For Mexico and its state oil producer, the allure of cheap bond-market financing is proving to be irresistible. But for most of the nation’s other companies, there just aren’t enough compelling reasons to borrow.
That’s because with forecasters chopping their economic growth forecasts and the peso just weeks removed from a record low, businesses are finding few incentives to tap the debt markets for expansion. Only two non-state-owned companies have sold bonds internationally this year, with sales plummeting 82 percent to $1 billion from the same period in 2014.
The slump in issuance underscores growing disillusionment with Mexico’s economy after a collapse in oil upended expectations that last year’s historic energy-law changes would trigger a boom in growth and investment.
“A lot of Mexican corporates aren’t coming to market because the economy isn’t good,” Luis Maizel, who helps manage $5.5 billion of fixed-income securities as co-founder of LM Capital Group, said from San Diego. It’s “not a time to increase investment. There’s not as much need for money.”
Petroleos Mexicanos, the state oil company, sold 2.25 billion euros ($2.4 billion) of bonds abroad Tuesday, a week after the government issued 1.5 billion euros of 100-year notes. The sales are part of an effort to lock in overseas borrowing costs as the European Central Bank carries out a 1.1 trillion-euro bond-buying program to revive Europe’s economy.
And while average borrowing costs for companies in Mexico have tumbled to a seven-month low of 4.76 percent, only cement maker Cemex SAB and retailer Kimberly-Clark de Mexico SAB have sold debt abroad this year, data compiled by JPMorgan Chase & Co. and Bloomberg show.
Companies are reluctant to take on debt at a time when economists have cut their 2015 growth projections by almost a full percentage point over the past six months to 2.95 percent, according to surveys by Citigroup Inc.’s local unit.
Mexichem SAB, Latin America’s largest maker of plastic pipes, plans to abstain from the bond market this year after selling $750 million of bonds in 2014, Chairman Juan Pablo del Valle said Tuesday in an interview in Mexico City. The Tlalnepantla, Mexico-based company is trying to cut debt and would probably sell stock if it needed to finance any acquisitions, he said.
“Right now we’re not thinking of more debt,” del Valle said.
With oil prices down 50 percent since June and the country’s crude output poised to decline for an 11th straight year, the government has had to cut spending, threatening to deepen the economy’s malaise.
Those woes, combined with investor concern that higher U.S. interest rates will cause an exodus from emerging markets, caused the peso to sink on March 10 to the lowest level since the currency’s redenomination in 1993.
“The currency’s awfully weak, which may give pause to creating an additional liability in a strengthening currency,” Michael Roche, a fixed-income strategist at Seaport Global Holdings, said by telephone from New York. “You’d be opening up a risk by borrowing in dollars.”
The peso strengthened 0.1 percent Wednesday to 15.2437 per dollar as of 3:05 p.m. in New York, paring its decline this year to 3.2 percent.
LM Capital’s Maizel said he’s found few Mexican bonds to invest in since raising almost $100 million over the past two weeks to buy emerging-market debt.
“We’ve been raising money but we’re doing mostly non-Mexican debt because there isn’t that much paper coming out of Mexico,” he said.