By Ben Miller
These days Europe is rarely, if ever, held up as a role model
when it comes to economic or financial matters –
unless it’s to illustrate how things go wrong. And
Latin America is only mentioned in that context as a useful
historical parallel for how sovereign debt crises typically
Carlos García Moreno, chief financial officer of
América Móvil and former director of public
credit at Mexico’s finance ministry, takes a
To him, the Latin America of today bears many similarities
to Europe in the early 1990s, and – leaving aside its
sovereign debt crises – offers a glimpse of how
domestic financial markets could develop in the years
Bank lending, as opposed to bond funding, was the only
option for European corporates for a long time.
"In 1990 or 1991 you didn’t have much of a
capital market in Germany," García Moreno tells
LatinFinance. In Germany and in France, five-year borrowing was
available, but there were no benchmarks for 10-year funds. Just
the UK had a benchmark that long. "You look at what they have
today, and it’s completely changed," he says.
García Moreno says the situation today in Latin
America is similar, in terms of corporate borrowing. "You
can’t go much beyond five years, and it is open
for triple-As locally, maybe double-As," he says.
While the Europeans perhaps started with a more diversified
investor base, "we’ve seen what can happen in 20
years, and there are parallels."
"Now you are seeing a situation in Latin America where for a
number of reasons bank lending is not available, and its
incentivizing companies to think hard about other funding
options," says García Moreno.
"To some extent it’s been a good thing, because
it has forced more companies to start looking at the capital
Latin America has a growing number of strong corporates in
need of funds, but, by and large, limited in their domestic
currency to deals of five to seven years in tenor. Meanwhile,
the region boasts an unprecedented pool of capital in the
pension funds of Chile, Colombia, Mexico and Peru and with
asset managers in Brazil.
Mexico’s local financing markets have come a
long way since García Moreno was head of public credit
under Ernesto Zedillo’s administration in the late
1990s. Back then, it was an effort to get investors to buy
fixed-rate peso-denominated sovereign bonds at three and
five-year maturities. The sovereign’s local curve
is now a model for the region, but the peso options for
Mexico’s corporates are limited to a few national
issuers – just as local currency options are limited
in Chile, Colombia and Brazil.
Maintaining macroeconomic stability will be critical to
allowing institutions to make bigger pools of liquidity
In the past decade, América Móvil has
pioneered issuances in the international markets: in 2005 it
sold a $1 billion 30-year dollar bond and a 5 billion peso
($462 million) global deal; the following year, it sold an 8
billion peso 30-year bond. More recent milestones include the
region’s first renminbi bond in 2012 and the
introduction of Títulos de Crédito Extranjeros, a
domestic security affording the same simultaneous access to
foreign and domestic investors that the sovereign has.
Strengthening institutional investors, like insurance
companies and mutual funds, facilitates growth of local debt
markets, says García Moreno.
Rules allowing companies to get to markets faster could help
encourage more issuers. Here, gains are being made.
América Móvil’s 2022 Títulos
took advantage of a platform that allows a quicker process from
filing to pricing.
With the program in place, the company hopes to sell the
bonds once a quarter, ideally providing a benchmark for other
Mexican corporates. It has raised 22.5 billion pesos so far,
and brought in more institutional investors from Brazil, Chile,
Colombia and Peru.
In August 2013, borrowers across the region were grappling
with what looked likely to be a protracted period of volatility
as US monetary policy normalized. Yields on US Treasuries shot
up over the summer months, as investors anticipated an end to
the Federal Reserve’s quantitative easing program
in late 2013.
"Many people are still trying to understand what demand will
be like when rates start to pick up," says García
Moreno. But markets must not forget the "lessons" of the past,
he says, pointing to the jolt in 1994 when Alan Greenspan
surprised the market by doubling the US benchmark lending rate
in 12 months. Now, after years of quantitative easing and with
extensive portfolio investment in emerging markets, the scale
of the problem is much bigger, he says.
"There’s this notion that you will only have a
graceful exit [from low US interest rates]," he says. "In the
past, markets have not been graceful. But we are told this time
Issuers from LatAm and EM must be smart in taking advantage
of good conditions when they can. Many issuers have not, he
"In the next few years, go to the markets when the markets
are open," he says. "You don’t know when they will
continue to be there. Don’t try to be too smart."