Mexico has responded to Brazil’s continuing absence on the international markets and opened the year with important sovereign and quasi-sovereign transactions. Other sovereign and quasi-sovereigns have followed, but no Brazilian issuer has yet ventured into the markets, and with construction company OAS facing default on its international bonds, bankers say the risk premium levied on potential Brazilian issuers remains prohibitive.
United States of Mexico (UMS) reopened the international markets for Latin American issuers on January 12. The sovereign raised $2 billion through a new 2046 and the reopening of the 2025 transaction it sold late last year. The deal, led by Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley, was well-timed, accessing good pricing (the new issue premium was reported to be 8 basis points for the 2025 and 10bp for the 2046) following a couple of days of market volatility. The transaction included liability management, with holders of seven different maturities swapping into the 2025 and 2046 – adding liquidity and extending the average duration of the issuer’s debt.
The two key benchmarks now also reflect the sovereign’s update documentation (the pari passu clause has been omitted and collective action clauses updated). Combined with the sovereign’s 10-year benchmark transaction in November 2014, Mexico has now funded more than half of its external funding needs for the year. Clean sheets “We wanted to consolidate a 30-year benchmark with the new language in the contract,” says Alejandro Diaz de Leon, Mexico’s head of public credit. “We have started to see premiums become more volatile and we could see significant risk factors on the table. Given these considerations we thought it was good to go early, and also we tend to like to do that because you have the funds with clean sheets starting the year, with money to put to work.”
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