Banks Target Mexico’s Low Risk Loans Amid Political Uncertainty

NEW YORK, February 22 (LPC) – International lenders active in Mexico are targeting less risky companies to maintain some exposure in a country that is adjusting to the sweeping new policies of newly elected left-wing president Andrés Manuel López Obrador.

“There is still some uncertainty about the new public policies of the new administration, especially those designed for economic growth. The market is always adapting to these new dynamics and ground rules, ”said Jorge del Castillo, deputy national director of MUFG Mexico and director of the corporate and investment bank in Mexico, adding that the Japanese lender is doing nothing. would hold on to Mexico’s “biggest business” banks, such as as investment grade borrowers or multinational names and sovereign entities as uncertainty persists.

López Obrador, commonly referred to by his initials AMLO, undermined investor confidence in Mexico when he scrapped plans for a partially constructed $ 13 billion international airport in October, saying the initiative was a waste of l taxpayer money.

AMLO, who took office on December 1, also criticized the energy reforms of his predecessor Enrique Peña Nieto, a key part of the policy enacted in 2013 that opens the Mexican oil industry to the private sector.

The reforms ended Petróleos Mexicanos (Pemex) ‘s monopoly on the sector, as private oil producers had the opportunity to operate projects without or in partnership with the public energy producer.

Pemex typically serves as a barometer for Latin American lending, and its absence from the bond market so far this year has kept other Mexican firms at bay.

The company, which was demoted to BBB- in January by Fitch Ratings, instead approached the bank debt market for potential loans and revolving credit facilities to meet the $ 8 billion in funding it needs this year. , previously reported LPC. And similar facilities are available for Mexican companies with strong credit ratings or strong banking relationships, agreed bankers and investors active in Mexico.

“Some of the high-quality Mexican names trade more widely in the secondary market, so they look to the banking market to cover their debt,” said an investment banker active in Mexican capital markets.

KEEP SIMPLICITY

Besides Pemex, other favorites of bankers like Mexichem are also in discussions with international banks to renew credit lines.

The local petrochemical company is negotiating the renewal of a five-year, $ 1.5 billion facility it signed with 10 lenders in June 2014, sources said.

“The Mexichem deal is pure relationship talk and tells how we view Mexico right now,” said one lender, adding that similar low-risk deals were the ideal form of exposure to the country’s borrower base. Mexico.

Mexico devolved bankers have jumped at the chance this year to provide short- and medium-term loans where the stakes are not considered too high.

IT services firm Softtek refinanced in January an existing five-year term loan with a new US $ 150 million facility from seven lenders, while Sempra Energy’s Mexican subsidiary Infraestructura Energética Nova (IEnova) increased in February its revolving credit at 1.5 billion US dollars against 1.17 billion US dollars. and extended the term to February 2024 from August 2020.

“Those with short-term or immediate funding needs are already looking at the markets, namely the banking market,” del Castillo said. “Medium and long term investments, and those with investment plans, have been delayed or put on hold until the new administration comes up with a clear strategy.”

Other well-known borrowers, such as real estate investor FIBRA Prologis, signed a US $ 290 million bank loan this month that extended a transaction signed in March 2018 until February 2023 from 2022. And industrial property lessor Parque Industrial Mexicali signed a seven for US $ 120 million. one-year loan last month to refinance debt, sources said.

“There are deals for stable businesses that aren’t looking for anything too aggressive,” the lender said, referring to smaller deals with less risk in the long run.

AHEAD OF THE CURVE

As lenders are increasingly selective about who they bank with in Mexico, market participants are aware that Mexican corporate borrowers anticipated AMLO’s victory last July and raised debts, through bonds or loans, before volatility hit and when interest rates were lower.

Borrowers lengthened debt maturities and gorged themselves on liquid lenders and an investor base keen to allocate money in emerging markets in 2017 and early 2018, ahead of the inevitable rate hikes of the US Federal Reserve and presidential elections across the region.

The volume of syndicated loans in Latin America topped US $ 40 billion in 2018, the highest figure since 2007, according to LPC data, and about US $ 30 billion in deals from last year were closed. before AMLO’s victory on July 1.

Mexico, Brazil, Paraguay and Colombia all appointed new presidents in 2018, and companies that could enter the market beforehand got into debt on favorable terms.

“The bigger companies have taken advantage of aggressive levels and have pre-funded,” the senior investment banker said. “It was the right choice because now transmitters are affected by government policy.” (Reporting by Aaron Weinman. Editing by Michelle Sierra and Lynn Adler)