Latin Finance - September/October 2011 - 76

Mexico local bonds

“Introduction of development capital certificates is important and is intended to help fund infrastructure and housing projects,” says Babatz. A Slower Pace Mexicans are hopeful that this autumn will see a revival Yet while government debt has evolved considerably, local in this market after a bit of a slow patch. Year to September 1, markets for corporate debt have been developing at a slower volumes stood at 4.47 billion pesos ($363 million) from three pace. Last year may have seen record volumes, but the market transactions, still shy of the four deals worth 11.27 billion still remains the exclusive domain of high-grade corporates. pesos seen last year. According to Banamex, 253 billion pesos worth of long-term Bankers are largely rejecting the notion that the corporate paper was issued in 2010, up from the average 160 sluggishness in the public IPO market is dampening CCD odd billion pesos seen during the previous three years, and issuance as well. Public market volatility has little impact on marking a record high. instruments that are long-term investments and have no real Yet of that amount, the vast majority comes from blue chips. secondary value, they argue. “The Afores are open [to buying About 760 billion pesos of long-term corporate debt outstanding CCDs] because there is no direct valuation because it is a has been issued by triple A credits, according to Banamex. That fund,” says a Mexican equity banker. compares to 44 billion pesos from AA plus names, 10 billion Others are less pesos from AA minus credits certain about pension and 60 billion pesos from Corporate Bond Volumes (Millions of Pesos) funds’ interest in these corporates rated triple B or New issuance climbs instruments. In theory lower. CCDs shouldn’t suffer from 300,000 This has been a problem risk aversion in the way the that has long stymied the IPO market does, but Afores local markets where bankers 250,000 have shown little interest, and borrowers have been perhaps because they are calling for the development 200,000 focusing on buying cheap of a high-yield market, or stocks in the secondary at least a broader array of 150,000 markets, say some bankers. investment options. Part of the lull can “The capital markets in 100,000 also be explained by new Mexico have developed well regulations allowing CCDs over the last couple of years to fund through capital 50,000 and are quite sophisticated,” calls. This has meant that but the supply and demand issuers had to go back imbalance needs to be 0 2001 2003 2005 2007 2009 2011* to the drawing board to addressed if they are to decide how to proceed. develop further, says Ricardo *Year to August 26 Prior to this, deals were Cano, credit markets head at Source: Banamex entirely funded upfront, BBVA Bancomer. but capital calls allow for funding over time. “There will be opportunities for new asset classes and Bankers hope that appetite for such instruments will development for new asset classes though it has yet to be broaden over time, and say there is a growing interest among determined how fast and at what pace,” Cano adds. insurance companies as well. As of late September, several Carlos Gomez, research analyst at Gramercy, echoes such deals were sitting in the pipeline, including Mexico Retail views, saying that the market is lagging but slowly starting to Properties, Darby Overseas, Prudential Real Estate Mexico, evolve. “It is surprising because Afores have pent up demand to Finsa and a retap from Atlas Discovery Capital. buy high-yield credits in Mexico,” he says. Meanwhile, measures have also been taken to strengthen Further development will depend on whether pension the MBS market after it saw volumes drop in the wake of funds are willing to take on more risk and more flexibility in the 2008 financial crisis. In response, regulators have tried local regulations which have to a certain extent restricted such to improve transparency about the underlying mortgages investors from venturing further down the credit curve. backing these types of instruments. “The regulator’s Financial authorities have been implementing several capability to analyze these instruments was strengthened, measures to help the development of the market, says Guillermo providing it with more tools for detailed oversight activities,” Babatz Torres, the president of the CNBV, the local securities adds Babatz. and banking regulator. The CNBV further broadened its reach by requiring These include the creation of so-called certificados de certification for institutional investors that participate in the capital de desarollo (CCDs), instruments designed to allow MBS market. It is hoped that further transparency and greater pension funds to make private equity investments through a oversight will provide higher comfort levels going forward. LF publicly traded instrument. and creating enough momentum to allocate [in size].”

76 LatinFinance

September/October 2011

Latin Finance - September/October 2011

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