EM selloff halts Mexico’s record pace of stock sales

A Grupo Viva Aerobus SAB airplane prepares to take off at Benito Juarez International Airport in Mexico City. Mexico’s fourth-largest airline delayed a planned $225mn sale citing market volatility.

Bloomberg/Mexico CityThe selloff of emerging-market assets this year is bringing Mexico’s record pace of stock sales to a halt.Grupo Viva Aerobus SAB, Mexico’s fourth-largest airline, delayed a planned 3bn-peso ($225mn) sale on February 11, citing “market volatility.” Office Depot de Mexico SAB, the nation’s biggest office-supply chain, called off its IPO on February 5. No other companies have registered offerings this year in Mexico, signaling that no further deals are likely in February since it usually takes at least three weeks to complete a sale. Such a two-month drought would be the longest since June 2012, according to data compiled by Bloomberg.Mexico lost its momentum as an economic slowdown in China, a currency devaluation in Argentina, violent protests in Ukraine and reduced monetary stimulus from the US Federal Reserve spurred an investor retreat from emerging-market assets, pushing down developing-nation stock offerings this year by 34% to $21.2bn. Last year, Mexico produced a record $12.3bn in share sales amid speculation that a new law opening the country’s state-controlled oil industry to private investment would spur economic growth.Investors “were a little worried about volatility in emerging-market countries such as Mexico,” Juan Carlos Zuazua, Viva Aerobus’s chief executive officer, said in a telephone interview yesterday from Mexico City. “We thought it would be just a few days, but the markets kept going down. I didn’t even want to open a newspaper.”By this time last year, companies in Mexico already had sold $2.92bn of shares. In Brazil, Latin America’s biggest market, stock offerings year-to-date have fallen 68% from the same period of 2013 to $600mn.Viva Aerobus, partly owned by Ryanair Holdings founder Declan Ryan’s investment company, pulled its IPO after about two weeks of investor meetings.The airline had said it would use the IPO proceeds to expand its fleet of 19 planes and pay off loans. In October, Viva Aerobus agreed to buy 52 Airbus Group NV A320 jets with a list value of $5.1bn to replace its fleet of Boeing Co 737-300 aircraft. The new planes will help cut fuel and maintenance costs by 40%, Zuazua said.While the IPO amount represented 4% of the size of the aircraft order, the delay raises questions about Viva Aerobus’s broader ability to raise money, said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia.“To belabor the obvious, this is not positive,” Hamlin said. “These airplanes can be leased, but a lease, like any other debt, if you run into any problems, you can have a fixed obligation you can’t meet. Most people like to have some reserve in case things go wrong.” Zuazua said the delay of the IPO doesn’t affect the Airbus order, and the deliveries are scheduled to begin in 2015 and run through 2021.“This is a postponement,” Zuazua said. “When the markets come back and stabilise, we’ll be there.”Office Depot de Mexico, a unit of retailer Grupo Gigante SAB, planned to raise about 4.95bn pesos, based on a filing. Mexico City-based Gigante was planning to use the proceeds to help pay off a bridge loan used to finance last year’s buyout of Office Depot Inc’s 50% stake in the retailer.Jorge Hernandez Talamantes, an investor relations official with Gigante, didn’t respond to an e-mail and phone call seeking comment on the Office Depot de Mexico transaction.If the drought continues, it could lead to a drop in fees for Mexico’s biggest stock underwriters, led last year by Credit Suisse Group AG and Banco Santander SA.Zurich-based Credit Suisse worked on $3.22bn of stock sales by Mexican companies in 2013, garnering $40mn in fees for a 14% market share, according to data compiled by Bloomberg. No. 2 Santander had a 12% share.Drew Benson, a spokesman for Credit Suisse, declined to comment.“Recent economic data in the US, outflows of money from emerging-market funds into mature markets and currency volatility have prompted both local and foreign investors to ask for a greater discount on public share offerings,” Santander said in an e-mailed response to questions. “Mexico’s moment continues, and it will pick up strength as the year advances and the outlook for investors improves.”The issuance slump is likely to prove temporary, according to Felipe Garcia-Moreno, head of Mexico investment banking and corporate lending in Mexico for JPMorgan Chase & Co.“You’ll start seeing good activity in the coming months,” Garcia-Moreno said in a telephone interview from Mexico City. “We’re actively discussing potential equity transactions with several clients.”Santander also said it is working with potential issuers.The emerging-market selloff accelerated after Argentina on January 22 began the biggest devaluation of the peso since 2002.