Alfa Posts Profit as Strengthening Peso Lowers Debt Costs

Alfa SAB (ALFAA), which controls Mexico’s largest publicly traded petrochemical company, posted a third- quarter profit as a stronger peso lowered the cost of its debt held in dollars.

Net income was $211 million, compared with a loss of $39 million a year earlier, Alfa said today in a statement. Revenue slipped 1.5 percent to $3.84 billion.

Alfa, based in San Pedro Garza Garcia, Mexico, holds almost all of its $3 billion net debt in dollars, according to data compiled by Bloomberg. Under Mexican accounting rules, companies must record gains or losses on liabilities in foreign currencies based on exchange fluctuations. The peso rose almost 4 percent against the dollar in the three months through Sept. 30.

“The increase in net income reflects the strength of Alfa’s operations plus exchange gains,” the company said in the statement.

Consolidated earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 11 percent to $476 million, Alfa said.

Alfa shares rose 2.6 percent to 24.17 pesos at the close in Mexico City.

Sales at Alpek SAB (ALPEKA), Alfa’s publicly traded petrochemical division, fell 13 percent to $1.8 billion from $2.07 billion a year earlier, Alfa said today. The unit’s Ebitda fell 13 percent to $190 million because of lower profit margins at its caprolactam business and “non-recurring events,” including a one-month outage at a major customer’s plant.

Negative Reaction

“We expect a negative short term reaction” to Alpek’s results, Vanessa Quiroga, an analyst at Credit Suisse Group AG in Mexico City, wrote in a e-mailed note to investors.

Alpek fell 3 percent to 33.58 pesos.

Alfa’s auto parts division, Nemak, reported a 16 percent increase in revenue, helped by the June acquisition of J.L. French Automotive Castings Inc., an aluminum components producer based in Sheboygan, Wisconsin.

Sigma, Alfa’s food products unit, posted a 2.4 percent increase in sales.

Alfa may seek to refinance debt of $600 million at Alpek, $300 million at Nemak and as much as $250 million at its Alestra telecommunications unit, Alfa Chief Financial Officer Ramon Leal said on a conference call with reporters.

Refinancing efforts may gain speed later this year or early next year depending on market conditions. Nemak, the world’s largest independent producer of aluminum heads and blocks, may issue seven- to 10-year dollar bonds, its first dollar debt, according to Enrique Flores, a spokesman for Alfa.

To contact the reporter on this story: Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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