Newspaper article St Louis Post-Dispatch (MO)

No Safety Net for Mexican Firms Few Investors Willing to Lend

Newspaper article St Louis Post-Dispatch (MO)

No Safety Net for Mexican Firms Few Investors Willing to Lend

Article excerpt

The Clinton administration's $52.8 billion rescue package for Mexico has eased concern the government will default on its debts.

For Mexican companies, no such salvation is at hand.

While the aid package helped drive up the price of one-month treasury bills at this week's central bank auction, investors and banks remain loath to lend money to Mexican companies.

That's no small matter. This year alone, Mexican companies must repay or refinance some $10 billion worth of foreign-currency debt. Another $20 billion of their total debt of $53 billion is denominated in foreign currencies, according to the Mexican stock exchange. Most of those borrowings are in dollars, analysts said.

The aid package has pulled Mexico back from "the abyss," said Travis Selmier, a portfolio manager for U.S.A.A. Investment Management of San Antonio, which has $700 million in international investments. "But there is a lot of concern over what is going to happen in the economy," he said.

Companies with large debts probably will struggle as they find their access to credit limited, Selmier said.

Already, investors are refusing to roll over certificates of deposit payable in dollars as they expire. And banks are cutting credit lines. Even companies that don't need fresh capital or aren't reliant on CDs are feeling the pinch.

The 34 percent slide in the value of the peso against the dollar since Mexico devalued its currency on Dec. 20 has driven the costs of existing debt to punishingly high levels for companies whose revenues are mostly in pesos.

Moreover, as the government keeps interest rates high and the economy slows, corporate revenues will decline, squeezing companies further, said Andrew Dragoumis, a fixed-income analyst at CS First Boston.

The government expects the economy to expand by just 1.5 percent this year, while the inflation rate climbs to 19 percent. Yet some folks reckon that even those modest targets are unrealistic. Analysts at CS First Boston, for example, figure the economy will stagnate this year even as the inflation rate soars as high as 25 percent. …

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