Mexico Eyes Sale of Domestic 20-Year

Mexico plans to carry out another syndicated sale of domestic bonds as soon September, this time targeting a 20-year tenor and using a hybrid system of auctions and bookbuilding, public credit head Alejandro Diaz de Leon tells LatinFinance. “It is likely to take place in September, but let us see how market conditions evolve,” he adds. Such bookbuilding operations were started in 2010 and designed to allow the sovereign to issue a large offering in one fell swoop rather than having to build outstanding size incrementally through a series of auctions. This way the bonds would immediately qualify for inclusion in key indices and draw in a broader group of investors. However, the process has been fine-tuned along the way as the sovereign tried to create more efficient pricing mechanisms. The pure bookbuilding process of earlier issues created distortions as local investors often pushed back verbally on certain pricing levels only later to put in strong orders. So in its last issue of MXP25bn 2016s in July, public credit first established a maximum yield, in this case 6.10%, and then conducted an auction process through the 8 market makers while at the same time generating momentum beforehand through traditional bookbuilding, says Diaz de Leon. Investors can put in bids through one or all of the 8 market markers. “Instead of taking the risk we don’t have sufficient demand, it is better to have a market driven bookbuilding,” he says. “We still benefit from the market makers’ sales forces contacting investors and creating enough momentum to allocate (in size).”