Mexican Bank Banorte Restructures Aguascalientes State Debt

Mexican bank Grupo Financiero Banorte SAB (GBOOY, GFNORTE.MX) said Wednesday it recently restructured debt owed by a third Mexican state, this time Aguascalientes in central Mexico, bringing the bank's total refinancing balance for troubled states up to 13.21 billion pesos ($982 million).

The restructured debt owed by the states of Coahuila, Sonora and Aguascalientes represented 4% of Banorte's entire loan portfolio as of the end of September, the bank said in a statement.

Banorte previously said that it restructured MXN4.75 billion for Sonora, while it did not disclose the amount of debt it restructured for Coahuila.

Banorte also said Wednesday that it has adopted new methodology for capital reserves to guard against potential losses on its loans to Mexican states and municipalities. This new methodology resulted in a MXN357 million decline in the bank's reserves.

The "chief objective" of refinancing the three states' debt, Banorte said, was to help them achieve better financial terms and credit conditions and thus obtain more flexibility in the management of their fiscal incomes.

The bank said that it did not offer the states discounts or write-downs as part of the refinancing deals, and that all three entities are current on payments.

Under the refinancing agreements, the loans to Coahuila, Sonora and Aguascalientes will now come due in 20 to 27 years, Banorte said, with each loan carrying a payment guarantee backed by the state's tax revenues.

As such, the bank said that 87% of its local government loan portfolio now carries some sort of guarantee of payment from the local entities' revenues, and that just 8% of the loans are short-term, non-guaranteed debt.

The local-government portfolio has zero bad debt, Banorte said.

A number of local governments in Mexico have run into tight budget situations in recent months after having contracted short-term bank loans without boosting their revenue streams.

Deputy Finance Minister Gerardo Rodriguez alerted market participants in August that local governments had MXN50 billion in off-the-books debt that isn't guaranteed by the states' share of federal tax collections.

The Finance Ministry keeps track of local-government debt that is tied to promises of those entities' shares of federal tax revenue.

The local debt, however, is not guaranteed by the federal government itself.

Banorte said Wednesday it intends to take on additional restructurings of state and municipal debt as it seeks to maintain its leadership position in the sector.

Deutsche Bank noted this week that Banorte aggressively has grown its loans to Mexican government entities in the past 2 1/2 years, with local governments accounting for 17% of Banorte's loan book at the end of June versus 11% at the end of 2008 for an 18% market share of government loans.

Other banks that recently have restructured bank debt for troubled states include BBVA Bancomer, a unit of Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC), and the Mexican unit of Canada's Scotiabank (BNS, BNS.T).

-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177; amy.guthrie@dowjones.com

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