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Mexico: Expect strong demand for Femsa's new bond

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    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.