Elektra Surges as Equity Derivatives Unwound: Mexico City Mover

Grupo Elektra Chairman Ricardo Salinas
Ricardo Salinas Pliego, chairman of Grupo Elektra SA. Photographer: Andrew Harrer/Bloomberg

Grupo Elektra SA surged the most in three years after unwinding some stock derivatives contracts, spurring optimism it will remain on the nation’s benchmark stock index.

Shares of the retail and banking company controlled by billionaire Ricardo Salinas jumped 16 percent to 476.02 pesos at the close in Mexico City, the steepest advance since March 2009. The benchmark IPC index of 35 Mexican companies rose 1.6 percent.

The stock had been plummeting on concern its equity swaps would lead to its exit from the IPC, the main yardstick on Mexican stocks for investors and fund managers. The exchange changed eligibility rules on April 11, saying shares tied up in derivatives couldn’t be counted toward the minimum 12 percent free float requirement. In filings today, Elektra said it has cut by more than a third the shares represented by the derivatives since it last disclosed the figure a year ago.

“If they continue down this road, they’ll be able to stay on the index,” Aldo Miranda, a trader at Intercam Casa de Bolsa SA, said by phone from Mexico City. “Now that they’re fighting to stay on the Bolsa’s index, it’s possible that the stock won’t drop further. With the recent drop it’s had, it’s starting to look a little more attractive”

Elektra, which doesn’t hold quarterly conference calls with investors, said today it has equity swap derivative contracts tied to its stock price representing about 14 percent of its shares, down from about 23 percent in its 2010 annual report. Under the Bolsa rebalancing rules taking effect in September, the unwinding should be enough to allow Elektra to remain on the IPC index.

Salinas Stake

At the end of last year, Salinas and his family had a 70.5 percent stake in Elektra, with the remaining 29.5 percent in the hands of outside investors. Assuming the 14 percent of shares represented by derivatives are subtracted from that public float under the Bolsa’s rules, Elektra would have a float of 15.5 percent, above the Bolsa threshold of 12 percent.

“We heard from our investors that it was important to provide certainty that the stock represent the value of their investment,” Bruno Rangel, Elektra’s investor relations director, said today in a phone interview. “It’s a demonstration of the openness of the company.”

Before today, the stock had fallen 68 percent since April 11, when the exchange changed its IPC eligibility requirements. That slashed the premium on a stock that was the nation’s most expensive. Elektra traded at 10.1 times trailing earnings before interest, taxes, depreciation and amortization at yesterday’s close, down from a record high of 44.2 times on Dec. 27.

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