(Bloomberg) – Debt sold by Mexican non-bank lenders seemed largely out of the woods after it collapsed earlier this year. Now, as Credito Real SAB’s higher earnings and faster loan growth fail to convince investors, the rest of the sector is also falling.
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Non-bank lenders’ dollar bonds are the worst performing in Mexico in the last month. Credito Real bonds led the decline, losing almost 17% to an average gain of 0.1% for corporate bonds. The pairs Unifin Financiera SAB, Operadora de Servicios Mega and Financiera Independencia SAB also fell, with a loss of at least 2.5% each.
The drop highlights the industry’s challenge to restore investor confidence after it was hit earlier this year when a $ 200 million accounting error forced another lender, Alpha Holding SA, to withdraw its financial statements. As a result, Alpha was forced to file for bankruptcy in Mexico. Now Credito Real is in the spotlight and Fitch Ratings downgraded the company on Thursday citing potential refinancing difficulties in the future.
“There is a terrible loss of credibility,” said Luis Maizel, co-founder of LM Capital Management in San Diego, California, speaking of the industry in general. “In shadow banks, because there is less regulation, people have to believe in the numbers, the projections, the quality, the portfolio, etc. And the feeling at this moment is that they are telling us everything they want to tell us ”.
Maizel says he sold his Mexican stakes in non-bank lenders a long time ago.
Doubts about benefits
On October 27, Crédito Real reported higher net income in the third quarter, including an improvement in payroll business performance. But after questions about the value of the loan portfolio, the company disclosed in a public statement that it had accounted for the foreign exchange gains as interest income, although it denied having made non-cash gains from the loan portfolio. Barclays analyst Gilberto Garcia said in a Nov. 16 note that without the foreign exchange gains, the performance of the rest of the payroll portfolio was only marginally higher.
The yield on the company’s debt due in 2028 is now trading near an all-time high of 16%. A Credito Real spokesperson did not respond to a request for comment. Spokespersons for Unifin, Mega and Financiera Independencia also did not respond to emails seeking comment.
Following Alpha’s derivatives accounting error, Credito Real’s 2020 audited annual statement showed that its portfolio of delinquent loans was approximately 82% higher than that disclosed in its fourth-quarter 2020 filing. The company explained that it was owed a large loan from his small business portfolio.
The next big test for the company will be in February, when a Swiss franc-denominated bond worth about $ 183 million matures. The company says it will refinance in the Swiss market. The price of that bond plunged below 73 cents per franc earlier this month, before rebounding to 87.50. The bond had traded above 93 cents at the beginning of the month.
Contagion effect
In other sectors of the Mexican markets, sovereign bonds denominated in dollars fell along with their counterparts denominated in pesos. Mexico’s TIIE swap curve steepened last week, with 2-year instruments falling 7 basis points and 10-year instruments rising more than 10 points, in line with higher yields. of Treasury bonds.
The biweekly inflation data for November, to be released next week, and the central bank’s monetary policy minutes will be the key local catalysts. Currently, the market is discounting less than 25 basis points of hikes for the remainder of 2021 and almost 180 basis points of adjustment next year. Any sign of a decrease in the price increase or a more expansive stance by Banco de México may cause a change in the discounts from the 2022 rate outlook.
Next week, in addition to inflation, Mexico will report the final gross domestic product for the third quarter and retail sales for September. Last month’s trade balance figures will also be released.
WHAT TO SEE:
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November 23: Retail Sales, International Reserves
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November 24: Inflation
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November 25: GDP, economic activity, current account
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November 26: Trade balance
BOND SALES:
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Grupo Kaltex orders banks to sell bonds in dollars
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GM Financial México will sell 1,500 million pesos in local bonds on November 24
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FinUtil will sell 600 million pesos in local bonds on November 24
Original Note:
Mexico Non-Bank Lender Bonds Fall Into Mire on ‘Credibility’ Gap
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