Oct. 24 (Bloomberg) -- America Movil SAB is poised to eclipse Coca-Cola Femsa SAB in the Mexican credit market as investors turn to Carlos Slim for refuge from Europe’s debt crisis.
Yields on America Movil dollar bonds due in 2020 have tumbled 52 basis points this month to 3.77 percent as of Oct. 21, or four basis points above that of similar-maturity debt sold by Coca-Cola Femsa, according to data compiled by Bloomberg. The yield differential has narrowed from 52 basis points, or 0.52 percentage point, on Sept. 6.
Investors are buying securities in companies such as America Movil that are best positioned to weather a global slowdown. While America Movil and Coca-Cola Femsa share an A- rating from Standard & Poor’s, the biggest wireless carrier in Latin America is outperforming because some investors have more confidence in the track record of Slim, the world’s richest man, said Alejandro Hernandez, who helps manage about $1.5 billion of debt at Interaciones Casa de Bolsa SA.
“Carlos Slim has obviously shown that he has made the right investments,” Hernandez said in a telephone interview from Mexico City. “Everything he touches turns to gold.”
America Movil bonds yield nine basis points less than Mexican government debt maturing in 2020, compared with 35 basis points more than the government securities on Sept. 7, according to data compiled by Bloomberg. The company’s bond yields fell below those of Coca-Cola Femsa on Oct. 11 before climbing the following day. The companies’ A- rating, the seventh-lowest investment grade, is two levels above that of the Mexican government.
An America Movil official who asked not to be named under company policy declined to comment on investors’ perceptions of its bonds.
Jose Castro, the Mexico City-based chief of investor relations at Coca-Cola Femsa, didn’t respond to telephone and e- mail messages seeking comment.
Coca-Cola Femsa’s 2020 securities returned 8.7 percent from the end of February through mid-August, according to data compiled by Bloomberg. The rally compared with a gain of 5.4 percent for debt sold by Latin American companies that share Coca-Cola Femsa’s A rating, Credit Suisse AG data show.
Coca-Cola Femsa became the world’s largest franchise for Atlanta-based Coca-Cola Co.’s namesake beverage in October 2010. Its products are a consumer staple in Mexico, where the per- capita Coke consumption surged 48 percent in 2010 from a decade earlier. Mexicans are the world’s top Coke consumers, drinking 675 eight-ounce coke beverages a year per capita, according to the Coca-Cola Co.’s website.
Slim, 71, built his fortune by investing in Mexico and other parts of Latin America during times of economic turbulence. He acquired Telefonos de Mexico SAB, then a state- owned monopoly, in a 1990 privatization sale and assembled a collection of phone networks throughout the region to create America Movil, which now accounts for about 63 percent of his $62 billion in publicly disclosed holdings, according to Bloomberg data.
America Movil, based in Mexico City, is also beating Coca- Cola Femsa in the bond market because of concern Latin America’s largest bottler is more “aggressive” in pursuing acquisitions, which may boost its debt levels, said Michael J. Roche, an emerging market strategist at MF Global Inc.
America Movil sold $2.2 billion of bonds denominated in euros and British pounds today, according to a person close to the sale. The company issued 1 billion euros of 8-year bonds to yield 180 basis points above the mid-swap rate, said the person, who asked not to be identified because he’s not allowed to speak publicly. The company sold 500 million of pounds of 15-year bonds to yield 217 basis points above the benchmark British Government bond, known as gilt, according to the person.
The cost to protect America Movil debt against non-payment for five years fell 18 basis points last week to 142, according to 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.
Credit-default swaps on Femsa’s debt aren’t available.
Coca-Cola Femsa will account for 50 percent of Mexico’s Coca-Cola sales after completing an agreement to buy the bottling operations of Grupo Cimsa with new shares, its second purchase since June. The acquisition is valued at 11 billion pesos ($806 million) in stock and assumed debt, topping Coca- Cola Femsa’s purchase of Mexican bottler Grupo Tampico for 6.55 billion pesos of shares and 2.75 billion pesos of debt in June.
“Even though we have two defensive-sector credits, when one is perceived to be pursuing a market-share gaining strategy, bondholders typically will demand a greater spread,” Roche said in a telephone interview. There’s “the perception that the firm’s credit metrics will deteriorate as the company uses its resources to acquire and pursue market share, either through aggressive growth strategies or through acquisition strategies,” he said.
America Movil’s stock has gained 5.2 percent in the past month, while Coca-Cola Femsa shares have slipped 2.2 percent.
Gerardo Copca, an analyst with Mexico City-based Metanalisis SA, said Coca-Cola Femsa will prove better able to withstand a slump in growth than America Movil. Slower growth in the U.S. is prompting economists to forecast the Mexican economic expansion will slow to 3.7 percent this year, down from a 5.4 percent expansion in 2010 that was the fastest in a decade, according to the median prediction of 21 analysts in an Oct. 19 survey by Citigroup Inc.’s Banamex unit.
“It’s a more defensive business model,” Copca said in a telephone interview. “Both are very secure, but I see a difference, a better image for Coca-Cola Femsa.”
The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries was little changed at 230 basis points at 8:31 a.m. in Mexico City, according to JPMorgan Chase & Co.
The peso rose 0.4 percent to 13.6182 per U.S. dollar.
Yields on futures contracts for the 28-day TIIE interbank rate due in December rose one basis point last week to 4.67 percent.
The cost to protect Mexican government debt against non- payment for five years rose nine basis points last week to 157, according to CMA.
America Movil sold 6.9 billion yen ($90 million) of 1.23 percent three-year bonds and 5.1 billion yen of 1.53 percent five-year notes, according to Mizuho Financial Group Inc.
“Companies that can raise money abroad in this type of market -- and at good levels -- show the strength of the credit,” said Guillermo Rodriguez, who helps manage about $5.5 billion at Corp. Actinver SAB in Mexico City.
--Editors: Lester Pimentel, David Papadopoulos
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