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DEAL OF THE YEAR: Corporate High-Grade Bond

Jan 1, 2013

Mexichem $1.15bn 2022, 2042

The re-emergence of Mexico as a favorite with investors and the continued brisk business in the cross-border bond market were two of the strongest themes in Latin America’s capital markets last year. Nothing captured both of these trends quite like September’s blockbuster $1.15 billion deal from Mexican industrial conglomerate Mexichem.

The issuer’s return to the international debt capital markets following a three-year absence allowed it to raise one of the largest order books ever for a Latin American or emerging market credit. Stirring up $17.6 billion demand, it also achieved the lowest coupons in the 10 and 30-year space for a split-rated LatAm corporate and chemicals-sector issuer.

For investors, the deal represented scarcity value of Mexican corporate paper in the Ba1/BBB minus space, allowing buyers to place a safe bet on attaining coveted full investment grade status.

"Scarcity paper out of Mexico and stories like this one are not many on the corporate side and people liked it," says Roberto D’Avola, head of LatAm DCM at JPMorgan, a manager on the deal with Citi, HSBC and Morgan Stanley.

The deal also extended Mexichem’s maturity profile at attractive funding costs as it sought to finance existing liabilities, specifically a $350 million public tender offer for bonds due 2019 of which $267 million, or 76.3%, of the outstanding bondholders accepted.

First announced as a new benchmark-size 2022, with 5.50% area initial price talk, the book quickly grew to $2.7 billion, generating momentum into the overnight leg of the deal.

At the New York open the following day, the books had swelled to nearly $7 billion. Leveraging the momentum generated by the 10-year and responding to reverse inquiries, Mexichem decided to add the longer tranche.

Robust demand allowed it to issue both tranches at sizes larger than expected – by $50 million and $100 million, respectively. A $750 million 2022 bond priced at 99.206 with a 4.875% coupon to yield 5%, at the tight end of 5.25% guidance that followed 5.5% talk. A $400 million 2042 year tranche priced at par with a 6.75% coupon to offer a yield at the tight end of the 7%-area initial guidance.

US investors accounted for 60%-70% of the deal, European ones for about 20%, and Asians around 10%. The company in October returned with a $1.21 billion equity follow-on transaction, securing more than $4 billion demand. LF



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