Flash Fixed Income Report /
Mexico

Mexico's Alpha Holdings set to come to market below 10% – expensive

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    30 January 2020
    Published byTellimer Research

    Alpha Holdings S.A. de C.V. (ALPHSA), in our view one of the weakest non-bank financial institutions in Mexico, is expected to come to the market today with a US$350mn "benchmark-sized" five-year senior unsecured bond, with likely ratings of B1/B+/NR. The proceeds are expected to be used to refinance existing indebtedness – the company has a US$300mn 10% senior unsecured bond due 2022, which trades at cUS$105.764 (ALLQ) to yield c7.72% (g-spread 634bps; z-spread 631bps).

    Its main comparable is Financiera Independencia (FINDEP), which has a US$250mn 8% senior unsecured bond due 2024 that trades at cUS$101.66 (ALLQ) to yield c7.44% (g-spread 606bps; z-spread 604bps).

    We believe that comparable non-bank financial institutions Credito Real (CREAL) and Unifin Financiera (UNIFIN) are much stronger credits than both ALPHSA and FINDEP, and that the latter two should trade at a considerable discount.

    Credito Real's closest comparable to the new ALPHSA is its US$400mn 9.5% senior unsecured bond due 2026 rated BB+/BB+, which trades at cUS$117.93 (ALLQ) to yield c4.55% (g-spread 316bps; z-spread 313bps). UNIFIN's closest comparable is its US$300mn 7.375% senior unsecured bond due 2026 rated BB/BB, which trades at cUS$105.767 (ALLQ) to yield c5.74% (g-spread 436bps; z-spread 435bps).

    Initial price guidance for the new ALPHSA bond is "the low-to-mid 9.0%".

    We believe that, under normal circumstances, a bond like ALPHSA's new issue should price in the double digits, if fundamentals were the main criteria for investment. However, given it will be the highest-yielding among all the new issues printed this year, we believe demand will be strong and Alpha will be able to print at c9% flat.

    However, investors should not ignore the relative weakness of the company. In our opinion, the spread differential between ALPHSA and CREAL and UNIFIN is fair if the new bonds price at 9.0%, but that level is still expensive based on fundamentals.

    That being said, for the time being, technicals continue to prevail over fundamentals, so we expect these bonds to do well, perhaps even tightening further in secondary trading.