Bloomberg News

Slim Turns to Samurai Bonds for Funding: Mexico Credit

September 28, 2011

(Corrects which countries have sold yen bonds in eighth paragraph of article published on Sept. 22.)

Sept. 22 (Bloomberg) -- America Movil SAB, Latin America’s largest wireless carrier, may become the first non-financial company from the region to sell bonds in Japan as it seeks to diversify sources of financing after raising $3.1 billion of debt in the U.S. and Switzerland last month.

Mexico City-based America Movil may follow the government’s so-called samurai offering in 2010 after meeting with bond investors in Japan last week. The yield on Mexico’s 10-year yen securities, the benchmark for companies, dropped 15 basis points, or 0.15 percentage point, this year to 2.20 percent, according to data compiled by Bloomberg. Bonds due in 2018 sold by NTT DoCoMo Inc., Japan’s largest mobile-phone operator, yield 0.65 percent.

America Movil, which is controlled by billionaire Carlos Slim, is turning to Japan’s bond market after stepping up debt sales in August to help finance a $6.5 billion acquisition of Telefonos de Mexico SAB shares. The company is seeking to expand its financing sources as slowing growth in the U.S. and Europe’s worsening debt crisis crimp issuance in those markets.

“It’s a good thing,” Sergio Rodriguez, the head of Latin American telecommunication ratings at Fitch Ratings in Monterrey, Mexico, said in a telephone interview. “They are diversifying their funding. This gives them more financial flexibility compared to a company that’s limited to sell debt in just one market.”

Yields Rise

Yields on America Movil’s benchmark dollar bonds due in 2020 climbed 34 basis points in the past month to 3.89 percent as concern Greece may default erodes demand for emerging-market assets, according to data compiled by Bloomberg. The securities yield 29 basis points more than similar-maturity Mexican government debt, up from 24 two months ago. The company is rated A by Fitch, the sixth-lowest investment grade and three steps above Mexico.

America Movil hired Mitsubishi UFJ Morgan Stanley Securities Co. and Mizuho Financial Group Inc. to arrange last week’s meetings in Japan, according to a person with direct knowledge of the matter who declined to be identified because discussions were private. The talks took place after Mexico met with Japanese investors to gauge demand for its planned sale.

Samurai Offerings

An official at America Movil who asked not to be named in accordance with company policy declined to comment. A press official in Mexico’s Finance Ministry said officials weren’t available to comment.

Only Latin American governments and financial companies have sold bonds in Japan in the past decade, according to data compiled by Bloomberg. Uruguay and Panama tapped the market earlier this year. Mexico has been the region’s most frequent and biggest issuer of samurai bonds, selling $4.8 billion in five offerings since 1999, when Bloomberg began tracking the data.

America Movil “has the ability to do it,” Michael Roche, an emerging-market strategist at MF Global in New York, said in a telephone interview. “They have the name recognition.”

Slim was named the world’s richest man for a second year in a row by Forbes magazine in March.

U.S. corporate bond sales totaled $62 billion this month, down from $109 billion in the same period in 2010, according to data compiled by Bloomberg. The International Monetary Fund cut its forecast for global economic growth this week and predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan.

Default Swaps

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries rose 11 basis points yesterday to 247, according to JPMorgan’s indexes.

The cost to protect Mexican debt against non-payment for five years increased 23 basis points yesterday to 197, 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 weakened 3.5 percent to 13.7056 per U.S. dollar, extending its decline this year to 10 percent.

Yields on futures contracts for the 28-day TIIE interbank rate due in October 2012 rose 16 basis points yesterday to 5.00 percent, signaling Banco de Mexico may raise the key rate that month.

America Movil plans to start next month its offer for a 40 percent stake in Telmex, as Mexico’s largest landline phone carrier is known, to combine operations after buying a majority stake last year.

‘Well Diversified’

The company doesn’t need to sell more debt to pay for the acquisition, Chief Financial Officer Carlos Garcia-Moreno said in a telephone interview on Sept. 5.

“It’s important to have a well diversified investor base,” Garcia-Moreno said.

The amount of financing that Latin American companies including American Movil can raise in Japan’s bond market is limited because the offerings are typically smaller and have shorter maturities than ones in the U.S., said Alexandre Coelho deputy head of investment banking at Daiwa Capital Markets in New York. Daiwa is the biggest underwriter of Latin American samurai deals this year, according to data compiled by Bloomberg.

“Tenors could be two, three or maybe five years, depending on the name because of the characteristics of the Japanese markets,” Coelho said in a telephone interview in New York. “Those companies would have to work very profoundly with the arranger beforehand.”

Overseas Offerings

Coelho said that he’s working with Latin American companies to sell bonds in Japan. He declined to identify the companies.

America Movil sold last month $2 billion of five-year bonds to yield 2.549 percent and $750 million more of its securities due 2040 to yield 5.502 percent, making it the biggest Mexican corporate issuer this year, according to data compiled by Bloomberg.

The company sales last year included $4 billion in dollar bonds, a $3 billion sale in the euro and pound bond markets, $1.2 billion in Mexican peso bonds and $215 million in Swiss franc notes. It issued $198 million in Chilean peso bonds in 2009.

“The company has reached a scale in which it’s looking to attack a different investor base, one that doesn’t own America Movil paper or doesn’t have much exposure,” Fitch’s Rodriguez said. “That’s what they’re looking to do when they sell debt in different currencies.”

--With assistance from Yusuke Miyazawa in Tokyo, Crayton Harrison in Mexico City and Katia Porzekanski in New York. Editors: Lester Pimentel, Jonathan Roeder

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net; Benjamin Bain in New York at bbain2@bloomberg.net

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


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