Bloomberg News

Sinking Yields Fueling Debt-Refinancing Plans: Mexico Credit

June 17, 2011

June 17 (Bloomberg) -- America Movil SAB and Petroleos Mexicanos, the biggest Mexican issuers of debt in international markets last year, are considering selling bonds to refinance debt after their benchmark yields fell to a seven-month low.

The yield on $2 billion of bonds due in 2020 from America Movil, the biggest wireless carrier in the Americas, fell to 4.08 percent earlier this month, the lowest since Nov. 23, according to data compiled by Bloomberg. Similar-maturity bonds sold by Pemex, as Latin America’s largest oil producer is known, yield 4.67 percent, the lowest since Nov. 12.

“You have to take advantage of these moments that we don’t always normally have to make improvements in the structure of debt we already have,” America Movil’s Chief Financial Officer Carlos Garcia-Moreno said at the Bloomberg CFO Summit in Mexico City on June 15. “We’re not always going to have these conditions of access.”

The expansion in Latin America’s second-biggest economy is fueling demand for Mexican corporate debt. The economy may grow as much as 5 percent this year after a 5.4 percent expansion in 2010 that was the fastest in a decade, the central bank said on May 11. The average yield on Mexican corporate dollar debt fell 10 basis points in the past two months to 6.21 percent through yesterday, according to JPMorgan Chase & Co. Borrowing costs for emerging-market companies slid 4 basis points during the same period.

The yield on Mexican government dollar bonds maturing in 2020 fell to a one-week low of 3.99 percent yesterday, according to data compiled by Bloomberg.

‘When It Rains’

America Movil sold $7.41 billion in overseas markets last year, including offerings denominated in Swiss francs and Chilean pesos, according to data compiled by Bloomberg. It raised $1.2 billion of debt in Mexico. The company also opened two credit lines for a total of $4 billion “a couple of months ago,” Garcia-Moreno said.

“The English say that no one lets you borrow an umbrella when it rains,” he said. “The moment to buy an umbrella is when it isn’t raining.”

Garcia-Moreno said the company may consider arrangements this year similar to a deal announced in March that refinanced $370 million of debt from its fixed-lined unit.

Pemex, based in Mexico City, plans to use about 60 percent of the $8 billion in debt it’s seeking to raise in local and overseas markets this year to refinance debt, Chief Financial Officer Ignacio Quesada said at the Bloomberg CFO Summit. It sold $6.1 billion of debt abroad in 2010, according to data compiled by Bloomberg.

Citizen Bonds

The company plans to sell so-called citizen bonds in the “coming months” to fund the refinancing and pay for additional exploration, Quesada said. The Finance Ministry has said the company may sell as much as 10 billion pesos of the securities, which are tied to the company’s operating performance.

“The 2008 crisis reminded us that liquidity is critical, and one has to make sure you have the adequate levels of liquidity,” Quesada said.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries narrowed 4 basis points to 147 at 5 p.m. New York time, according to JPMorgan.

The cost to protect Mexican debt against non-payment for five years fell 2 basis points to 110, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.

The peso rose 0.4 percent to 11.9023 per U.S. dollar.

Rate Expectations

Yields on futures contracts for the 28-day TIIE interbank rate due in December dropped 2 basis points to 4.99 percent, indicating traders expect the central bank to raise the rate by then. Mexico is the only major Latin American nation to keep its benchmark lending rate unchanged in the past year. The central bank left the rate at a record low 4.5 percent last month.

Concern Greece will default may curb demand for higher- yielding assets, prompting Mexican companies to refrain from selling bonds abroad, said Alonso Madero, who helps oversee $5.5 billion of debt at Mexico City-based Corp. Actinver SAB.

“There’s a lot of uncertainty about what will happen if they default, and it seems they’re getting closer to that,” Madero said in a telephone interview.

Mexican corporate bond sales in overseas markets totaled $10 billion this year, down 29 percent from the same period a year earlier, according to data compiled by Bloomberg.

“For all of the CFOs that are considering the possibility of going to the market, a unique opportunity is presenting itself,” Garcia-Moreno said. “The situation in this market can change rapidly. The markets by nature are volatile, so we should be aware of that.”

--With assistance by Carlos Manuel Rodriguez, Jose Enrique Arrioja, Jonathan Roeder and Jonathan J. Levin in Mexico City. Editors: David Papadopoulos, Marie-France Han

To contact the reporters on this story: Andres R. Martinez in Mexico City at

To contact the editor responsible for this story: David Papadopoulos at

The Good Business Issue
blog comments powered by Disqus