Bloomberg News

Slim’s Bank Taps Record Rates to Lead Sales Surge: Mexico Credit

July 19, 2011

July 19 (Bloomberg) -- Banco Inbursa SA, the corporate lender controlled by billionaire Carlos Slim, is selling the most debt in Mexico’s local bond market this year to take advantage of record-low benchmark borrowing costs.

Inbursa plans to offer up to 6 billion pesos ($514 million) of bonds as soon as tomorrow, pushing sales by Mexico’s sixth- largest bank by loans to about 17 billion pesos this year, according to data compiled by Bloomberg. The notes may yield about 17 basis points, or 0.17 percentage point, above the 28- day TIIE interbank lending rate, or 4.97 percent, according to Araceli Espinosa, a corporate debt analyst at Scotia Capital. BNP Paribas SA, France’s largest bank, sold 1.2 billion pesos to yield 50 basis points more than TIIE, in June.

Slowing inflation in Latin America’s second-biggest economy is helping drive down yields for Mexican companies and the government. The 28-day interbank lending rate fell to 4.8 percent yesterday while yields on the government’s benchmark notes touched a seven-month low yesterday. Mexico is the only major Latin American country to keep borrowing costs unchanged in the past year, having held it at 4.5 percent.

“Investors will pick up this debt because it’s seen as a very safe option to other sectors,” Miguel Angel Aguayo, a fixed-income analyst at Grupo Financiero Banorte-Ixe SAB, said in a telephone interview. “We have had a pretty dynamic first half, with new issuances, foreign issuers, and we should see this continue.”

Inbursa’s offering will push local corporate debt sales to 101 billion pesos, a 35 percent increase over the same period last year, according to data compiled by Bloomberg. Yields on the government’s benchmark bonds maturing in 2024 dropped to 6.98 percent yesterday, the lowest since Dec. 6.

‘Attractive’

Annual inflation slowed to 3.28 percent in June from 3.69 percent a year earlier. The rate touched a five-year low of 3.04 percent in March.

Inbursa, based in Mexico City, sold 500 million pesos of bonds to yield 15 basis points more than TIIE last month. The bank will probably pay a similar rate on its planned offering this week, said Luis Frias Humphrey, director of corporate banking at Grupo Financiero Inbursa SAB.

“We’re seeing today that market conditions are attractive for building up funds for the long term,” Humphrey said in a telephone interview yesterday. “The advantage is that we can get funding for a longer term.”

Branches Triple

Chief Executive Officer Marco Antonio Slim, the second- oldest son of Carlos Slim, the world’s richest man according to Forbes magazine, has tripled Inbursa’s branches since the end of 2008 to add more consumer and small-business clients.

Inbursa’s total loan portfolio expanded 4.9 percent in the first quarter from a year earlier to 171 billion pesos, the company said in its first-quarter earnings report. Auto loans almost tripled to 7.38 billion pesos after the company acquired Chrysler Financial Corp.’s Mexican unit last year for 5.61 billion pesos. Commercial loans made up 73 percent of the bank’s portfolio in the quarter.

The Slim family controls about 55 percent of Inbursa’s shares, according to the company’s annual report filed last month. The stake represents about 12 percent of Slim’s $72 billion in publicly disclosed holdings, according to data compiled by Bloomberg. Slim founded the bank in 1965, making it one of his oldest investments.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries was unchanged at 143 basis points at 4:01 p.m. New York time, according to JPMorgan Chase & Co.

Record Sales

The cost to protect Mexican debt against non-payment for five years rose 3 basis points to 118 basis points, 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 0.5 percent to 11.6668 per U.S. dollar.

Yields on futures contracts for the 28-day TIIE interbank rate due in March rose 1 basis point to 5.04 percent, indicating traders expect the central bank to raise the rate that month.

Inbursa may struggle to sell all of the 6 billion pesos of debt it’s offering after record issuance by banks created a glut, said Hugo Fuentes, a corporate bond trader at Corp. Actinver SAB in Mexico City. Investors will demand a yield of at least 25 basis points above TIIE for Inbursa’s bonds, he said.

Banks have sold 42 billion pesos of bonds in 2011, accounting for 39 percent of all issuance in the local market this year, according to data compiled by Bloomberg.

AAA-Rating

“There have already been a lot of bank issuances,” Fuentes said in a telephone interview. “Inbursa is the one that’s been selling the most.”

Grupo Aeroportuario del Centro Norte SAB, the first airport operator to tap the local debt market, sold 1.3 billion pesos on July 13 after reducing the offering by 13 percent.

Debt sales in the local market are picking up after issuance petered out in May and June, when borrowings fell to a one-year low of $1.57 billion, according to data compiled by Bloomberg.

Banco Inbursa, a unit of Grupo Financiero Inbursa, has a local rating of AAA from Standard & Poor’s, the highest investment grade.

“There are very few issuances this summer and investors are going to want new paper,” Scotia Capital’s Espinosa said in a telephone interview from Mexico City.

--Editors: Lester Pimentel, Jonathan Roeder

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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