650 million bond offering in international markets yesterday, two days after Brazilian oil and gas services company San Antonio Internacional Ltd. shelved its sale.

Debt Crisis

BNP Paribas sold the bonds on June 20, according to a company filing with the Mexican stock exchange. New York-based BNP Paribas (BNP) spokeswoman Megan Stinson didn’t immediately reply to an e-mail or voicemail for comment.

Moody’s Investors Service said on June 15 it may lower the credit ratings of French banks, including BNP Paribas, because of their investments in Greece.

Measures proposed by the Greek government to complete a 78 billion-euro ($111 billion) austerity package required to win a bailout were endorsed by officials from the European Union and the International Monetary Fund, said a person familiar with the matter. Yields on Greece’s bonds due 2019 surged 359 basis points in the past month to 18.15 percent.

“A lot of foreign companies that had planned to sell debt in pesos have had a lot of trouble doing so,” Araceli Espinosa, a debt analyst at Scotia Capital in Mexico City, said in a telephone interview. “The principal factors have been external, and if you look at the fundamentals, if we have lower growth in the U.S., you will have lower growth in Mexico and fewer issuances.”

Growth Outlook

The pace of the economic expansion in the U.S., which buys 80 percent of Mexico’s exports, has been “frustratingly slow,” Fed Chairman Ben S. Bernanke said on June 22. Fed officials this week cut their growth forecasts for the U.S. economy this year and next. The world’s biggest economy will expand by 2.7 percent to 2.9 percent this year, down from April’s forecasts of 3.1 percent to 3.3 percent, based on the median range of projections.

A finance ministry press official didn’t immediately return a call for comment.

Corporate offerings in the local market will pick up in the second half of the year as the European crisis eases and growth in the Mexican economy accelerates, said Guillermo Rodriguez, who helps manage about $5.5 billion at Corp. Actinver SAB.

“The market is going to turn around in the second half of the year once the noise from Europe ends,” Rodriguez said in a telephone interview in Mexico City. “Corporate risk is going to be very attractive again.”

Default Swaps

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries was little changed at 150 at 5 p.m. New York time, according to JPMorgan.

The cost to protect Mexican debt against non-payment for five years was little changed at 115, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

The peso dropped 0.3 percent to 11.9001 per dollar.

Yields on futures contracts for the 28-day TIIE interbank rate due in February were unchanged at 5.04 percent.

The slump in local corporate bond sales in June follows a record start to the year. Offerings have totaled $8.4 billion this year, up 42 percent over the same period last year, according to data compiled by Bloomberg. Banks accounted for 32 percent of the sales.

“The external situation has played a large role,” Alejandro Hernandez, who helps manage about 14 billion pesos at Interacciones Casa de Bolsa SA in Mexico City, said in a telephone interview. “Everyone is very worried when a new issue comes and how susceptible it is to what is happening globally.”

To contact the reporters on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net; Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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