Category: Regions

The State of Mexico’s (Edomex) recent securitization of funds generated by the sale of residential property titles is likely to remain the only one of its kind for now. The transaction was the first of its kind and had raised hopes such a deal could be replicated in other parts of the country. But Osvaldo Santin Quiroz, director general of the Instituto de Seguridad Social del Estado de Mexico y Municipios, suggests that this is unlikely. “That was the end-result of a 4-year process that entailed several legal and organizational changes,” Quiroz tells LatinFinance. Any other state government wanting to follow Edomex’s lead would likely have to make similar changes to laws governing the management of title insurance income as well as organizational changes to their bureaucracies in order to allow such a structure to be managed. Edomex in August issued the innovative MXP4.065bn 20-year deal securitizing future flows of income from residential property title fees, which it had been working on since the middle of 2009. The 2030 Edomex deal has a 14-year average life, pays fixed rate and is divided into 2 tranches. An MXP2.765bn tranche features a 100% guarantee from OPIC and was priced at 132bp over Mbonos, paying a 7.86% coupon. It is the first time OPIC has fully guaranteed a transaction in the local market outside the US, say bankers at the leads. The MXP1.3bn tranche carries a 30% first loss guarantee from CAF, it is rated AA on a national scale and was priced at Mbonos plus 359bp, with a coupon of 10.13%. Banamex and HSBC managed the sale, which was structured by MBIA. Quiroz was speaking on the sidelines of the LatinFinance Infrastructure and Sub-Sovereign Finance in Mexico Summit held last week in Merida.

Mexican infrastructure player IDEAL says it is working on 4 highway packages for the coming months. Miguel Martinez, director of project evaluation and financial structuring for IDEAL, says his infrastructure fund is working on a combination of greenfield and existing highway projects: Farac Northeast, the second phase of Farac Pacifico North, Salamanca-Leon, and Michocan. Of the 4, only Salamanca-Leon is a pure greenfield play, he says. Martinez declines to comment on the size of the projects, saying that IDEAL is still waiting for the final engineers’ reports. The fund will likely partner with commercial and, potentially, development banks, in order to raise money for the projects’ construction phases. Other investors, including Afores, may be brought in for later, less risky phases of the concession. “The important thing is finding the tools to guarantee investors an adequate return on investment,” Martinez says. Regarding cost of funds, Martinez says IDEAL has seen spreads in the bond market inch up, though this has somewhat been offset by a decrease in base rates. He was speaking on the sidelines of the LatinFinance Infrastructure and Sub-Sovereign Finance in Mexico Summit held last week in Merida.

Macquarie is in negotiations for concessions on several Mexican infrastructure projects, and may have up to 2 agreements in place by the end of the year. Jonathan Davis Arzac, executive president of the Australian bank’s Mexican Infrastructure Fund, sees wind farms, highways, water and, to a lesser extent, railways, as areas of particular interest to the fund. “Water quality has been a significant problem in Mexico,” Arzac says. In tandem with significant demand for infrastructure improvement, Arzac says the country has made strides toward opening up to investment in projects. This includes changes to laws regarding private-public partnerships and the creation of the certificados de capital de desarollo asset class, which allows Mexican pension funds to partake in infrastructure investment. He was speaking at the LatinFinance Infrastructure and Sub-Sovereign Finance in Mexico Summit being held this week in Merida.

While innovative structures are being used by sub-sovereigns in Mexico to support funding, work still needs to be done to attract a variety of investors, say panelists at the LatinFinance Infrastructure and Sub-Sovereign Finance in Mexico Summit. Sub-sovereign debt makes up 3.4% of GDP, compared to 1.7% in 2004, say bankers, but some investors are still reluctant to buy. “Structured finance products from states have very low participation from Afores or foreign investors, though government treasuries have increased their investments, as products are becoming more long-term,” says Dario Luna Pa, chief economist at the CNBV. Structures such as securitizing future flows of income from residential property titles can be very costly for the issuer, says Francisco Gonzalez, director of planning and public funding at State of Mexico, which did the first such deal last month. However, states should be encouraged by the fact that there has been an increase in appetite from local banks for sub-sovereign risk in the past year, according to Gerardo Salazar of Banco Interacciones. “These are good credits, we are buying their paper and we are very positive about them,” he adds. Nonetheless, 60 of the last 75 ratings actions taken on sub-sovereign have been downgrades, meaning some investors will not participate, says Salazar. Gonzalez says states must be transparent and accommodate the needs of the market, and also take actions necessary to maintain ratings so as to attract as many types of investors as possible. “The State of Mexico has had 7 ratings upgrades since this administration came in. Sure, it was from a low base, but this helped when we bought our deal that securitized future income flows from residential property titles to the market,” he adds.

Mexico’s Yucatan is looking for investment after a law passed in August approving public private partnerships (PPPs), the state’s head of public works Francisco Torres tells LatinFinance. A high-speed train in the Yucatan Peninsula, 2 hospitals and 2 museums are some of the proposed PPPs. The high-speed train would be funded by the Fonadin national infrastructure fund, federal and state money, as well as private investment. “This will make a huge economic, social and touristic impact on the region,” adds Torres. He estimates the cost at MXP18bn, and says studies that it is a financially viable project have already been done, with contracts out to tender in Q2 2011. The line will join Merida to Progreso, Merida to Valladolid, Izamal and Chichen Itza, and Valladolid to Calica. It is estimated that one of the museums will cost MXP3.5bn-MXP4.0bn, and by the end of the year contracts will be out to tender, with the project expected to be completed by the end of 2011. The 2 hospitals will cost MXP3.5bn in total, with contracts out to tender in Q1 of 2011, and the project is expected to start in August 2011. “This private investment will allow projects to be finished in one phase,” says Torres. “It will allow projects to be completed that we would otherwise not have the resources for and this will also create better infrastructure and jobs,” he adds. Public projects currently underway, which have had federal and state investment, include motorways, which Torres expects to be completed by 2012. He adds that they do not have major financing needs. A new ministry of public security is also planned. This has already had MXP400m of investment and a further MXP105m, with completion expected in 2011.