Lloyd Mexico Economic Report September 2003
Table of Contents
STOCK MARKET FINANCING BOOM
BILLION DOLLARS FOR PLAYA MUJERES
TELMEX FREEZES ITS RATES
PEMEX SEEKS TO RENEW ITS FLEET
A SWEET INVESTMENT!
HSBC ACQUIRES RETIREMENT FUND
SURPLUS IN PUBLIC ACCOUNTS
GEO-PRUDENTIAL REAL ESTATE ALLIANCE
VOLKSWAGEN JOBS SAFE
SEVERAL STATES ATTRACTIVE FOR FOREIGN INVESTMENT
EL CHANATE GOLD DEPOSIT
BEER PLANT IN COLIMA
HOTEL CONSTRUCTION SPECIALISTS
STOCK MARKET FINANCING BOOM
The Mexican Stock Market (Bolsa Mexicana de Valores, BMV) has become the main source of financing for the nation's industrial base. For the period between January 1 and August 15 this year, 3.6 billion dollars worth of debt issues had been placed, an increase of 23.6% on the corresponding period a year earlier.
Guillermo Prieto Treviño, the president of the BMV, has commented that current interest rates have resulted in only a 2.5% increase in short term issues while medium and long term issues have increased by a more robust 26.3%. He emphasized that there is an ample range of issues in the market that meet the needs of an ever-growing demand on the part of investment funds.
RELATED NEWS On August 21, the government of the state of Nuevo León placed 91 million dollars in stock certificates on the BMV. The issue was awarded AAA status by credit ratings agency Fitch Ratings, meaning that the stock enjoys the highest possible credit quality. The issue is backed by existing payroll taxes. It represents one of the largest issues so far by any state or municipal entity.
BILLION DOLLARS FOR PLAYA MUJERES
The Hank Rhon family has begun work on a tourist development at Playa Mujeres, in the state of Quintana Roo. It requires an investment over 10 years of more than one billion dollars to create the world's most luxurious and exclusive tourist complex, as originally conceived by the now-deceased businessman and politician Carlos Hank González.
The project calls for investments of 90 million dollars in the first 3 years, 410 million dollars in the next 3-year phase and 850 million dollars in the final four-year phase.
The complex will include two 18-hole golf courses, low density hotel accommodation with a total of 2,000 rooms, 5,000 residences and a 215-berth marina. The construction will provide 10,000 jobs and when the resort in is in full operation will provide 6,200 direct jobs and employ 8,000 indirectly.
TELMEX FREEZES ITS RATES
Teléfonos de México (Telmex) has announced that its rates will remain unchanged in 2004. This is the fourth consecutive year that Telmex has maintained its rates. In addition, Telmex is studying the possibility of lowering the prices for some of its services over the next decade.
RELATED NEWS. Various studies show that cellular phone operators will soon become the principal source of revenue in the telecommunications sector, exceeding by far the contribution of fixed line operators. At present, there are an estimated 27 million cell phones in use, more than double the 13 million fixed lines in service.
PEMEX SEEKS TO RENEW ITS FLEET
The oil giant Petroleos Mexicanos, Pemex, has an aging fleet of 260 ocean-going vessels, used for transport between domestic ports. About 60% of them are now over 20 years old and the remainder are over 15 years old.
In order to reverse this trend, Pemex has begun seeking bids to supply 12 new tanker vessels to sail under the Mexican flag. Their combined cost is likely to be around 100 million dollars. The company then plans to continue modernizing its fleet, replacing more than half of all its tankers over the next few years, at a total cost of up to one billion dollars.
A SWEET INVESTMENT!
Dulces de la Rosa, a candy-maker based in the state of Jalisco has announced plans to invest around 15 million dollars in building a fifth plant. The new facility will expand the company's range into the snack food sector and generate 150 jobs.
Located in Guadalajara, it will begin operating by mid-October, with an initial capacity of 60 metric tons of snack food a month.
The firm currently exports candies to the U.S. and Canada, as well as to various locations in Central America, Europe and the Middle East. It is Latin America's third largest candy-making firm, and number 27 in the world.
HSBC ACQUIRES RETIREMENT FUND
Last year, HSBC Holdings, Europe's biggest lender, acquired the domestic banking firm Grupo Financiero Bital for 1.14 billion dollars. The deal did not include Bital's retirement fund, sold separately to the ING Group.
Now, HSBC has offered 200 million dollars for another retirement fund, Afore Allianz-Dresdner, which manages assets of 1.03 billion dollars on behalf of 1.25 million clients. The purchase still has to be approved by Mexican financial authorities.
SURPLUS IN PUBLIC ACCOUNTS
According to a report on the economic situation and the state of public accounts released recently by the Finance Secretariat (Secretaría de Hacienda y Crédito Público), the nation's economy was very healthy during the first half of the year. The public accounts surplus for the period amounted to 5.78 billion dollars, 147.2% higher, in real terms, than the corresponding figure for a year earlier.
The strong first-half results reflect the effects of two favorable, but temporary, conditions: the high prices paid for exported petroleum and higher than expected non-recurrent revenues.
Public sector revenues in June reached 74.94 billion dollars, exceeding the figure predicted in January by more than 4.65 billion dollars. Of this amount, 2.06 billion dollars corresponds to petroleum income.
The non-petroleum tax revenues of the federal government grew 7.1% annually in real terms, with particularly significant increases in the collection of value-added tax (IVA) and of special taxes on goods and services (IEPS), which rose 14.8 and 31.4% respectively.
GEO-PRUDENTIAL REAL ESTATE ALLIANCE
Corporación Geo, the nation's largest housing developer, and one of the most important in Latin America, has signed an agreement with Prudential Real Estate Investors (PREI), a subsidiary of Prudential Financial, the largest life insurance firm in the U.S. Under the terms of the agreement, PREI will seek to acquire building sites and land reserve for GEO to develop, with a budget of 100 million dollars over the next nine months.
With an initial investment of 33 million dollars, PREI has bought two properties. The first, in the state of Mexico, is 136 acres (55 hectares) in area, and will be used for 3,970 homes, 80% of them designed for the low-income sector, with the remainder for middle-income families. The second property, in the Diamante zone of the resort city of Acapulco, is 70.6 acres in area. It will have 1,118 homes, 90% of them for middle-income earners.
VOLKSWAGEN JOBS SAFE
Volkswagen de México has withdrawn redundancy notices sent to 2,000 workers at its plant in Puebla, after reaching an agreement with the workers' union to cut the number of days worked each week from five to four, with an associated 20% reduction in take-home pay for the plant's 9,800 employees.
The automaker expects that production this year will fall by 30% compared with the year 2000, to 285,000 vehicles. The drop is attributed largely to consumers postponing purchases of new vehicles until the outlook for economic growth improves in both Mexico and the U.S.
RELATED NEWS. Ford Motor Company has decided to make its new series of Futura cars and medium-sized "sport wagons" (all-terrain vehicles that are both smaller and lower than those currently existing in the market) in its plant located in Hermosillo, in the northwestern state of Sonora.
Toyota, the world's third-largest automaker, is investing 140 million dollars in expanding its plant in Baja California, which will have the capacity to turn out 30,000 Tacoma pickup trucks and 180,000 steel beds for the trucks each year. The expansion will increase employment by 460. Production is to start in late 2004, six months ahead of Toyota's original target.
SEVERAL STATES ATTRACTIVE FOR FOREIGN INVESTMENT
According to reports from the National Foreign Trade Bank (Banco Nacional de Comercio Exterior), 8 new projects were finalized in June, involving 25 million dollar investments by companies in Korea, the U.S., Canada, Italy and Taiwan, which will generate 915 new jobs.
The new projects will be located in the states of Coahuila, Nuevo León, Jalisco, Puebla and Yucatán. Investments were in a variety of sectors, and include the making of jams, men's suits, fresh produce, railroad cars and engine valves.
EL CHANATE GOLD DEPOSIT
U.S.-based Capital Gold has announced the results of a feasibility study, based on 252 drill holes and 22,000 gold assays, carried out at the El Chanate deposit in the state of Sonora. The initial open pit project contains proven and probable reserves of 358,000 ounces of gold within 13.4 million metric tons of ore with an average grade of 0.8 grams/metric ton. Assuming a recovery rate of 69.5%, it is estimated that the mine could produce approximately 50,000 ounces of gold per year over 5 years.
The total costs are estimated at around 295 dollars an ounce during the first phase, with all figures based on a gold price of 325 dollars an ounce. Mine construction could begin as early as next year.
The study also indicates that there are future opportunities for expanding the El Chanate mine. A deposit with an average grade higher than that contained in the planned pit lies at depth on the southeastern edge of that pit, and could be economic at higher gold prices.
RELATED NEWS Industrias Peñoles, the world's largest silver producer, is closing its nearly depleted Las Torres mine, in the state of Guanajuato. The closure results from the failure to locate additional economically viable gold or silver deposits in the vicinity. The mine currently accounts for less than 2% of the firm's total revenues and the announcement had no effect on Peñoles share prices.
BEER PLANT IN COLIMA
Grupo Modelo, the nation's leading brewer, is considering building a new beer plant in the port city of Manzanillo, in the state of Colima, with a view to boosting its exports to the Asian market. The final decision has not yet been made but is expected before the end of the year.
The company (main brands: Corona, Modelo Especial, Negra Modelo and Pacífico) is the world's eighth largest brewer. During the first quarter, its sales grew 1.9% in comparison with the same period a year earlier. Modelo is the second most popular imported beer in China, in a market segment that is growing at double digit rates.
HOTEL CONSTRUCTION SPECIALISTS
Perini Building, the largest construction company in the U.S. specializing in hotels and convention centers, has opened a subsidiary in Tijuana, Mexico. Perini de México has won the 45-million-dollar contract to renovate and expand the Palmilla Resort hotel in Los Cabos, Baja California.
When the resort is re-inaugurated early next year, it will be renamed the One & Only Palmilla, and will join the exclusive One & Only chain owned by Kerzner International. The hotel will have a 27-hole Jack Nicklaus-designed golf course, and 174 luxury accommodations, as well as a modern gymnasium and health spa.
The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.
Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.
2003 Operadora de Fondos Lloyd, S.A.
© 2003 Allen W. Lloyd, S.A. de C.V.