Winner: Femsa Euro-denominated Sustainability-linked Bond
It’s always big news when Femsa, Mexico’s bottling and retail giant, comes to market with a bond.
It was even bigger news in April 2021, because Femsa issued a euro-denominated bond in two tranches, one for €700 million due in 2028 and another for €500 million due in 2033. The operation allowed the company to refinance debt that was coming due in 2023.
Femsa achieved two important firsts with the bond – the lowest coupon and the lowest spread to date for a Latin American corporate issuer. It was the company’s first euro-denominated bond in five years.
“The scarcity of Femsa paper in the euro market helped them achieve a benchmark size for both tranches,” noted HSBC, one of the bookrunners.
More importantly, Femsa became the first Mexican company to issue a sustainability-linked bond (SLB). It was also the first euro-denominated SLB out of Latin America.
The lists of firsts achieved by the bond won Femsa the Corporate High-Grade Bond of the Year award.
“We are a company that does not go to the market often, but when we do, the market knows that we are one of the best credit risks in Latin America,” José Manuel Olguín Sepúlveda, Femsa’s corporate treasurer, tells LatinFinance.
“This was an issuance that from any angle broke all records for amount, price, and market performance,” he says.
Each tranche has key performance indicators that must be met; missing the targets pushes up interest rates. The seven-year bond requires the company to stop 65% of waste from reaching landfills, while guaranteeing that 65% of power used is from renewable sources by 2025. The interest rates starts going up 25 basis point annually the following year if it misses the target.
The 12-year bond requires Femsa to reduce to zero waste going to landfills, and use only renewable energy by 2030. The same 25-basis point increase applies.
Olguín said the bond allows Femsa to “put our money where our mouth is” regarding clean energy, water use and recycling.
“We have been working on the ESG issue for many years. We have a specialized unit that has allowed us to demonstrate our commitment to sustainability. This emission is like the cherry on top of the cake. We went to the market, presented our framework and the market responded,” he says.
Besides the stellar conditions, the market response was also reflected by demand, with overbooking reaching 1.9 times the placement.
Femsa is the largest bottler of Coca-Cola products in the world and is the second largest shareholder in Heineken, with 14%. It operates a chain of small stores, OXXO, sevens chains of drug stores – it is the single largest operator of drug stores in Latin America — and a chain of gas stations. Besides Mexico, its stores are also present in Chile, Colombia, Ecuador and Peru.
It has more than 21,000 OXXO stores, but that number does not include the more than 6,000 stores managed in a joint venture in Brazil reached in 2019 with Raizen, which manages Shell service stations.
While sales dropped 20% in 2020 because of the pandemic, they rebounded strongly in 2021 and the company began opening new stores again.
“We are maintaining the efficiencies from the pandemic and expanding. I forecast that 2022 is going to be a very good year,” says Olguín. – LF