Mexico’s central bank opted to cut its key lending rate by a quarter-point to 7.75 per cent, rather than the half point move that some analysts said it had room for, after the economy contracted in July by more than had been expected, the Financial Times reported. Thursday’s decision was not unanimous however, as two of the five board members pushed for a half-point cut. Banxico’s second cut in a row is a bid to revive the moribund economy as inflation has tamed and the peso is stable against the dollar.
Latin America is on the verge of suffering another lost decade. The region, still struggling to cope with the end of the commodities boom, has expanded only 0.7% a year on average during the past few years, Bloomberg News reported. That’s hardly enough to keep up with population growth, meaning that people are poorer today than they were in 2012, according to the International Monetary Fund. Now its biggest economies -- Brazil, Mexico and Argentina -- have contracted simultaneously for the second time in just over three years, causing yet another headache for policy makers.
True believers in Petroleos Mexicanos are fueling a rally in its bonds, reckoning that government support for the beleaguered state-owned company will ultimately provide a backstop from any troubles, Bloomberg News reported. Investors including MetLife, Pictet and SMBC Nikko Securities say Pemex’s bonds were overly punished last year amid concerns the government isn’t doing enough to address the company’s problems. The challenge of falling production given Pemex’s $108 billion of debt and high taxes is real, but optimists argue its yields shouldn’t be much above sovereign notes.
Petroleos Mexicanos bonds cratered after Fitch Ratings downgraded the state-owned company to just a notch above junk, spurring a slide in sovereign debt and the peso, Bloomberg News reported. The yield on Pemex bonds due in 2027 rose 28 basis points to 7.251 percent at 1:02 p.m. in New York, after jumping as much as 40 basis points earlier in the day. Its five-year credit default swaps climbed 24 basis points to 319. Fitch cut the embattled oil producer’s long-term issuer default rating two notches to BBB- from BBB+ and maintained its negative outlook.
The Mexico City Airport Trust – the financial backer of a new Mexico City airport project that President Andrés Manuel López Obrador has vowed to scrap– has boosted the terms of its bond buy-back offer to try to woo the approximately 50 per cent of bondholders who rejected the initial deal, the Financial Times reported. The new deal offers to buy back $1.8bn of the $6bn in bonds as before.
Investors in Mexico City’s planned airport project want a lot more from the government before they agree to its buyback offer, Bloomberg News reported. An explicit federal guarantee to honor the debt would go a long way toward resolving concerns, according to chats with more than half a dozen bondholders who asked not to be identified before any formal talks are held.
Holders of more than $1bn of the bonds issued to finance a new Mexico City airport that President Andrés Manuel López Obrador wants to scrap have rejected an offer by the government to buy back some of the debt, the Financial Times reported. The bondholder group said it could not support the plan, which would also alter the terms of the remaining debt — bonds that currently have a claim on revenues from the new airport.
On the eve of the inauguration of Andrés Manuel López Obrador as Mexico’s next president, his administration is looking to restructure $6bn worth of bonds backing the partly completed Mexico City airport whose future was put in doubt in October, the Financial Times reported. “We will begin negotiations to seek a fair treatment with investors and to respect their rights as bondholders,” said an aide to Arturo Herrera, incoming deputy finance minister. A plan could be announced as soon as Monday, according to people familiar with the matter.