Mexico Inaugurates Euro Campaign

Mexico’s first euro-denominated bond since 2005 kicks off a plan to tap European investors more frequently, the issuer tells LatinFinance. “We view this transaction as a first step towards a more recurrent presence,” says Gerardo Rodríguez, Mexico’s deputy undersecretary for public credit, speaking of the EUR850m 7-year global sold Thursday. “We may be in a position to perhaps come back to the euro market once or twice a year,” he adds. Mexico priced the 2017 at 99.757 with a 4.250% coupon to yield 4.291%, or 180bp over mid-swaps. The comeback was sized near the bottom of an expected EUR750m-EUR1bn range, after the book reached around EUR1.6bn, smaller than other recent LatAm euro trades. It nonetheless came tight to swaps plus 185bp area guidance. Further growth and tightening were possible, but the issuer chose to optimize performance in a market it will revisit, says a banker close to the deal. “It’s pretty attractive,” says a US-based investor who participated, estimating the pickup versus the comparable 5-year at around 30bp. The UMS dollar 2017 was around 150bp-160bp over swaps, according to Rodriguez, who says the spread is in line with the 20bp-30bp recent differential between the 2 currencies. He adds that it priced on the curve of existing illiquid 2015 and 2020 benchmarks. Bankers away from the deal say the pickup is fair given the premium payable on a new issue in dollars. The sovereign has been weighing euros for the last 12-18 months. It took advantage of improvement in Mexico’s fundamentals and risk perception as Europe deteriorates, says Rodriguez. Close to 180 accounts participated, some of them new to UMS. Asset managers bought 54%, insurance and pension funds 14%, hedge funds 14% and banks 14%. It went 62% to Europe, 20% to the UK, and 12% to the US. “It was very important to get this first transaction very well distributed,” says Rodriguez. He adds that recent Mexico political violence had no impact. “It has not been a relevant issue for investor