Local Mexico DCM Could Stall

Local Mexico DCM issuance may stall in 2011, after considerable volume last year, say bankers. Mexico’s low interest rate environment in 2010 led big issuers to pre-fund for 2011, with Pemex, Televisa, CFE and America Movil all doing sizeable transactions. DCM bankers do not expect much of an increase in issuance volumes for 2011.Views are mixed, with some bankers expecting volumes to remain the same, though one head of DCM says he expects an 18% increase in issuance by corporates. An expectation that the economy will improve in 2011 means companies also expect increased cash flow, and so could be less likely to look to the bond market to meet capital requirements, adds another head of DCM. With a lack of top names expected to come to the market in 2011, the challenge will be bringing names that have sub-AAA ratings to the market. One DCM banker says that in terms of volume, 2010 was the biggest year for the local market. However, he adds that despite record volumes, the number of bond issues in 2010 far less than in 2006 or 2007. “Investors have been very picky with names and ratings, so we hope to be able to bring new issuers to the market in 2011,” says another DCM banker. “This will also prove more attractive to investors as there has been a significant volume of issuance from names like Pemex, so investors could have reached their limits for these names,” he adds. Bankers say they will look for new structures in order to allow sub-investment grade names to come to the market. One head of DCM adds that he expects a significant amount of issuance for PPP infrastructure projects, such as for motorways, which he expects will be very active this year, after projects stalled during the crisis. The competition to lead deals mean bankers expect downward pressure on fees this year, though not on pricing, as they say investors will not be prepared to accept lower spreads. On the contrary, investors expect spreads to increase by 20bp to 30bp in 2011, though they say this