The expected increases in the reference interest rate will not be a factor that stops companies’ demand for financing in the stock market because the demand “is there”, despite the fact that it is expected to be more expensive than last year, specialists explained.
“With the increase in interest rates, financing becomes more expensive, but companies need to go to the market because with the Covid-19 pandemic they were delayed a bit due to the opening of placements and the investor was also very cautious” , explained Roberto Guerra Guajardo, general director of the securities rating agency PCR Verum.
Luis Miranda, director of Corporates of the rating agency HR Rating, said that “clearly” with the rate increase the cost of debt for corporations can increase, however, they are in need of funding for their projects and to refinance their liabilities.
Until June 20, the reference interest rate of the Bank of Mexico (Banxico) was 7%, while on June 25 of last year it was 4.25 percent. Analysts expect the central bank to increase the rate by 75 basis points at the meeting on June 23.
The Coca-Cola bottler Arca Continental, for example, just raised 4.35 billion pesos on June 13 with its debt issue, which it offered in two tranches, one for 1.15 billion pesos over seven years and with a fixed interest of 9.32%; the second for 3,200 million pesos, for four years, had a cost of TIIE plus 4 basis points.
The same issuer made a bond issue on May 11 of last year for 4,650 million pesos also in two tranches. However, the cost of its issuance at a variable rate and with maturity in four years was higher than that of this year, since it was placed with an interest of TIIE plus 7 basis points; although for the seven-year tranche it pays a fixed rate of 6.75%, higher than that of this 2022.
Luis Miranda explained that the increase in the reference interest rate will be reflected differently in the cost of the next debt issues carried out by companies, since it depends on different factors, such as their size, their access to credit and your ability to get more favorable interest rates, regardless of your credit rating.
June, active month
Companies are going to the markets in search of financing amid an environment of rising interest rates to contain inflation.
Only in this month of June, Kimberly Clark de México, Industrias Bachoco and Círculo K presented their request to issue debt in the Mexican Stock Exchange (BMV), these placements, together, add up to an amount of 13,000 million pesos.
“We are seeing that companies are looking for long-term financing, seeking to invest resources in projects and growth plans. They want to take advantage of the opportunities that have come from the pandemic and the changes that have taken place in consumer habits,” said the general director of the BMV, José-Oriol Bosch.
The manager assured, in the recent “11 Issuers Forum”, that the placement of long-term corporate debt is expected to exceed 77,000 million pesos in the first half of this year.
Until the end of May, 27 offers were registered for a total amount of 45,266 million pesos.
Another 11 placements are expected for a figure of 32,350 million pesos for the remainder of June.
Companies are demanding financing to continue growing, to finance their projects, even in some cases, for mergers and acquisitions. Although most seek funding to repay their liabilities at a cost, explained Luis Miranda.
Roberto Guerra said that with everything and the increase in the reference rate, it is expected to see companies go to the Stock Exchange for resources, which would be expected to place the paper in tranches with a mixture of variable and fixed rates.
“Those who placed at a fixed rate are now benefiting from this upward environment in rates and we have to see how the market conditions are,” he concluded.
It will be to pay debt
Círculo K will refinance debt with issuance for 1,500 million pesos
The chain of convenience stores of Canadian origin Círculo K, will refinance debt with its next issuance of stock certificates for up to 1,500 million pesos, through the Mexican Stock Exchange (BMV), explained Eutimio Rocha Limón, its director of Administration and Finance.
In an interview, he commented that the resources will be used for working capital and explained that even though more increases in the reference interest rate of the Bank of Mexico are expected, they estimate to make the offer between August and September.
“The interest rate is going up, but finally we have to correct (the maturity of the debt). We will look for a ‘spread’ of between 0.75 and 1 base point below the one we have”, he added.
Eutimio Rocha said that one of his main objectives is to reduce his debt, which amounted to 1.9 billion pesos at the end of September 2021.
“The banking system is more expensive than financing on the stock market, so we could make a hybrid that gives us a benefit in rates and with which we can face the issue of maturity.”
The person in charge of the finances of Círculo K explained that in the next three years they estimate to open 120 stores, on average per year. For each unit they invest between 2.5 to 3 million pesos. The chain currently operates 1,200 stores in 29 states in the country. During the pandemic, 30 establishments closed.
Rocha Limón said that inflation has benefits because they are the last level of the consumption chain and the effects are transferred to those consumed. The greatest inflationary effects are in beverages, tobacco and general merchandise. Beer and cigarettes account for nearly 45% of total store sales.
“When a consumer is affected by inflation issues, he goes to one of our stores to buy not 12 beers, but one or two, so in our stores our ticket does not increase, but it generates more traffic,” he assured.
