America Movil makes rare misstep in bond markets

Wed Jul 17, 2013 3:43pm EDT

July 17 (IFR) - Mexican telecoms giant America Movil appeared to make an unusual misstep in the capital markets this week, drawing much less investor interest than expected for its new bond issue.

The company, owned by Carlos Slim, has a long-standing reputation in the bond markets as a high-quality borrower that executes its deals virtually flawlessly.

But at a time when emerging markets are perceived to be full of risks - and long-dated debt is distrusted given the volatility in rates - America Movil apparently miscalculated demand for its USD1.43bn-equivalent trade in euro and sterling on Monday.

It attracted just GBP400m in orders for the downsized GBP300m 20-year tranche, which was downsized from GBP500m due to tepid interest from investors.

And America Movil, one of the largest corporations in the world, was unable to tighten final pricing from guidance of Gilts plus 170bp area on the 20-year, which priced at par to yield 4.948%.

It also could not tighten pricing from guidance of Gilts plus 140bp area on the EUR750m tranche - and some said the company had perhaps tried to squeeze too much from investors.

"It was too tight to the AT&T bond in sterling," said a rival banker, who spotted AT&T 2027 and 2040 bonds trading in the secondary market at around 130bp-135bp over.

With America Movil typically trading some 50bp wide to AT&T in the dollar market, that 35bp-40bp differential likely gave some investors pause, he said.

Extrapolating from the company's sterling 2030s to its 2041s, the underlying curve was trading 160bp over Gilts, providing a 10bp pick-up.

On the euro side, meanwhile, the underlying curve was seen at around 120bp with a new 2023 trading at 130bp over mid-swaps.

Even assuming a moderate revision in guidance, the euro tranche was seen coming to market with slightly less new issue concession than on offer from similarly rated credits in recent weeks.

The EUR1.25bn order book for the single-currency tranche looked healthier, as the 10-year priced at par to yield 3.259%, or mid-swaps plus 135bp - tight to initial guidance.

One banker calculated the final result be to the equivalent of Libor plus 175bp, which put it slightly wide to its dollar curve, where the 2022s were trading at plus 155bp and where a new 2023 would likely come at 170bp after adding a 15bp new-issue concession.

Some rival bankers argued that a better strategy might have been to build momentum with a euro bond first before issuing in sterling.

Others said America Movil would have been better served by issuing shorter-dated paper, as many investors are staying away from duration at the moment given the uncertainty in rates.

But the company may simply have decided to go for the cheapest and longest-dated money it could.

"It wasn't a matter of getting a bigger (sized) bond, and these maturities suit them," one top debt capital markets banker told IFR.

"They didn't leave a lot of money on the table," he said. "It depends on your objective."

Credit Suisse acted as bookrunner on both tranches, while Citigroup was lead on the euro tranche and Santander on the sterling one.

Banco IMI and Citigroup also acted as co-managers on the sterling offering.

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