Mexico got international bond markets off to a bang on Tuesday as it raised $7.5 billion in a three-part bond deal in what was its biggest-ever cross-border issue.
In the first trading day of the year and against a backdrop of falling Latin American stocks and currencies and a stronger dollar, the country printed $1 billion in five-year bonds, $4 billion in 12-year bonds and $2.5 billion in 30-year notes, market sources told LatinFinance.
The issue surpassed investor expectations, said Antonio Kritsinelis, an economist at São Paulo-based investment firm Octante Capital. Mexico was initially expected to issue around $5 billion but expanded the offering after investors placed as much as $20 billion in orders, he said.
The sovereign’s previous record for issuance was set in November 2020, when it issued almost $6.5 billion in a two-part deal, according to information from Refinitiv.
Investors consulted by LatinFinance last month said Mexico would likely be the first of a clutch of sovereigns making a beeline to the global market early this year on the prospect of falling US interest rates.
BOND PRICING
In the latest deal, the country priced 5% 2029 notes at $99.67 to yield 5.08%, or 115 basis points over US Treasuries after opening the initial price talk around 130 basis points; and it priced 6% 2036 notes at $99.19 to yield 6.096%, or a spread of 215 basis points, after opening the deal at around 240 basis points, market sources said.
Mexico also priced 6.4% 2054 notes at $99.32 to yield 6.45%, equal to a spread of 235 basis points over USTs, after opening the initial price talk around 255 basis points, the sources added.
“In what is becoming a new year tradition, Mexico is first out of the gates with a bond sale,” said Zulfi Ali, an emerging markets portfolio manager at PGIM, the investment management division of Prudential. “The spread environment has improved from the same time last year, allowing Mexico to price the new 12 year at a spread of 215 basis points, 35 basis points tighter than last year.”
‘TIGHT SPREADS’
In 2023, Mexico got its fundraising campaign underway with the sale of $4 billion in a two-part deal in January to cover spending plans and pay off debt. It later issued $1.35 billion in 30-year sustainable bonds in April to fund a bond buyback offer and cover the budget.
Ali added that the latest deal reflects “Mexico’s stable investment grade credit ratings and tight spreads in the US investment grade market.”
Barclays, Bank of America, JPMorgan, Morgan Stanley and Santander were joint bookrunners on the sale, according to a prospectus filed in the US Securities Exchange Commission’s (SEC) website.
The Mexican government plans use the sale proceeds to cover general budgetary purposes, including refinancing existing domestic and external debt, the document said.
According to Kritsinelis, a portion of the funds could also be used to pay off debt by state-owned firms.
Mexico pulled off the bond sale just days after alarming investors with the seizure of a hydrogen plant operated by France’s Air Liquide.