Mexico plans to step up the sale of sustainable bonds in international markets to make these instruments a bigger source of its annual financing, Deputy Minister of Finance Gabriel Yorio tells LatinFinance.
“Mexico not only plans to be a recurring issuer of sustainable bonds, but to substitute a significant proportion of its debt for debt with instruments in a sustainable format,” Yorio says.
Mexico made its foray into the sustainable bond market in September last year, selling EUR750 million worth of 2027 bonds with a coupon of 1.35% under its Sustainable Development Goals Sovereign Bond framework. The sovereign returned to the European bond market in July, raising another EUR1.25 billion in the sale of a 15-year bond with a coupon of 2.25%, its second debt deal under that same framework.
The two bonds have “made it possible to build the yield curve, broaden the investing public and give continuity to the sustainability policy,” Yorio says.
More euro deals are planned from next year, he says.
“We are committed to continuing adding nodes to our sustainable yield curve in euros through a constant and strategic issuance of sustainable bonds,” he says, adding that sustainable bonds will also be issued in Mexican pesos, US dollars and Japanese yen.
As part of the push into sustainable finance, Mexico is preparing a report on the allocation and impact of the September 2020 bond issuance that will provide analysis of the evolution of the program through sustainable indicators, he says.
Another strategy, he adds, is to substitute the sovereign’s traditional United Mexican States (UMS) bonds for sustainable UMS bonds in its yearly financing programs. These notes are issued abroad and come with maturities from five to 30 years and a fixed rate of interest.
The government is also working with state entities to increase the sale of green and sustainable bonds. The Mexican development bank Nacional Financiera (Nafin), for one, is poised to issue an environmental, social and corporate governance (ESG) bond in an effort to develop the local debt market and attracting more financing, Yorio says.
The first development bank to tap the international markets with a sustainable bond was Bancomext, an export credit agency. It sold $500 million worth of 10-year sustainability bonds in July at a price to 2.72%. In April, the state-owned agricultural lender FIRA issued MXN3.5 billion in three-year gender bonds. Yorio hopes that more state entities as well as private companies start to issue more sustainable bonds.
A real estate deal
FibraShop, a Mexican real estate investment trust (REIT) that specializes in shopping malls, is taking the plunge. The company is preparing its first green bond issue in the local market before the end of this year, while also working on plans to sell its first sustainable bonds in 2022, following deals earlier this year by its peers Fibra Prologis and Fibra Storage for a combined total of $520 million. FibraShop will follow that up next year with its first sustainability-linked bonds (SLBs).
Some of the proceeds from the first issue of MXN1.5 billion ($73.7 million) will be used to finance future projects, CFO Gabriel Ramírez says.
One of these is the construction of La Perla, its flagship development in Zapopan, a bustling city in the central state of Jalisco. The design of the complex of apartments, office buildings, a health center and a shopping mall takes into account the environment, from the lighting to the materials. The water will be taken from wells and treated for reuse. The subsequent issue of SLBs will be linked to the company’s performance in achieving sustainability goals, such installing solar panels to increase the company’s consumption of renewable energy to 50% of the total.
Like the Mexican government, FibraShop is finding investor demand for sustainable bonds.
“What we have seen in the one-on-one meetings that we have had with investors, not talking about any transaction in general, I would say that 60% to 70% of the time the meeting is about ESG issues,” Ramírez says. Communicating the company’s sustainability report well and hearing feedback, he adds, is “the strategy that will bring us more investors.”