Bloomberg News

Mexichem Weighs Acquisitions After $1 Billion Share Sale

October 11, 2012

Mexichem SAB, the chemical maker that has made at least 15 acquisitions in six years, said it’s studying two more deals after raising $1 billion in new stock.

The prospective purchases, one in South America and another in the U.S., may be completed in three months to a year, Chief Executive Officer Antonio Carrillo said yesterday by telephone.

Mexichem, the largest plastic pipe manufacturer in Latin America, raised $2 billion in the past month after selling $1 billion in bonds on Sept. 12 and $1 billion in shares on Oct. 9. The Tlalnepantla, Mexico-based company is shoring up finances to continue a takeover spree that has included the $581 million purchase of Wavin NV last May and to help finance potential joint ventures in Mexico and the U.S.

“Latin America is the place to grow,” Carrillo said in an interview from Amsterdam. “The drivers for our business are stronger in Latin America, and to a lesser extent the U.S.”

While proceeds from the debt sale were used to repurchase a bond and pay the balance of a credit line, money raised in the share sale won’t be used for refinancing, he said.

Mexichem shares rose to the highest in two months in Mexico City trading today while bond spreads tightened. Further growth through acquisition probably will help boost earnings, said Fernando Perez Lizardi, an analyst with Corporativo GBM SAB, the country’s largest brokerage by transactions.

“Investors are attracted by the growth strategy and keep wanting these kinds of success stories,” Perez Lizardi said in a telephone interview today.

Joint Ventures

Mexichem, controlled by billionaire Antonio del Valle, is expanding and attempting to cut costs after buying suppliers and undertaking potential joint projects to boost production of vinyl chloride with units of Occidental Petroleum Corp. (OXY:US) and Petroleos Mexicanos, the state-owned oil producer known as Pemex.

Pemex’s board is ready to approve a petrochemical joint venture with Mexichem, Juan Jose Suarez Coppel, the state company’s chief executive officer, said Sept. 17. The feasibility of a $1 billion ethylene venture with Dallas-based Occidental Chemical Corp. is being studied, Mexichem said in an Aug. 16 statement.

Carrillo said Mexichem is on track to meet its $5.6 billion 2012 revenue target and an earnings-before-items goal of about $1.12 billion.

Shares rose 3.1 percent to 63.78 pesos at the close in Mexico City, the highest close since Aug. 7. Mexichem has surged 69 percent in the past year, exceeding the 24 percent increase for the IPC Index.

The extra yield, or spread, investors demand to buy Mexichem’s 4.875 percent dollar bonds due in 2022 instead of U.S. government bonds fell 4 basis points to 239 basis points, the lowest since the notes were issued last month, according to data compiled by Bloomberg.

To contact the reporter on this story: Carlos Manuel Rodriguez in Mexico City at carlosmr@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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