NEW YORK, Oct 6 (IFR) - Mexico's Bancomext broke the lull in the LatAm primary activity with a US$1bn 10-year on Tuesday but had to pay wider spreads than had been expected.
A multi-day rally in LatAm credit set a solid backdrop for issuance, even as equities retreated and the IMF forecasted the region's first recession since 2009.
Bancomext's rarity value - it has not been in the dollar bond market since 2004 - and strong support from the sovereign government should have worked in the trade bank's favor.
Yet the evolution of pricing on the deal, rated A3/BBB+, arguably underscored the fragility of the region's primary market.
Bank of America Merrill Lynch and HSBC inched the deal in just 12.5bp from initial price thoughts to launch at 237.5bp.
At that level, the trade offered a pick-up of close to 100bp over the Mexican sovereign, whose 2025s were trading at around 143bp earlier in the day.
The deal's relatively large size may have pushed pricing higher, though the all-in cost may still have looked attractive when the yield on the 10-year Treasury is hovering around 2%.
But differentials to the sovereign surprised some bankers, who noted the bank's debt is explicitly guaranteed by the federal government - something other Mexican quasi-sovereigns such as oil company Pemex and utility CFE don't have.
"It's liabilities are guaranteed by the sovereign and that is enshrined in domestic law," said a syndicate manager away from the trade.
"How you exercise those guarantees is a question mark, as they have never defaulted."
Bankers had pitched Bancomext earlier in the year, saying they could position their bond issue in a similar manner to Korea's Exim Bank, Canada's EDC and Germany's KfW, which trade from 4bp-25bp to their sovereign curves.
But pricing dynamics have clearly changed in emerging markets, which have been hit by fears about Chinese growth, the Fed's lift-off on rates and a sharp drop in commodity prices.
"In this market I am not sure they would get that benefit," said a banker away from the deal. "It is a tough market."
Still, Bancomext came tight to Pemex and CFE, which have 2026s and 2024s trading at G-spreads of around 280bp and 250bp, according to Thomson Reuters data.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Mexican real-estate investment trust Fibra Uno has completed meetings with investors through Bank of America, Credit Suisse, HSBC and Santander.
Terrafina, another Mexican REIT, has finished meeting accounts as it markets a potential US$400m-$500m bond offering. The borrower mandated Barclays and Citigroup as lead managers, with Itau coming in as co-manager. Expected ratings are Baa3/BBB-. (Reporting by Paul Kilby; Editing by Marc Carnegie)