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Coca-Cola FEMSA Issues Yield Bond

Zacks Equity Research

The Coca-Cola Company (KO) franchise bottler, Coca-Cola FEMSA S.A.B. de C.V. (KOF), offers 10-year bond at a yield of 5.46%, which is the lowest ever achieved by any corporate issues in the Mexican Peso market. KOF will use the proceeds for general corporate purpose, including capital expenditure, as well as for enhancing its working capital.

Coca-Cola FEMSA is co-owned by the Coca Cola Company and Fomento Economico Mexicano S.A. (FMX) – also known as FEMSA. It produces and distributes Coca-Cola, Fanta, Sprite, Del Valle, and other trademark beverages of The Coca-Cola Company, bottled water, juices, teas, isotonics, beer, and other beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Brazil, Argentina and Philippines, along with some of these territories.

Coca-Cola FEMSA reported a 7.7% slip in its first-quarter profit in Apr 2013. The drop was the result of higher freight and labor costs in some countries as well as increased marketing investment in South America.

The issuance of the bond will improve the liquidity of KOF, but at the cost of increasing long-term debt. KOF had long-term debt of Ps. 6.12 billion ($483.4 million) at the end of Mar 2013.

Coca-Cola FEMSA is on a buying spree and is expanding its operations beyond Latin America. In Jan 2013, it acquired a 51% interest in the Coca Cola company’s franchise bottler in the Philippines, Coca-Cola Bottlers Philippines, Inc. Again, Femsa Comercio forayed into the drugstore business through the acquisition of a controlling stake in Farmacias Yza in Southeast Mexico.

In Jan 2013, Coca-Cola FEMSA entered into a definitive agreement to acquire another Mexico-based Coca-Cola bottler Grupo Yoli, S.A. de C.V. for $700 million. The deal also added two bottling facilities and 20 distribution centers owned by Grupo Yoli to FEMSA’s asset base. The deal will extend Coca-Cola FEMSA’s reach to the state of Guerrero as well as to parts of the state of Oaxaca — the two markets in which Grupo Yoli primarily operates.

The Coca-Cola Company has ownership interests in many other bottling operations, including Coca-Cola Enterprises Inc. (CCE), Coca-Cola Hellenic Bottling Company S.A. and Coca-Cola Amatil Ltd. Currently, Coca-Cola FEMSA carries a Zacks Rank #3 (Hold).

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