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Borrowing window risks rough closing: Garcia Moreno 0

May 21, 2013

A period of unprecedented access to capital markets funding for Latin companies risks coming to a sudden end when the US Federal Reserve begins to unwind its extraordinary monetary stimulus, the head of one of the region's biggest companies has warned.

In comments that add to a growing chorus of concern over the risk of a sharp rise in US Treasury yields, Carlos Garcia Moreno, CFO at America Movil, told LatinFinance that companies from the region should take advantage of today's "windows of opportunity to raise funds at relatively cheap rates in the capital markets  –  or risk a dramatic worsening of the climate that could come sooner than many expect.

"There's this notion that you will only have a graceful exit [from low US interest rates]," he said. "Well, in the past, markets have not been graceful. But we are told 'this time is different."

He would not rule out the possibility of a market crash similar to 1994, when Alan Greenspan surprised the market by doubling benchmark lending rates in 12 months.

But he said the implications this time would be "bigger" because of the US central bank's unprecedented $3.3 trillion balance sheet.

Garcia Moreno added that today's funding conditions were exceptional. "On the one hand, you see lower rate, base rates, relatively low spreads. On the other hand, you actually have a market and it's open," he said. "You have to go to the markets when they're open. You don't know where they're going to be [in the future]."

"Many companies have not taken the opportunity," he added.

Garcia Moreno said that while "many people are still trying to understand what demand will be like when rates start to pick up," markets should not forget the "lessons" of the past.

His comments came as benchmark Treasury yields rose to fresh two-month highs close to 2% early Tuesday as Wall Street stocks rose, with the Dow Jones industrial average hitting a record intraday high.

Garcia Moreno said that "there's a consensus building that US growth has little downside." The risk for the Treasury market is that stronger economic data from the US could complicate an already nervous debate on when the Fed should end quantitative easing.

America Movil has taken advantage of several sources of funding. It retapped its 2022 global peso bonds in February to raise 7.5 billion pesos ($590m), and soon plans to add up to 10 billion pesos more. For maturities under 10 years, Garcia Moreno says the Swiss and European markets make the most since. The company recently raised 300 million Swiss francs ($311 million).

The biggest change has been the rise of the region's institutional investors, he said. "They are now here to stay. It's not just the local players it's also the pension funds from other Latin American countries investing in other markets."

AMX Titulo Expected by Early June

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