Mexico to Sell $7 Billion of Bonds to Pay World Bank, IDB Debt
Mexico plans to sell $7 billion of local-currency bonds today to pay half the debt it owes to the World Bank and Inter-American Development Bank ahead of schedule.
The government will use the pesos raised in the sale to buy central bank reserves that have soared to a record because of rising oil export revenue. The central bank will publish the results of the transaction at 2 p.m. New York time.
The move is part of a push by developing nations --including Argentina, Brazil, Colombia, Russia and Venezuela --to use soaring receipts from commodities such as oil, sugar and soybeans to reduce foreign debt. Mexico's foreign reserves have more than doubled in the past five years to $78 billion as the price of oil, the country's biggest export, has surged.
``Mexico's central bank has been accumulating very large amounts of reserves and is now putting them to good use,'' said Alberto Ramos, senior Latin America economist with Goldman Sachs Group Inc., in an Aug. 7 telephone interview from New York. ``This is one of many indicators saying the macroeconomic picture is pretty strong in Mexico.''
Mexico stands to save about 1.6 billion pesos ($147 million) as a result of the early payment, the government said when the bond sale was announced in June.
The government will save about 600 million pesos because the domestic debt it's selling is cheaper than the foreign debt it plans to retire.
The central bank will save 1 billion pesos because the amount of reserves will drop, reducing the cost of keeping them, according to the government. The bonds the central bank sells to adjust money supply yield more than the return obtained from investing reserves in assets such as U.S. Treasuries.
The Finance Ministry is selling floating-rate peso bonds and will accept similar securities sold by the central bank, known as Brems, as payment.
Reducing the Debt
The transaction will more than halve Mexico's $13.4 billion debt with the World Bank and Inter-American Development Bank.
``Prepaying $7 billion seemed the most appropriate at this time and the future capacity to prepay the remainder will depend on the evolution of local and external interest rates,'' Gerardo Rodriguez, Mexico's public credit director, said in a telephone interview on Aug. 8. ``This just seemed like a good opportunity.''
The transaction will reduce the federal government's foreign debt to 6.4 percent of gross domestic product from 7.3 percent of GDP. The government's domestic debt will rise to 16 percent of GDP from 15 percent, according to the Finance Ministry.
`Reduces the Exposure'
``This reduces the exposure to movements in the exchange rate, which in the past has been a source of vulnerability,'' Goldman Sachs Group's Ramos said.
The Mexican peso has lost 2 percent so far this year, the third-worst performance against the U.S. dollar of 16 primary currencies tracked by Bloomberg.
Mexico's central bank stopped issuing Brem bonds last week. These securities will be gradually replaced by floating-rate bonds sold by the Finance Ministry. Outstanding Brems before the transaction totaled about $26 billion.
``We expect there to be more than enough demand for these new bonds,'' said Arnulfo Rodriguez, head of fixed-income research at Citigroup Inc.'s Banamex unit in Mexico, in a telephone interview from Mexico City on Aug. 7. ``The investor only gains by letting go of a bond that will start to lose liquidity as it's being phased out.''
Bonds Gaining Since Calderon's Victory
Peso-denominated bonds have gained since the July 2 presidential election as tallies showed governing party candidate Felipe Calderon as the winner of the vote by 0.6 percentage points. Calderon, the former energy minister under President Vicente Fox, pledged to maintain the spending restraint that slashed inflation and cut interest rates.
The yield on the government's benchmark 8 percent bond due in December 2015 has fallen 84.2 basis points to 8.27 percent. The price, which moves inversely to the yield, increased 5.24 centavos to 98.23 centavos, according to Santander Central Hispano SA.
``This is really a question of well-chosen timing,'' said Banamex's Rodriguez. ``It's being done just as rates are falling here and increasing in international markets.''
The government will use the pesos raised in the sale to buy central bank reserves that have soared to a record because of rising oil export revenue. The central bank will publish the results of the transaction at 2 p.m. New York time.
The move is part of a push by developing nations --including Argentina, Brazil, Colombia, Russia and Venezuela --to use soaring receipts from commodities such as oil, sugar and soybeans to reduce foreign debt. Mexico's foreign reserves have more than doubled in the past five years to $78 billion as the price of oil, the country's biggest export, has surged.
``Mexico's central bank has been accumulating very large amounts of reserves and is now putting them to good use,'' said Alberto Ramos, senior Latin America economist with Goldman Sachs Group Inc., in an Aug. 7 telephone interview from New York. ``This is one of many indicators saying the macroeconomic picture is pretty strong in Mexico.''
Mexico stands to save about 1.6 billion pesos ($147 million) as a result of the early payment, the government said when the bond sale was announced in June.
The government will save about 600 million pesos because the domestic debt it's selling is cheaper than the foreign debt it plans to retire.
The central bank will save 1 billion pesos because the amount of reserves will drop, reducing the cost of keeping them, according to the government. The bonds the central bank sells to adjust money supply yield more than the return obtained from investing reserves in assets such as U.S. Treasuries.
The Finance Ministry is selling floating-rate peso bonds and will accept similar securities sold by the central bank, known as Brems, as payment.
Reducing the Debt
The transaction will more than halve Mexico's $13.4 billion debt with the World Bank and Inter-American Development Bank.
``Prepaying $7 billion seemed the most appropriate at this time and the future capacity to prepay the remainder will depend on the evolution of local and external interest rates,'' Gerardo Rodriguez, Mexico's public credit director, said in a telephone interview on Aug. 8. ``This just seemed like a good opportunity.''
The transaction will reduce the federal government's foreign debt to 6.4 percent of gross domestic product from 7.3 percent of GDP. The government's domestic debt will rise to 16 percent of GDP from 15 percent, according to the Finance Ministry.
`Reduces the Exposure'
``This reduces the exposure to movements in the exchange rate, which in the past has been a source of vulnerability,'' Goldman Sachs Group's Ramos said.
The Mexican peso has lost 2 percent so far this year, the third-worst performance against the U.S. dollar of 16 primary currencies tracked by Bloomberg.
Mexico's central bank stopped issuing Brem bonds last week. These securities will be gradually replaced by floating-rate bonds sold by the Finance Ministry. Outstanding Brems before the transaction totaled about $26 billion.
``We expect there to be more than enough demand for these new bonds,'' said Arnulfo Rodriguez, head of fixed-income research at Citigroup Inc.'s Banamex unit in Mexico, in a telephone interview from Mexico City on Aug. 7. ``The investor only gains by letting go of a bond that will start to lose liquidity as it's being phased out.''
Bonds Gaining Since Calderon's Victory
Peso-denominated bonds have gained since the July 2 presidential election as tallies showed governing party candidate Felipe Calderon as the winner of the vote by 0.6 percentage points. Calderon, the former energy minister under President Vicente Fox, pledged to maintain the spending restraint that slashed inflation and cut interest rates.
The yield on the government's benchmark 8 percent bond due in December 2015 has fallen 84.2 basis points to 8.27 percent. The price, which moves inversely to the yield, increased 5.24 centavos to 98.23 centavos, according to Santander Central Hispano SA.
``This is really a question of well-chosen timing,'' said Banamex's Rodriguez. ``It's being done just as rates are falling here and increasing in international markets.''
posted by Alice at
Thursday, August 10, 2006
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