El Nino Is Wreaking Havoc With Bond Traders in This Peru Fishery

  • Peru slashes fishing quota as warmer waters hurt marine life
  • Pesquera Exalmar gets almost all of revenue from fishmeal

Pesquera Exalmar SAA is struggling to convince bond traders it can weather the worst El Nino in two decades.

This month alone, the Peruvian fishing company’s $200 million dollar-denominated notes due 2020 have plummeted over 13 percent to 68.56 cents on the dollar. That’s the most among all food, beverage and tobacco industry bonds in emerging markets.

Lima-based Pesquera Exalmar is likely to see its revenue sink and leverage jump after Peru slashed the local industry’s fishing quota by almost 60 percent as the warmer temperatures associated with El Nino reduce marine life populations, according to Moody’s Investors Service. The company gets almost all of its sales from fish meal made from anchovies.

“It’s the phenomenon of El Nino, which has obviously impacted the coast of Peru and has led to difficulties measuring the anchovy biomass,” Alonso Alcorta, an analyst at Mcc Seminario Inversiones, said from Lima.

Raul Briceno, Exalmar’s chief financial officer, said investors are overestimating how poorly the company will fare in the face of El Nino.

“I don’t believe that this year’s El Nino is going to have a huge impact,” he said from Lima. “We are at ease about the future.”

Peru lowered the quota for the fishing season that began Nov. 17 to about one million metric tons, which is down from an average of about 2.5 million tons. It canceled last year’s second season. The anchoveta (Peruvian anchovy) is by far the most-caught marine species in the world, according to the Food and Agriculture Organization of the United Nations.

There’s a 55 percent chance this El Nino will be strong to extraordinary in intensity, according to Grinia Avalos, director of meteorology at Peruvian weather agency Senahmi. The weather pattern occurs when there is a weakening in the trade winds that push the sun-warmed waters of the equatorial Pacific into the western hemisphere.

In 1997, El Nino pushed the sea’s temperature about two degrees higher than it is now. That triggered $3.5 billion of damage in Peru from 1997 to 1998, which was equal to 6.2 percent of its gross domestic product at the time. Floods and landslides destroyed 73,000 hectares of crops, damaged a further 131,000 hectares and washed away homes, roads and bridges.

Yields on Pesquera Exalmar’s bonds have now surged to 18.58 percent, data compiled by Bloomberg shows. That’s pushed the premium over U.S. Treasuries to 16.32 percentage points, above the threshold for debt considered distressed.

Still, Gerhard Philipps, a money manager at Munich-based DR Kohlhase, said he’s sticking with Pesquera Exalmar’s notes as the company will withstand the impact of El Nino.

“I think this company will survive,” he said. “We have to wait until spring of next year and we’ll see what the outcome is.”

Pesquera Exalmar isn’t the only company in Peru experiencing soaring borrowing costs because of El Nino. Lima-based Camposol SA, which produces shrimp, avocado and asparagus, has seen yields on its $125 million of notes due 2017 jump to 29.93 percent.

On Nov. 3, Moody’s cut Pesquera Exalmar’s rating one level to B3, six levels below investment grade, citing the impact of El Nino on the company. It also kept a negative outlook on the grade.

“The problem is, you cannot entirely anticipate what’s going to happen because it is a weather pattern,” Moody’s analyst Alonso Sanchez said from Mexico City.

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