BBVA - The advisor of reference for its wholesale clients
BBVA advisory team is in the front line supporting the corporate clients in their Mergers & Acquisitions (M&A) and Equity Capital Markets (ECM) transactions, as well as offering Debt Advisory on ratings, debt structuring, project finance and liability management. BBVA provides this consulting service globally and through professionals with sectorial expertise in infrastructure, telecommunications, real estate, healthcare, consumer & retail, energy, oil & gas, industrials and FIG.
Alejandro Cardenas, Head of Investment Banking & Finance in BBVA Mexico, says: “In this context, it is our priority to engage in a strategic dialogue with our clients to better understand their needs. Now, more than ever, it is time to think ‘out of the box’ and design innovative solutions for our clients to create value and resolve complex situations at hand.”
The global economic downturn of 2020 has been the worst since the Great Depression of 1929, with an estimated GDP contraction of 4.4% globally and c. 9% in Mexico. However, disaster assistance loans, tax credits, interest rates near zero and other economic relief measures, have helped to ease the impact.
When the COVID-19 outbreak hit Mexico in mid-March, Mexican companies focused on securing liquidity lines and obtaining grace periods for repayment of interest and/or principal. Throughout the whole process, BBVA Mexico helped their clients by restructuring approximately USD 2.5 billion in debt as of October 2020. Now that the six-month grace periods are about to end, a deeper process of restructuring starts with the most heavily affected companies. The level of equity needed still remains to be seen.
The good news is that Mexico’s economic data has been more encouraging in the last months. According to INEGI, the economy began to grow again in June with a monthly growth rate of 8.9%. For 2021 the expected growth is around 3.5%, but the real figures will depend on the magnitude of new outbreaks and how quickly a vaccine can be approved and commercialized. However, BBVA analysts do not expect a full return to normality before 2023.
In this context, the M&A activity in Mexico has been severely curtailed. The number of M&A deals has declined 36% in the year to date. Some obvious reasons for the sluggish pace of activity are: regulatory changes in industries like renewables; pandemic putting several transactions on hold; and the gap in price expectations between sellers and buyers.
In such a difficult environment, specialized advisory services have become essential for clients planning on major strategic transactions like the sale of non-strategic assets or the increase of the geographical diversification. BBVA has stood by its clients and recently led two of the most important M&A deals in Mexico: the sale of El Mante sugar mill to Pantaleon and the acquisition of an 800MW renewable platform by CPIHL, the largest acquisition ever made by a Chinese investor in Mexico. With these transactions, BBVA has consolidated its position as a leading M&A advisor in the country, with 73 deals led since 2012.
M&A activity is expected to slowly recover in 2021, driven mainly by three factors: Higher visibility on the economic recovery, reduction of the price gap and capital injections and the fact that many companies are selling some of their non-core assets in order to strengthen their balance sheets.
As for different sectors, the power industry is going to be very active in the coming months as some of the players want to recycle capital and put their assets up for sale. However, appetite for renewables will likely be lower than for conventional energy, due to the recent regulatory changes proposed by the Mexican government. BBVA is working closely with top energy companies to identify investment opportunities and potential partners in order to finance new projects.
The Mexican ECM business, with three deals totalling USD 1.62 billion in 2020, has been less affected by the crisis. Activity has been driven by two transactions by Grupo Slim: Ideal Fibra E and Telesites Fibra. BBVA also led the rights offering of Prologis and the third CKD issuance by Promecap. Promecap’s strategy of high-yield structured debt has become even more relevant in the current environment where many companies are facing liquidity constraints but do not want to raise equity and suffer dilution.
With 50 transactions led since 2009, BBVA has unparalleled capabilities and experience in the Mexican ECM market, thanks to the bank’s structuring experience, deep relationship with Mexican institutional investors and large private banking division.
After several years of low activity, the Mexican ECM market is expected to reactivate in 2021. BBVA predicts that Pemex or CFE could be tapping the market to finance large projects such as the Dos Bocas Refinery or additional power generation capacity. In addition, some corporations are likely to increase capital during next year.
Hernan Silvan, Head of Advisory in BBVA Mexico, concludes: “At BBVA, we have been supporting our clients with their growth plans for decades. Now, during the pandemic, we continue to do so by providing financing and offering tailor-made solutions that allow our clients to go even further.”
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