Bondholders Stung by Bad-Loan Mess in Mexico Regaining Trust

  • Notes have jumped 11% since Famsa reported earnings on July 29
  • Company revealed accounting error in May, sparking bond plunge

Grupo Famsa SAB is starting to reassure bondholders, three months after an accounting blunder rocked the Mexican retailer and lender.

Its $250 million of notes due in 2020 have surged 11 percent since July 29, when the company said second-quarter revenue increased and that it’s expanding a payday lending business. The loans tend to have a lower default rate than those that are unsecured. The bonds rose 0.41 cents on Friday to 84.15 cents per dollar as of 1:34 p.m. in Mexico City, the highest since May.

Famsa, which lends money to its customers to finance purchases of everything from mobile phones to refrigerators, is winning back investors after the company said in May that it set aside money to cover bad loans it had previously overlooked. The accounting error meant Famsa had to boost provisions for delinquent loans to 5.1 billion pesos ($273 million) and take a charge of 2.1 billion pesos against its equity. The admission triggered a plunge of as much as 29 percent in the company’s bonds and a credit-rating downgrade.

“They’re coming back,” said Patrik Kauffman, a money manager at Solitaire Aquila Ltd., which has $11 billion in assets. “People are regaining confidence.”

In its second-quarter filing, Monterrey-based Famsa said it still expects sales to rise 9 percent this year.

“The announcement in May caused surprise and concern among investors, but our quarterly results confirmed that it didn’t affect the company’s operations,” said Paloma Arellano, Famsa’s head of investor relations.

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