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Mexico: NBFI Mega's new issue – expensive

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    6 February 2020
    Published byTellimer Research

    Mexico's non-bank financial institution (NBFI) Operadora de Sevicios Mega S.A. de C.V. SOFOM ENR (Mega) – a leasing company based in Guadalajara – is set to come to the market with a US$300mn senior unsecured bond due 11 February 2025 (rated Ba2/BB). 

    Initial pricing guidance is "in the high 8% area". At this level, compared with the recent issue from fellow NBFI Alpha Holdings – which is much better-known in the market, has a larger national footprint and printed US$400mn in 2025 senior unsecured bond at 9% – Mega seems expensive. 

    Mega's credit rating is superior to that of ALPHSA; however, we believe that a debut issuer with limited scope in Mexico should provide investors with a concession for the risk they are taking. That being said, given its high yield (there are still plenty of 'yield seekers' in the market) and the positive dynamics for the NBFI sector in Mexico, we believe the chances are high that the bonds will end up pricing at c8.5% on the back of a strong order book.

    Company details

    In addition to its Guadalajara headquarters, Mega has five other branches in Mexico: Mexico City, Puebla, Cancun, Queretaro and Leon. It has an additional office located in San Diego, California.

    Its leasing business (73.9% of Mega's portfolio at end-Q3 19) consists of leases on machinery and equipment (including computer numerical control and bending machines), transportation vehicles (including cargo and passenger vehicles) and other capital assets used in a variety of industries. The leasing portfolio is secured by the assets, a third-party guarantee and a cash deposit amounting to c20% of the asset price of each lease. Annual interest rates charged for leasing range between 15.5% and 22.0%, payable in Mexican pesos.

    Its lending business (21.1% of Mega's portfolio) focuses on proving financing to small and medium-sized enterprises for the acquisition of durable goods and equipment (such as greenhouses and macro-tunnels), as well as offering financing for working capital. Lending is secured by personal guarantees, several types of collateral, including Mexican federal government guarantees (like the Technical Assistance and Guarantee Fund for Agricultural Loans), mortgages and other assets. Annual interest rates charged range between 15.2% and 22.0%, payable in Mexican pesos.

    The auto loans business (5.0% of Mega's portfolio) is based in San Diego, California, and offers financing for the purchase of second-hand personal vehicles. Each loan is secured by collateral (a security interest in the vehicle) and the annual interest rates range between 5.9% and 29.9%, payable in U.S. dollars.