Latin Finance - March/April 2009 - 52

Mexico credit markets “The question is when are the credit markets going to be functioning again,” says Juan. He explains that the credit recovery would perhaps come as late as the second half of 2011, likely lagging a US recovery seen by economists sometime in 2010. Issuing Issues A major issue for investors is lingering concern about the corporate sector following bankruptcy amid billions of dollars in derivatives losses. While most analysts see the problem as contained, Darío Oscós, founder and senior partner of Oscós Abogados in Mexico City, says there is more distress to come. The crisis should be a good test of the new concurso mercantil framework, adds the banker, who specializes in restructuring, creditors’ rights, insolvency, litigation and arbitration. “The problems have little to do with the businesses themselves, but with decisions related to derivatives,” says Felix Boni, head of analysis at HR Ratings. He notes that corporate management in Mexico has been highly regarded by international investors. “Corporate problems have been totally revealed,” adds Jorge Alegría, CEO of MexDer, the Mexican derivatives exchange, not foreseeing any further derivative blowups. And the corporate derivative experience has not all been bad, he says, pointing to Pemex’s use of oil price hedge and cross-currency swaps. Borrowers meanwhile have few options, and remain at a standoff with institutional investors. It is mostly a problem of confidence, say market participants. Despite the fact that investors are cash rich, issuers have not been willing to adjust to the new prices. “We’ve gone back to 2000, in that only Triple A issuers can come,” says a Mexico City-based DCM banker, who adds that tenors are also squeezed. As before the crisis, lack of liquidity in the secondary markets complicates the situation. “The most important problem is the lack of a secondary market,” says Leonardo Pin Fernández, CIO at MetLife Mexico, which manages more than 100 billion pesos. If the secondary market were more developed, confidence would be higher now. Issuers have not accepted the new terms, which is why Pin Fernández says he and his fellow institutional investors are not buying. Lack of information and transparency compounds the problem, explains Sergio Méndez, CIO at Afore XXI, which manages about 60 billion pesos. Investors will discriminate more than in the past, even among Triple As. In late January, Coca-Cola Femsa priced a 2.0 billion peso 13-month bond at the TIIE rate plus 80 basis points, the first corporate bond of the year. Pricing came 82 basis points wide of where sister unit and fellow AAA issuer Femsa placed a 1.5 billion peso 2011 bond in May. As much as half of the Coca-Cola Femsa deal was bought by leads Banamex and HSBC through their retail divisions, according to a banker who managed the transaction. Retailer Liverpool, one of a small number of AAAs making use of the commercial paper market, sold 700 million pesos in one-year CP at TIIE plus 150 basis points in February. A 13-month bond from bottler Arca was set to issue in late February, expected by local DCM bankers to price between both. Pricing will be more difficult than Coca-Cola Femsa without similar retail support, according to bankers. “To be successful now, you have to be generous on pricing to get the volume,” says a Mexico-based DCM banker. When issuers begin to realize this, the market can open and confidence can return, the banker adds. “The most important problem is the lack of a secondary market,” says Leonardo Confidence Shock Pin Fernández, CIO at MetLife Mexico “You have an issue of confidence that needs to be broken by good names accessing the market,” Rodríguez says, noting that Hacienda is working with quasi-sovereigns like Pemex and CFE to try and fix this. Such issuers could get 10 year tenor in the local market, he says, but may have to look at 3-5 years first. He explains that other corporates should follow, provided they accept a new pricing scenario, and this would return confidence to markets, resulting in more issuance, perhaps as soon as the second quarter. Pemex managing director of finance and treasury Mauricio Alazraki says Pemex is considering a local markets issue this year, though he declines to state target tenor or price. International markets are still open for high-quality names, adds the official, whose company issued $2 billion in 2019 bonds in February. Relationships with banks will be more important than ever, characterized by a need to establish a strategic alliance with an institution that can deploy balance sheet in support of an issuer. In both the international and domestic markets, dialogue with the buyside is also more important than ever. “Issuers are going to have to be responsible and work with investors,” Jannet says. He adds that there is a need to show that the issuer’s capitalization levels are sufficient and provide enough data to let investors see for themselves, rather than blindly relying on ratings, as in the past. Javier Nájera, managing director at Ixe’s corporate bank, notes that retailer Comerci was still rated AAA on a local scale when it first filed for the concurso mercantil bankruptcy process. In addition to increased transparency, there is also 52 LATINFINANCE March/April 2009

Latin Finance - March/April 2009

Table of Contents for the Digital Edition of Latin Finance - March/April 2009