Mexican issuers pounce on hungry local investors

Mexican issuers pounce on hungry local investors

Debt Bonds Capital Markets Mexico

A mix of familiar and returning faces have lit up Mexico's bond market this week, a space that until April, had been uncharacteristically quiet throughout 2018.

Mexico's liquid fixed income investor base remains hungry for new peso issuances in order to put their money to work. And if this week's new issues are anything to go by, the majority of demand is fixed among 28-day floating-rate debt. 

Regular issuers, such as Volkswagen Leasing and Daimler Mexico both sold local paper on Wednesday, while Santander Mexico and retailer Grupo Elektra returned to the long-term floating peso market after lengthy absences.

NAFTA negotiations with the US and Canada have also kept would-be international issuers at bay this year, while Mexico's own presidential election this July, meant that several credits front-loaded their debt capital raising plans throughout 2017, a near-record year in Mexican peso issuance, according to two DCM bankers in the country's capital.

"Right now, it is mainly headline risk," one DCM banker said in regards to Mexico's politics, adding that investors were growing concerned over a victory for Andres Manuel Lopez Obrador, commonly known as AMLO, and his accompanying policy.

While it is a long shot, AMLO's talk of revising Mexico's energy reforms and amending plans for the country's new international airport in Mexico City have impacted credit spreads.

"Investors have sustained some losses," the same banker said. "Take GACM [the trust that manages securities issued by the airport authority], they [investors] have been burned with these bonds."

Meanwhile, Argentina's currency woes and wider EM volatility, while not heavily impacting Mexico, does give cause to patience for companies eyeing the marketplace.

According to a second DCM banker: "Mexican credits are beyond the point where markets are going to be excited about a new deal."

The same banker said credits would likely be forced to fork out a higher new issue price that may not necessarily reflect the company's credit metrics. "Unless you really need the money, maybe look for bank financing instead," he added.

Diverse April

In addition to the automotive lenders, Santander and Grupo Elektra, some other new peso issues have emerged from Latin America's second-largest economy over the last month. April also presented a chance for higher-graded issuers to diversify their funding sources.

Grupo Bimbo, Kio Networks and Cometa Energia snared $500m, $300m and $860m in cross-border dollar debt, respectively, but development bank Nafin raised MXN7bn ($362.4m) in Euroclear bonds and state-owned energy company Pemex returned to Switzerland for roughly $365m.

The sovereign issuer itself culled a multi-year hiatus in Japan with a four-tranche Samurai sale.

Elsewhere in April, long-term peso bonds (in excess of $50m) emerged from highway concessionaire LEP, Grupo Lala, BNP Paribas Personal Finance and Fibra Uno, DCM sources confirmed.

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