Peso Crisis? What Peso Crisis?

In Mexico's stricken economy, exports are the only bright spot. Six months after the peso's collapse, a few companies are prospering, thanks to high world commodities prices and the cheap currency. Alfa, a manufacturing conglomerate based in the northern city of Monterrey, leads the pack: It expects to sell petrochemicals, steel, and auto parts worth $1 billion abroad this year.

Alfa's emergence as an exporting powerhouse underscores a remarkable turnaround. When Mexico plunged into an earlier crisis in 1982, Alfa, with its $2.5 billion debt, was the symbol of the corporate overborrowing that helped trigger the collapse. The company has since restructured and brought its debt down to manageable levels. Now it's paying off. Despite the new peso debacle and sharply reduced domestic demand, Alfa is cashing in by exporting aggressively at climbing world prices. "We're getting a double-whammy benefit from price and volume increases," says Alfa Chief Financial Officer Peter T. Hutchison.

Still, further gyrations in the currency markets could disrupt Alfa's profit performance. This year, a 76% jump in exports is expected to boost sales to $3.4 billion from $2.7 billion in 1994. With 80% of its revenues priced in dollars against only 65% of its costs, the devaluation has worked in Alfa's favor, boosting its operating margin by 18% in the first quarter. Analysts consider operating figures a key gauge of performance because, under Mexican accounting rules, currency fluctuations can cause net profits to swing wildly. Thus, despite a first-quarter increase in operating profits to $105 million, Alfa posted a net loss of $46 million.

A handful of other Mexican companies are riding the export boom, including steelmakers Altos Hornos de Mexico and Grupo Simec. Silver miner Peoles is cashing in on high world prices for precious metals. And conglomerate Empresas La Moderna expects to quadruple exports of fresh produce to North America this year.

But Alfa's rebound stands out. Created in 1974, when Monterrey's Garza and Sada families carved conglomerates out of their holding group, Alfa grew rapidly by borrowing to finance acquisitions from ranches to beach resorts. But in the post-1982 retrenchment, Alfa had to refocus on its core businesses: steel, petrochemicals, and food. By the end of the 1980s, after restructuring debt owed to U.S. banks, Alfa was able to borrow from banks again and sell Eurobonds to finance a $1.65 billion modernization. With the latest devaluation, "we were ready to capitalize on the situation because we have state-of-the-art physical plant," Hutchison says.

Alfa CEO Dionisio Garza Medina, 41, has accelerated restructuring since taking over in March, 1994. A scion of the Garza-Sada oligarchy, which dominates Monterrey business, he worked his way through Alfa's divisions after earning a Harvard MBA. Last year he raised $240 million from public offerings of steel division Hylsamex and food subsidiary Sigma Alimentos. He aims to take petrochemical division Alpek public by 1996.

In perhaps his biggest coup, Garza Medina has signed a proposed $1 billion joint venture with AT&T in the fast-growing, long-distance telephone market. The proposal makes some analysts nervous since it departs from Alfa's manufacturing strengths. But it fits a strategy of looking for businesses to offset cyclical swings in petrochemicals and steel.

GOOD LUCK. Alfa already has a division that serves as an incubator for smaller businesses. A key one is auto parts maker Nemak, which produces cylinder heads for export with partners Ford Motor Co. and Fiat. Nemak expects to double 1995 sales of $150 million by 1998.

Alfa's transformation has not been cheap: It still carries $1.4 billion in debt, 90% of it in hard currency. But the company is using export revenues as collateral to convert $500 million in short-term borrowings to longer-term debt.

While Alfa has benefited from high commodity prices and the cheap peso, executives say six years of planning laid the basis for that good luck. "In the past few years, they've spent a fortune and made some pretty courageous bets," says Kerry McHugh, an analyst at Baring Securities in Mexico City. Now those gambles are paying off for Alfa--and for Mexico's economy.

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