Mexico Warrant Sale Sees Strong Demand

Mexico’s sale of $1.25bn in notional value of warrants was well bid Thursday, highlighting robust investor interest in rotating from legacy hard currency paper into domestic debt. The transaction, which continues Mexico’s ongoing liability strategy, gives the option to exchange UMS bonds denominated in foreign currency for domestic notes. Warrants with a notional value totaling $1bn allow investors to swap 21 series of USD, EUR, Deutsche Mark and Italian Lire denominated notes for 2014, 2017 and 2036 Mbonos priced at $23.00 each, versus a $17.50 minimum. The second series, totaling $250m and swapping the same 21 series for 2017 and 2035 bonds denominated in UDIs – the first time UMS has offered the inflation-linked unit in a warrant deal – priced at $19, versus a $10 minimum. Demand reached $3.2bn for the first series and $962m for the second. The price was lower than the estimates given before the sale, such as $48 and $41 expected by Lehman. However, more important than the price, notes a DCM banker away from the deal, was the oversubscription, as the value is in the exchange of foreign debt for domestic, rather than in cash collected in the sale of the warrants themselves. The exchange will occur October 9. Barclays and Merrill Lynch managed the transaction.