Mexico Bankers Hope for CCD Revival

Mexican are hopeful that this autumn will see a revival in the market for certificados de capital de desarollo (CCDs), instruments created to allow pension funds to make private equity investments through a publicly traded instrument. So far this year, volumes stand at MXP4.47bn ($363m) from 3 transactions, still shy of the 4 deals worth MXP11.27bn seen last year. Bankers are largely rejecting the notion that the sluggishness in the public IPO market is dampening CCD issuance as well. Public market volatility has little impact on instruments that are long-term investments and have no real secondary value, they argue. “The Afores are open [to buying CCDs] because there is no direct valuation because it is a fund,” says a Mexican equity banker. Still the last CCD issue occurred back in April and since then deals have not emerged from the pipeline as new regulations allowing CCDs to fund via capital calls meant issuers had to go back to the drawing board to decide how to proceed. Prior to this, deals were entirely funded upfront, but capital calls allow for funding over time. “Issuers who have been waiting, are now back on the ground figuring out how to move forward,” says an official at a Mexico City private equity shop that has issued a CCD. He notes the investor base for this asset class should broader over time, and that there is a growing interest from other buyers such as insurance companies. CCDs shouldn’t suffer from risk aversion in the way the IPO market does, but Afores have shown little interest in these instruments, perhaps because they are focusing on buying cheap stocks in the secondary markets, says a Mexico City-based ECM banker awaiting to issue a CCD. Several issuers are still in the pipeline, including Mexico Retail Properties, Darby Overseas, Prudential Real Estate Mexico, Finsa and a retap from Atlas Discovery Capital.