Sales Revival Helped by Cemex, Pemex Offerings: Mexico Credit

Sales Revival Helped by Cemex, Pemex Offerings
A Cemex SAB worker pours concrete. Photographer: Susana Gonzalez/Bloomberg News.

Cemex SAB and Petroleos Mexicanos are leading a rebound in Mexican corporate debt offerings overseas from the biggest drought in seven months as demand for the country’s higher-yielding assets picks up.

International debt sales by Mexican companies totaled $1.65 billion this month, up from zero offerings in June, according to data compiled by Bloomberg. The $650 million sale by Cemex, the largest cement maker in the Americas, on July 6 snapped a six-week issuance slump, the longest since December. In Brazil, corporate debt sales in overseas markets have climbed to $1.44 billion this month from $1.06 billion in June.

Mexican companies’ borrowing costs are falling from a three-month high as speculation the European Union will contain Greece’s debt crisis sparks demand for riskier assets globally. The yield on Mexico’s corporate debt has fallen 11 basis points, or 0.10 percentage point, since June 29 to 6.3 percent, according to JPMorgan Chase & Co. Cemex scrapped a $650 million bond offering in June before reviving it this month.

“When you get any kind of break in the negative peripheral noise that’s going on outside of the emerging markets, some of these deals can get through,” Mark Christensen, who helps manage $500 million in emerging-market debt at Doubleline Capital LP in Los Angeles, said in a telephone interview. “There were some significant headwinds to issue into around the end of last month.”

Elektra Sale

Grupo Elektra SA, the retail and banking company controlled by billionaire Ricardo Salinas, plans to sell seven-year bonds in international markets, said a person familiar with the transaction who asked not to be identified because he isn’t authorized to speak publicly on the matter. Elektra, based in Mexico City, is meeting with investors from July 22 to July 26, the person said.

Daniel McCosh, a Mexico City-based spokesman for the company, declined to comment on the bond sale.

TV Azteca SA, the Mexican broadcaster owned by Salinas, sold $300 million of seven-year debt to yield 7.75 percent on May 19. The yield on the bonds tumbled 60 basis points since the sale to 7.15 percent, according to data compiled by Bloomberg.

Mexican companies have sold $9.7 billion of bonds overseas this year, down 43 percent from the same period last year. Cemex, based in Monterrey, became the biggest Mexican corporate issuer in international markets after the company’s July 6 sale, which pushed offerings to $2.45 billion in 2011, according to data compiled by Bloomberg.

The yield on Cemex’s dollar bonds due in 2020 fell 10 basis points to 10.01 percent, or 614 basis points more than similar-maturity government debt.

‘Feel Calmer’

“This tells you that the market is starting to feel calmer,” Guillermo Rodriguez, who helps manage about $5.5 billion at Corp. Actinver SAB in Mexico City, said in a telephone interview. “As long as there’s not too much risk aversion, interest in new issues could return.”

Pemex, as the state-run oil producer is known, sold $1 billion of 10-year bonds on July 20, the company’s second issue this year, as it seeks to fund a 286 billion-peso investment program aimed at reversing a six-year decline in crude output. The Mexico City-based company sold the securities to yield about 4.8 percent yesterday, 93 basis points more than similar-maturity Mexican government debt.

Pemex also raised $1.25 billion in a 30-year bond offering in May. The yield on the notes fell 31 basis points since the sale to 6.25 percent.

The sales by Pemex and Cemex may not presage a pickup in issuance as the companies are “special types of credits,” said Omar Zeolla, an emerging-market credit analyst at RBS Securities Inc. in Stanford, Connecticut.

Standard & Poor’s rates Pemex BBB, the second-lowest investment grade rating. Cemex is rated B, or five levels below investment grade.

‘Specific Issues’

“They can come irrespective of what other Mexican entities are doing,” Zeolla said in a telephone interview. “Pemex has a lot of need for raising capital, so it has to come to market every so often whether it’s the best time or not. In comparison to no sales in June, it seems big, but those were two very specific issues.”

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries widened 2 basis points to 136 at 5:20 p.m. New York time, according to JPMorgan Chase & Co.

The cost to protect Mexican debt against non-payment for five years fell 1 basis point to 110, 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 the cash equivalent if a government or company fails to adhere to its debt agreements.

The peso fell 0.4 percent to 11.6366 per U.S. dollar.

‘More Clarity’

Yields on 28-day interbank rate futures due in April, known as TIIE, fell 5 basis points to 5.09 percent, indicating traders are betting the central bank will wait until that month to increase the key rate from a record low of 4.5 percent.

Mexican companies may step up issuance should the U.S. government reach an agreement on raising the country’s debt limit, sparking demand for higher-yielding assets, said Miguel Angel Aguayo, a fixed-income analyst at Grupo Financiero Banorte-Ixe.

The Obama administration signaled on June 20 it may accept a short-term increase in the U.S. debt limit if it’s combined with a major agreement to cut the deficit. Little more than a week is left before the Aug. 2 deadline for raising the $14.3 trillion debt ceiling and avoiding a default.

Mexican companies “are taking advantage of a moment of more clarity,” Aguayo said in a telephone interview from Mexico City. “Greece is possibly going to be saved and they’re probably going to raise the debt ceiling in the U.S.”

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