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Videgaray trumpets bond triumph, reform push 0

Apr 10, 2013

Mexico’s finance minister Luis Videgaray has hailed the country’s first successful euro-denominated bond sale since 2010 as further evidence of the economy’s growing vigor, as lawmakers weigh up the most ambitious reform agenda in a generation.

Addressing the LatinFinance Cumbre Financiera Mexicana on Tuesday in Mexico City, Videgaray said that the EUR1.6 billion ($2.01 billion) deal "confirms that there exists in the international financial market a clear appetite for Mexican assets, and overall risk in the Mexican economy."

He added: "It is the combination of two factors. First, that Mexico now has a stable economy with strong fundamentals in economic policy and, second, because we have an encouraging perspective of the changes that may occur and may accelerate the growth outlook in Mexico."

The sovereign on Tuesday drew more than EUR4.5 billion in orders and priced through its EUR curve, having timed the trade for cost effectiveness. Proceeds are intended for buying back four series of illiquid euro debt.

The new benchmark priced at 99.492 with a 2.750% coupon to yield 2.809%, or MS+120bp, at the tight end of 125bp-area guidance that followed earlier 135bp-area talk. Mexico's 2020 EUR-denominated bonds were seen trading at MS+120bp prior to the sale, suggesting a pricing inside of the curve when considering the 3-year extension.

BNP Paribas, Deutsche Bank, and HSBC managed the new sale and the tender, which followed a European roadshow late last month. Mexico is rated BBB/BBB/Baa1.

Tuesday’s sale is the largest LatAm Euro-denominated bond sale since Petrobras raised EUR2 billion in September 2012, according to Dealogic data, and is the region's largest ever EUR sale done in a single tranche. It was also Mexico's lowest-ever yield in euros.

Mexico’s previous euro deal raised EUR850 million at a seven year maturity. A Japanese issuance could be up next, Díaz de León said.

Speaking at the LatinFinance event, Videgaray said the administration of President Enrique Peña Nieto was poised to announce a banking reform that would help extend credit to small and medium sized enterprises.

The minister highlighted the government’s ambitious reform agenda, which has already seen the successful passage of education and labor reforms, with telecoms reform now set to be debated by lawmakers. He said these reforms – including an overhaul of the tax system and energy sectors – were vital to enhancing the country’s productivity.

Tax reform is vital for strengthening the country’s financial capacity so that obligations can be met on infrastructure, public health, education and combating informality, which represents more than half of the country’s workforce, Videgaray said.

"The most important statistic in Mexico in the last decades which has not been addressed is Mexico’s productivity which has stalled," Videgaray said. Mexico’s productivity has lagged its peers – including Chile, Ireland and Korea – for the past 30 years, he said.

"If something has damaged productivity in the Mexican economy it is the fact that, according to the latest statistics, more than half of the workforce is in the informal sector," he said.

The tax reform will be addressed in the second half of the year.

See El Economista's coverage of LatinFinance's Cumbre Financiera Mexicana here.

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