Mexico's Samurai bond draws praise
July 18, 2014
Sovereign's bond sale in Japan offers valuable diversification and low yields, says ratings agency
Mexico's sale of a JPY60bn ($590m) bond in the Japanese market this week hit several debt management objectives, ratings agency Moody’s said on Friday.
|Alejandro Díaz de León, Mexico's |
head of public credit
The triple-tranche Samurai transaction locked in the country's best-ever financing rates, in any currency, in five, 10 and 20-year maturities, Mexico's head of public credit Alejandro Díaz de León told LatinFinance on Tuesday.
The bonds pay yields of between 0.8%, for a five-year tranche, to 2.57% for the 20-year note.
Mexico’s ability to fund at such low yields and diversify the investor base drew praise from Moody’s. Reducing the concentration of investors by type and location mitigates the risk of volatility in international markets, the ratings agency said.
The deal comes as growing participation of foreign investors in Mexican-peso denominated bonds increases the risk of a sudden turn in sentiment, Moody’s said. Non-residents hold 40% of Mexico’s domestic government debt — up from 10% in 2007, the agency said.
“While increased foreign participation in the domestic sovereign debt market has translated into lower borrowing costs, it has also incorporated an element of potential credit risk, since non-residents may be more likely to withdraw their investments in the event of a market shock or changes in international financial conditions,” Moody’s said in a report on Friday. “However, this has yet to materialize.”
Yields in Japan's local market have fallen with the central bank's quantitative easing program, which has led to tighter spreads on corporate bonds. Samurai bonds tend to offer higher returns than debt from Japanese companies in the local market. And with local yields lower than in the past, Japanese portfolio managers are seeking out better-returning paper.
"The conditions were good to issue in the Yen market," Díaz de León told LatinFinance. “But despite this situation or this window of opportunity, for us the Japanese market is a strategic objective in the medium term and we've been looking to cement our position in the Samurai market for several years.”
Mexico last hit the Samurai market a year ago, raising JPY80.6bn ($822m) through a triple-tranche bond.
Díaz de León said he hoped other Mexican corporates would follow the sovereign to the Samurai market: "It's one of our objectives, when we build a curve in the international markets we think that it may give access to some corporates," he said. LF
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