Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

Minerva S.A. provides meat products. The Company focuses on production and sale of fresh meat and its derivatives. Minerva serves clients worldwide.

<ul>
<li>We expect the company to encounter challenges in free cash flow generation, which will pressure credit metrics and hinder post-acquisition deleveraging.</li>
<li>The 2033 notes are the only ones within Minerva’s capital structure that do not trade tight to the LatAm BB and EM BB curves. </li>
<li>However, we believe a better entry point for these notes may emerge based on our expectation of a weakening credit profile in the short term.</li>
</ul>


We expect the company to encounter challenges in free cash flow generation, which will pressure credit metrics and hinder post-acquisition deleveraging.
The 2033 notes are the only ones within Minerva’s capital structure that do not trade tight to the LatAm BB and EM BB curves. 
However, we believe a better entry point for these notes may emerge based on our expectation of a weakening credit profile in the short term.


Minerva 3Q24: Acquisitions Keep Uncertainty High

MercadoLibre, Inc. operates an online trading site for the Latin American markets. The Company's website allows businesses and individuals to list items, conduct sales, and purchases online in either a fixed-price and auction format. MercadoLibre offers classified advertisements for motor vehicles, vessels, aircraft, and real estate, as well as online payment services.

<ul>
<li>We remain optimistic about MELI’s financial and business risk profile.</li>
<li>If the company achieves investment-grade status in the short term, we believe MELI’s fundamental strengths are already reflected in current spreads.</li>
<li>Weaker-Than-Expected 3Q24 results. MELI's strategic investments in credit growth and logistics expansion significantly affected profitability, with the EBIT margin contracting by 950 bps year-over-year.</li>
</ul>


We remain optimistic about MELI’s financial and business risk profile.
If the company achieves investment-grade status in the short term, we believe MELI’s fundamental strengths are already reflected in current spreads.
Weaker-Than-Expected 3Q24 results. MELI's strategic investments in credit growth and logistics expansion significantly affected profitability, with the EBIT margin contracting by 950 bps year-over-year.


MELI 3Q24: Strategic Credit Growth and Logistics Investments Dampen Short-Term Profitability

Petroleos Mexicanos operates as an oil and gas exploration and production services. The Company offers pipeline carriage, petrochemical distributor and shipping centers, logistics, and fuel commercialization services. Petroleos Mexicanos serves customers in Mexico.

<ul>
<li>We believe that PEMEX’s reclassification, stronger linkage to the sovereign, and its payment program to stabilize balances with suppliers and contractors will support further spread compression.</li>
<li>The spread pickup is more appealing at the belly and long end than at the shorter-dated notes, as most PEMEX bonds maturing before 2029 trade at or near par.</li>
<li>3Q24 results continued to highlight PEMEX’s vulnerability and its significant reliance on government support.</li>
</ul>


We believe that PEMEX’s reclassification, stronger linkage to the sovereign, and its payment program to stabilize balances with suppliers and contractors will support further spread compression.
The spread pickup is more appealing at the belly and long end than at the shorter-dated notes, as most PEMEX bonds maturing before 2029 trade at or near par.
3Q24 results continued to highlight PEMEX’s vulnerability and its significant reliance on government support.


PEMEX 3Q24: Government Support Continues to Strengthen

Cemex SAB de CV is a building products company. The Company produces, distributes, and markets cement, ready-mix concrete, aggregates, and related building materials. Cemex operates throughout the Americas, Europe, Africa, the Middle East, and Asia.

<ul>
<li>We downgraded Cemex to Market Perform and do not anticipate that the notes will outperform in the near term.</li>
<li>We continue to view Cemex as an attractive emerging market credit story supported by favorable market conditions, credit-positive strategic priorities, and a commitment to strengthening its credit profile.</li>
<li>We believe the risk/reward profile is skewed to the downside. This view is based on current spread levels, weak earnings results, and elevated near-term political and headline risks.</li>
</ul>


We downgraded Cemex to Market Perform and do not anticipate that the notes will outperform in the near term.
We continue to view Cemex as an attractive emerging market credit story supported by favorable market conditions, credit-positive strategic priorities, and a commitment to strengthening its credit profile.
We believe the risk/reward profile is skewed to the downside. This view is based on current spread levels, weak earnings results, and elevated near-term political and headline risks.


Cemex 3Q24: Long-Term Outlook Clouded by Near-Term Risks

<ul>
<li>We are initiating coverage on PEMEX with an Outperform recommendation.</li>
<li>We think the potential reclassification to a public company will lead to an improved credit profile, resulting in spread compression due to the increased linkage with the sovereign.</li>
<li>We prefer the PEMEX (B3/BBB/B+) 5.950% 2031, PEMEX 6.625% 2038, and PEMEX 7.690% 2050 bonds, as they are trading wide to the overall PEMEX curve.</li>
</ul>


We are initiating coverage on PEMEX with an Outperform recommendation.
We think the potential reclassification to a public company will lead to an improved credit profile, resulting in spread compression due to the increased linkage with the sovereign.
We prefer the PEMEX (B3/BBB/B+) 5.950% 2031, PEMEX 6.625% 2038, and PEMEX 7.690% 2050 bonds, as they are trading wide to the overall PEMEX curve.


Initiating Coverage on Pemex: Set to Outperform on Reclassification Potential

EM Spreads is an independent credit research service specializing in Emerging Markets, primarily focusing on Latin American issuers.