Mexico’s corporate issuers plan to ride out a rough year with conservative cross-border funding strategies, panelists said last week at LatinFinance’s 11th Cumbre Financiera Mexicana.
Mexican issuers have been the most active among Latin American corporates in the cross-border bond market so far this year, but volatile market conditions have widened spreads and forced companies to implement cautious financing strategies, said Gerardo Cruz corporate finance manager and treasury director at Coca-Cola Femsa.
Well-capitalized companies are “happy to stay on the sidelines” until the volatility subsides, he said, adding there is still a high degree of uncertainty in the market right now.
Even with the lingering uncertainty, “interesting opportunities” remain, depending on the type of issuer, said Alberto Torres, head of public debt at the finance ministry.
Torres said the government has met its financing needs in the cross-border markets for this year but it could make new issues in either the euro or Japanese yen markets. Mexico priced a €2.5bn ($2.76bn) eurobond earlier this month, its second cross-border bond sale in 2016.
Fernando Suarez, chief financial officer at local airline Volaris, said the company can rely on self-generated cash flows and does not plan to tap the cross-border markets in the near future. “As an airline, we are one of the few that are happy with low oil prices,” he said. “There is no need to access international debt markets.”
Aside from the top tier blue chip issuers, Suarez said the next tier of Mexican corporates needs to be “properly rated” and look for deals in the local debt market. Alternative debt instruments, such as securitizations and structured financings, are a viable option for corporate issuers that have taken a step back from the cross-border bond markets, he said. Volaris completed an all-secondary follow-on sale of American depositary receipts at $16 per share in November last year.
According to Robert Carlson, head of Latin American capital markets at MUFG, Latin American cross-border bond issues fell by half last year compared to 2014, mostly due to Brazil’s absence in the markets. But he stressed the need to differentiate Mexico from the rest of Latin America and said it is still a “must-have” in the markets right now.
Mexico’s corporate issuers are considered stable and liquidity is not an immediate problem, said Eduardo Uribe, a managing director at Standard & Poor’s (S&P). Consumer demand is on the rise in Mexico and most corporate debt is maturing in the next two or three years, negating any immediate refinancing needs, he said.
In the coming years, however, Uribe suggested corporates look more closely at liability management exercises as a refinancing tool for maturing debt.