Elektra Falls Most in a Month on MSCI Exit: Mexico City Mover

Grupo Elektra SA (ELEKTRA*), the Mexican retail and banking company controlled by billionaire Ricardo Salinas, plunged the most in a month after MSCI Inc. (MSCI) said it was removing the stock from its indexes.

Elektra tumbled 10.4 percent to 578.90 pesos at the close of trading Mexico City, the most since April 13. After an initial 15 percent decline, the exchange’s circuit breaker mechanism halted trading for about 40 minutes starting at 8:47 a.m. The company said in a statement to the Mexican stock exchange that it had nothing to disclose about the movement.

Elektra will be removed from the indexes in a rebalancing effective May 31, according to a statement on MSCI’s website dated yesterday. Elektra has tumbled 54 percent since April 11, when a change in index methodology at the Mexican stock exchange spurred speculation it may leave the nation’s benchmark gauge, the IPC.

“This situation for Elektra, together with its possible exit from the IPC, has explained its negative performance,” said Carlos Gonzalez, an analyst at Monex Casa de Bolsa in Mexico City. “This could surely keep affecting it.”

The IPC index of 35 Mexican stocks fell 1.1 percent.

Rule Changes

On April 11, Mexico’s stock exchange introduced rule changes preventing shares tied up in derivatives from being counted when considering whether a company’s free float is sufficient to meet eligibility for the IPC. That sparked concern that Elektra might leave the index because it has an equity swap that’s sapped the availability of its shares. The exchange requires a free float of 12 percent or 10 billion pesos ($724 million) of market value for the tradable shares.

Elektra’s float when accounting for derivatives represented about 6 percent of total shares, according to a Jan. 4 report from Citigroup Inc. -- or 8.4 billion pesos worth of shares at current prices.

The equity swap contracts allow Elektra to bet on its stock prices as if it held the shares itself, partially linking the company’s earnings to the share price. A decrease in the value of the swap cut 7.08 billion pesos from profit in the first-quarter, dragging it to a net loss of 3.83 billion pesos in the period, the company said in an April 11 report.

Elektra shares declined 13 percent in the first three months of the year.

“The drop in the share price is going to provoke a very significant drop in net income because of the swaps they have,” Gerardo Copca, an analyst with Metanalisis SA, said in a telephone interview from Mexico City. “It’s all snowballing.”

Urbi Desarrollos Urbanos SAB (URBI*), Mexico’s third-largest homebuilder by sales, declined 3.9 percent today after MSCI decided to remove it from its indexes. Coca-Cola Femsa SAB (KOFL), the bottler whose weighting is being increased in the rebalancing, rose 6.2 percent today.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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