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Pemex Leads Sales Revival as Rate-Cut Bets Rise: Mexico Credit

Pemex, as Latin America’s biggest oil producer is known, may sell as much as 15 billion pesos  of debt next month. Photographer: Susana Gonzalez/Bloomberg
Pemex, as Latin America’s biggest oil producer is known, may sell as much as 15 billion pesos of debt next month. Photographer: Susana Gonzalez/Bloomberg

Aug. 30 (Bloomberg) -- Mexican local corporate bond sales are poised to climb to a five-month high in September as companies from Mexichem SAB to Petroleos Mexicanos take advantage of falling borrowing costs.

Pemex, as Latin America’s biggest oil producer is known, may sell as much as 15 billion pesos ($1.2 billion) of debt next month, while plastic pipe maker Mexichem plans to offer as much as 2.5 billion pesos of notes, according to filings with Mexico’s stock exchange. The sales would make September the busiest month since April after issuance sank 37 percent in August, data compiled by Bloomberg show. Russian domestic corporate offerings fell 67 percent in August to 20 billion rubles ($694 million), the least in four years.

Mexican companies are lining up to sell debt as speculation grows that Banco de Mexico, the only major central bank to keep interest rates unchanged in the past year, will cut them as soon as December. The yield on Mexico’s peso bonds due in 2024, the benchmark for corporates, plunged 91 basis points in the past two months to 6.27 percent.

“Companies would end up issuing at the lowest rates possible,” Alonso Madero, who helps manage about $5.5 billion at Corp. Actinver SAB, said in a phone interview from Mexico City. “This makes a lot of sense for them.”

The yield on rate-futures contracts for December, known as TIIE, fell 17 basis points, or 0.17 percentage point, in the past month to 4.70 percent yesterday, indicating traders expect central bank Governor Agustin Carstens to lower rates as soon as December from a record-low 4.5 percent.

Slowing Growth

Speculation the central bank will cut benchmark borrowing costs has grown since policy makers said that they would “consider the convenience of adjusting” monetary policy should Mexico’s growth outlook worsened, in a statement after their Aug. 26 meeting. The bank held the rate steady for the 21st consecutive meeting.

Banco de Mexico cut on Aug. 10 its growth forecasts for the next two years amid slowing expansion in the U.S., which buys 80 percent of the Latin American country’s exports. Mexico’s gross domestic product will expand as much as 4.8 percent this year, down from a previous forecast of as much as to 5 percent, according to the bank.

A press official at the central bank who declined to be identified didn’t immediately return a call seeking comment.

Companies are stepping up local debt offerings to lock in financing amid concern flagging growth and swings in global equity markets will cause credit markets to seize up, said Miguel Angel Aguayo, a fixed-income analyst at Grupo Financiero Banorte-Ixe.

‘More Complicated’

“Issuers are most likely taking advantage of the moment as they anticipate an environment in the future that may be more complicated,” Aguayo said in a phone interview. “There is an environment for low rates.”

Comision Federal de Electricidad, Ford Motor Co.’s local unit, and Banco Compartamos SA plan to sell debt as soon as next month, according to stock exchange filings.

Compartamos, a Mexico City-based bank that lends to people on low incomes, may offer as much as 2 billion pesos of bonds on Sept. 21. Comision Federal de Electricidad, the state-run power company, and Ford didn’t provide dates for proposed offerings or amounts. Holcim Ltd., the world’s second largest cement maker, may offer as much as 7 billion pesos of debt, according to filings.

Pemex’s press department confirmed in an e-mail that the company plans to sell debt next month.

Press officials from Comision Federal de Electricidad, Ford and Holcim didn’t immediately return calls for comment.

More Issuance

“We’re looking to diversify our sources of funding,” said Beatriz Sanchez, a Mexico City-based investor relations officer with Compartamos, which has two other peso-denominated bonds. “We feel comfortable with this sale. We think we’re going to reach our goal” of raising 2 billion pesos, she said.

Mexican companies sold 125.8 billion pesos of debt this year, up 10 percent from a year earlier, according to data compiled by Bloomberg.

The 28-day interbank lending rate known as TIIE, a reference for variable-rate debt, dropped to a record low of 4.78 percent on Aug. 26.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries rose four basis points to 204 at 9:28 a.m. New York time, according to JPMorgan’s EMBI Global index. That compares with a spread of 284 basis points for Russia, rated the same level as Mexico at Baa1 by Moody’s Investors Service, the third-lowest investment grade.

Weakening Peso

The peso weakened 0.2 percent to 12.488 per dollar.

The cost to protect Mexican debt against non-payment for five years fell six basis points yesterday to 157, 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 should a government or company fail to adhere to its debt agreements.

Investor demand for local corporate debt may weaken should the outlook for the U.S. economy deteriorate further, said Alejandro Hernandez, who helps manage about $1.5 billion of debt at Interacciones Casa de Bolsa SA in Mexico City.

The world’s biggest economy grew 1 percent in the second quarter, less than previously estimated and capping the weakest six months of a recovery that began in the middle of 2009, the U.S. Commerce Department said on Aug. 26.

‘Double Dip’

“There still aren’t clear signs that we aren’t headed to a double dip,” Hernandez said in a phone interview. “You have to be very careful about which sectors you invest in. Right now, I’d only get Pemex and Comision Federal de Electricidad debt.”

The prospect that policy rates will remain low or fall further in Mexico and the U.S. will prompt more companies to sell bonds, said Araceli Espinosa, a debt analyst at Scotia Capital.

The Federal Reserve said on Aug. 9 that it will keep interest rates between zero and 0.25 percent through mid-2013.

“Everyone was waiting for a bit more definition,” Espinosa said in a phone interview from Mexico City. “It’s now much clearer that rates are going to stay very low. There’s a much more stable outlook and that’s going to lead to more issuance.”

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

To contact the editor responsible for this story: David Papadopoulos at

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