NEW YORK, April 25 (IFR) - Mexico’s Sigma got the ball rolling in Latin America’s primary market on Monday, arriving on the coattails of Argentina’s historic return to the capital markets last week.
The frozen foods company, part of conglomerate Alfa, is approaching investors with a 10-year bond rated Baa3/BBB/BBB via active books Bank of America Merrill Lynch and JP Morgan.
Initial price thoughts are 262.5bp area, essentially flat to Sigma’s lower-rated parent Alfa (Baa3/BBB-/BBB-), which has a 2024 trading with a G spread anywhere between 260bp and 265bp.
As the highest revenue generator among Alfa’s subsidiaries last year, Sigma is expected to trade inside the operating company - and hence has room to tighten.
“I see fair value at 237.5bp, so they will walk this thing in about 30bp,” one New York-based trader told IFR.
Comparables include other Triple B food companies in Mexico, such as baker Bimbo (Baa2/BBB/BBB) and tortilla maker Gruma (BBB/BBB) which have 2024s being quoted at G spreads of around 210bp and 215bp respectively, according to an investor.
Those companies should arguably trade tighter to Sigma, given their larger presence in the US, the investor said, voicing concerns about Sigma’s FX exposure as it takes on more dollar debt.
“It is a solid business, but what concerns me is that they won’t hedge (dollar debt) and about 50% of their business is in Mexico and Latin America,” he said.
Sigma looks particularly cheap against BR Foods, which has a 2024s trading with a G-spread of 354bp, reflecting broader troubles in Brazil despite the credits popularity among investors.
Sigma already has outstanding bonds, but they are shorter dated 2018s and 2019s, which are trading with a G spread of around 166bp, said the trader.
While Sigma announced amid a somewhat weaker tone on Monday, the defensive name should attract decent demand as it seeks to garner anywhere between US$750m-US$1bn, according to the investor.
Argentina’s massive US$69bn order book for its upsized multi-tranche US$16.5bn bond sale - its first in 15 years - underscored the enormous appetite for certain names in EM, especially in a year that has seen diminished supply.
Those bonds were still trading several points above re-offer on Monday following a strong rally following pricing last week.
The 2019s were being bid at 103.25, the 2021 at 102.50, the 2026s at 102.25 and the 30-year at 98.25. All priced at par with the exception of the 30-year, which came at 95.758.
After a strong rally over the last month and nine consecutive weeks of inflows into EM debt funds, the market may be set for profit-taking as markets brace for more Argentina supply ahead, say market participants.
Banco Nacional de Costa Rica, which came to market in the wake Argentina’s deal last week, saw its new 5.875% 2021 trading at 99.80-100.20 on Monday morning, about 40 cents higher than re-offer.
“It is not unreasonable to think we will start to lose some steam, but Sigma is not a bullish market trade and is still a credit that can get done,” said the investor.
Sigma is expected to price later on Monday. Passive joint bookrunners are MUFG and Rabo Securities. (Reporting by Paul Kilby; Editing by Marc Carnegie)