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Thursday, 24 July 2014

Prospect of Mexican fare

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America Movil has what it takes to be one of the top borrowers in the capital markets, despite global uncertainty in the markets.

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With pent-up demand due to a lack of issuance and investors looking to put money to work in safe top-tier names, America Movil is expected to be able to issue virtually when and what it likes across a range of markets.

“A well-known issuer like America Movil could even issue in this climate as investors would buy this as a flight to quality,” said Eric Ollom, a credit analyst at Citigroup.

This year it became the first issuer from Latin America to do an offshore renminbi deal. Last year it priced the first corporate yen deal not backed by a JBIC from a LatAm issuer in more than 10 years. The company also re-opened the Swiss franc market, and issued in dollars and euros despite some choppy conditions.    

In the period between May 1 2011 and April 30 2012 the telecoms giant borrowed US$9.62bn across eight issues.

“Regarding funding this year we will do something similar to last year, doing smaller transactions in several markets,” the company’s CFO Carlos Garcia Moreno told IFR.

While the company’s stock was recently oversold, according to equity analysts, credit analysts still maintain that America Movil is a rock solid credit. “The bonds are very stable and they are looking more attractive as they are cheapening out versus comparables like the United Mexican States and US telecoms company AT&T,” said Ollom.

America Movil’s 2021 bonds were trading 34bp wide of AT&T’s 2041 bonds close to the end of May, with the difference just 13bp in March. From February to May the firm’s bonds were on average 20bp wider than AT&T. “It has been trading cheap in relative terms considering both companies have the same rating and are of a similar size,” added Ollom.

The main focus for analysts and investors is the Mexican telecom giant’s €2.6bn (US$3.4bn) bid for an up to 28% stake in Dutch phone company Royal KPN. It already holds a 4.8% in KPN and is offering €8 per share in cash for the additional stake.

“The clear challenge is whether they will do the KPN transaction, but if they manage to pull it off a company like America Movil could issue a bond to take out this amount easily,” said Ollom. “We are not too concerned about how this would affect America Movil from a credit perspective,” he added.

America Movil’s market capitalisation is US$90bn and it held Ps60.3bn (US$4.4bn) in cash as of March 31 2012. The company also has a US$4bn equivalent revolving credit facility split between dollars and euros.

Analysts say the buying up of assets when a region is in trouble is in line with billionaire owner Carlos Slim’s usual strategy when making acquisitions. Slim purchased assets in Mexico at the start of the 1980s when the country experienced its own financial crisis. The telecoms tycoon also purchased assets in Brazil and Argentina when they were undergoing crises in the early 2000s.

Getting a foothold in Europe

America Movil has said for a while it is looking to buy assets in Italy, Spain and Eastern Europe – this would be the company’s biggest investment outside of LatAm. Moody’s said the bid for KPN was credit negative as the business was outside America Movil’s core region of LatAm.

“It increases America Movil’s exposure to Europe, a highly competitive region that has been under pressure due to lower purchasing power in recent years,” the report stated. The 28% America Movil is looking to buy is below the 30% threshold that is the trigger for a mandatory takeover of the rest of the company’s shares, though analysts say America Movil would eventually look to take full control of KPN.

Garcia Moreno sees the possible acquisition as a foothold into Europe at a time when he considers valuations in the telecoms sector as being attractive, when looking at them from a long-term perspective. “KPN is in a very strong set of countries that are likely to be the first in Europe to go back to normal,” he said.

“We still need a better understanding of the market dynamics and regulation and we can learn a lot through them about the dynamics in more mature markets like Europe, these are things that we are  going to see in Latin America as the markets mature.”

As a result of the proposed bid America Movil is considering a European bond issuance. “It would be natural to look at the European market if we require euros or to maintain a euro debt position to finance the acquisition of this European asset,” said the CFO.

The company’s other major financing for 2012 will include a new Euro-peso programme, which will be done off the company’s US shelf, and will start the second half of the year. “We will be announcing every three to four months what we will intend to do and will be a very regular participant in the market,” Garcia Moreno said, adding that the company will re-open bonds regularly to ensure they are sizeable and liquid.

The company will issue these bonds every quarter and will not be doing any other Mexico peso issuances that are not part of this programme. “This is targeted towards both domestic and international investors, there is a lot of value in bringing investors together and this is what we are encouraging with this programme,” added Garcia Moreno. “Everyone stands to gain with this all under the same format instead of more fragmented types of issuances.”

Despite the interest in other currencies, the dollar bond market continues to be the most important of the capital markets for America Movil, according to Garcia Moreno. The company could also access the local LatAm capital markets, which it did not do in 2011 and this year it will also look to set up a shelf in yen though the size or timing has not yet been determined.

As ever the telecoms giant shows no signs of slowing down in its borrowing strategy and, as has historically been the case, is shown to be looking for opportunities amid the current volatility.

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