Mexican Corporate Bond Sales to Triple by Year-End

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Mexican corporate bond sales will almost triple through the end of this year as central bank interest-rate cuts push down borrowing costs, according to Citigroup Inc., the nation’s biggest debt underwriter in 2009.

Mexican companies will sell 95 billion pesos ($7.1 billion) of debt maturing in a year or more from June to December after issuing 35 billion pesos of bonds in the first five months of this year, said Arnulfo Rodriguez, head of fixed-income research at Citigroup’s Banamex unit in Mexico City.

Almost 60 percent of Mexican corporate bond sales are tied to the 28-day TIIE interbank deposit rate, which fell to 5.37 percent today, from 8.69 percent Dec. 31, according to Citigroup. Central bank Governor Guillermo Ortiz cut the benchmark lending rate to a five-year low of 5.25 percent in May after consumer prices dropped 0.34 percent in the first two weeks of the month. Economists predict the full-month price report, which is scheduled to be released tomorrow, will show annual inflation slowed for a fourth month this year, according to a Bloomberg survey.

“Monetary policy has been successful in pushing down short-term market yields,” Rodriguez said in an interview. “That, as a consequence, has helped to re-establish issuances in the corporate debt market.”

Pemex Sale

State-owned oil monopoly Petroleos Mexicanos sold 6.5 billion pesos of floating-rate bonds to yield about 6.47 percent the week after the central bank reduced its key lending rate last month. Mexico City-based Pemex sold 6 billion pesos of securities tied to the 28-day TIIE rate to yield about 7.99 percent at its previous sale in April.

Pemex issued both securities to yield 90 basis points, or 0.9 percentage point, over the 28-day TIIE rate.

Banco de Mexico reduced its key lending rate by 3 percentage points this year as policy makers anticipated a decline in Mexico’s inflation rate from a more than seven-year high in December.

A central bank report tomorrow may show annual inflation slowed to 6.01 percent in May from 6.17 percent in April, according to the median forecast of 14 analysts surveyed by Bloomberg. Annual inflation was 6.5 percent in December.

Further Cuts

Rodriguez said policy makers will likely cut the rate twice more this year to 4.5 percent by July. That may help reduce borrowing costs on a combined 9.5 billion pesos of bonds that Grupo Bimbo SAB, Latin America’s biggest bread maker, and Banco Bilbao Vizcaya Argentaria SA’s Bancomer unit, Mexico’s largest lender, plan to sell over the coming months, according to a Citigroup report last month.

Banco Compartamos SA, a Mexican lender to low-income individuals, plans to sell about 500 million pesos of two-year notes this month, its first offering since the global financial crisis deepened last year, Chief Executive Officer Carlos Labarthe said today. The notes may pay 1 percentage point to 1.5 percentage points over the TIIE rate, Labarthe said in an interview in New York.

Sales of corporate bonds in Mexico are growing after dwindling in the fourth and first quarters following the collapse of Lehman Brothers Inc. in September, which deepened the financial crisis that has triggered almost $1.5 trillion in writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg.

Corporate debt sales this year will total 23 percent less than the 169 billion pesos of bonds issued in 2008, according to Rodriguez.

Investor demand for corporate bonds also is picking up as Mexico’s economy starts to pull out of its first recession in eight years, according to IXE Grupo Financiero SA in Mexico City. Mexican Finance Minister Agustin Carstens said last week that economic activity should improve every month through the end of the year.

“We’re gradually buying more corporate bonds,” said Javier Diaz de Leon, who helps manage 23 billion pesos of bonds at IXE Grupo Financiero. “We’re seeing more appetite for these securities, especially with the overnight rate so much lower than it was last year.”

Markets Last Week

Mexico’s Bolsa index rose 2.4 percent last week, the third straight weekly gain. Mexichem SAB, Latin America’s largest maker of plastic pipes, jumped 13 percent after Citigroup Inc. raised its share price estimate for the stock by 62 percent, citing the outlook for the company’s fluorine division.

The Bolsa rose 0.1 percent to 24,932.88 today.

The peso dropped 1.1 percent last week to 13.2965 per U.S. dollar, its first decline in three weeks, from 13.1505 on May 29. It weakened 1.1 percent to 13.4464 at 4:16 p.m. in New York.

Yields on Mexico’s 10 percent bond due December 2024 were little changed at 8.29 percent last week, according to Banco Santander SA. The yield today rose eight basis points to 8.37 percent.

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