Flash Fixed Income Report /

Mexico: Expect strong demand for Femsa's new bond

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    13 January 2020
    Published byTellimer Research

    Fomento Economico Mexicano S.A.B de C.V. or Femsa (FEMSA) is expected to come to the market with a new senior unsecured, 30-year bond (A-/A), which we expect could be US$1bn, and is scheduled to price today with initial price guidance of 1/16 (T+3), or T + 150 bps.

    Femsa is one of the largest and strongest groups in Mexico engaged in the production and distribution of beverages. Specifically, it is the world's largest bottler of Coca-Cola products, distributing its products in Mexico, eight other Latin American countries and the Philippines through its subsidiary Coca-Cola FEMSA (KOF). It is also part-owner of Heineken (it has the second-largest share, with 20%) and operator of Mexico's largest chain of small convenience stores, Oxxo, which numbers more than 12,800 units (most in Mexico, but some in Colombia).

    The company's outstanding US$700mn 4.375% senior unsecured bonds due 2043 trade at cUS$112.605 (ALLQ) to yield c3.57% (g-spread 141bps; z-spread 162bps), and its US$300mn 2.875% senior unsecured bonds due 2023 trade at cUS$101.711 (ALLQ) to yield c2.34% (g-spread 73bps; z-spread 72bps).

    Femsa is rated higher than the sovereign (which is rated A3/BBB+/BBB).

    Looking at where the 2043s are trading, we believe final pricing will be substantially lower than the initial price guidance – we see the new bonds pricing at around T + 125bps to T + 130bps.

    This will be the first corporate issue from Mexico this year, and comes on the heels of successful placements from other high-grade issuers, including Chile and the successful issue of the Mexican sovereign (in US$).

    We expect strong demand for this paper, but do not expect any yield concession.