Mexico Comes up Short in Long Attempt

In a rare misread of capital markets, Mexico has raised $1.5bn through a hasty 5-year bond issue whose timing leaves investors scratching their heads. “$6bn out of Mexico in 2 months is a lot from the same well,” says a New York-based buysider who did not participate, noting a glut of recent UMS and Pemex supply. Besides excess supply in a very jittery market, the sovereign – typically a role model for EM issuers – had to pull a misguided 21-year tranche because of lack of demand. And bankers away from the issue say the hurried attempt to plug a funding gap repriced Mexico’s whole curve higher. UMS priced $1.5bn in 2014 bonds at 99.424 with a 5.875% coupon to yield 6.010%, or US Treasuries+425bp, the wide end of talk. Guidance at launch was 400bp-425bp according to investors, while the leads claim it was 425bp area. The yield represents a new issue premium of 40bp-50bp according to bankers away from the sale, using the 2019 as a reference, compared to a 40bp pickup on Mexico’s last international issue. A banker away from the transaction says it may have come as much as 60bp over the curve, while the issuer calls the premium just 15bp-20bp, using the existing 2014 as a benchmark. The original plan was to sell $1bn in each tranche. “They misread appetite for the long end, and there’s clearly some supply indigestion on the back of all this recent issuance,” says Siobhan Morden, LatAm debt strategist at RBS, referring to Pemex and UMS 2019s. Nonetheless, demand exceeded $3bn, according to bankers on the sale, which went to more than 200 accounts, approximately 55% in the US, 20% in Europe and 25% to Mexico and LatAm. Credit Suisse, Deutsche Bank and HSBC managed the sale. By stark contrast, Mexico sleekly cracked open the international bond markets for EM issuers in December with a tightly priced $2bn 5.950% of 2019 that traded steady. It came at 390bp versus guidance of 400bp area and the deal was executed at just 40bp above the 2017 – according to the leads – versus e