Latin Finance - March/April 2009 - 54

Mexico credit markets opportunity to get rid of a few lingering bad practices. “I can’t believe we’ve had issues of three, five or 10 years that don’t have covenants,” Pin Fernández says, noting that the same issuers would put them on their overseas deals, because foreign investors demanded them. Specific covenants depend on different issuers and structures, he says. Greater negotiation is now taking place between investors and issuers. “If you look at the Afores before the crisis, the most diversified one had 30%-35% in government securities,” says Pin Fernández, when asked how much longer he and other institutional investors could continue purchasing government paper instead of corporate issues. A pension fund in any other part of the world will only have about 5%-10% in government securities, he explains. “Here in Mexico we need more papers to diversify the portfolio,” Pin Fernández says. “This is especially important now, but the problem was out there before the crisis.” Some Mexico-based bankers speculate that Europeso issuance could lure investors back. However, issues by Lehman and Kaupthing Bank will make the buyside think twice. SHF will continue its backstop of up to 80% of issuances to issuers. It did this for Su Casita’s issue in December. Guazo could not say whether it will use this facility again this year, given the uncertainty issuers face. Before the crisis SHF saw 2009 mortgage demand at 1.2 million, and now is at looking at 1.0 million for 2009, Guazo says. With lenders such as Metrofinaciera having difficulties raising funds, some in the market have question how far SHF should go in propping up the market “We don’t think it’s an artificial market, we think the demand is there,” Guazo says. He explains that demand from the market makers for the paper SHF has bought has increased since November. Solid Fundamentals Investors remain confident in Mexico’s fundamentals, and say strong growth and continued improvement in the local markets will continue. “Mexico is definitely a country that most investors would feel comfortable in, as it has great fundamentals versus the rest of the EM space,” Pimco’s Rahman says. However, for non-dedicated investors, making the case for Mexico is much more difficult, especially in a risk-averse environment. Providing competitive returns versus known US names will be a challenge for all EM, Rahman adds. “Opportunities for investment are very large,” says Juan. “There is a huge need for local suppliers of goods and services to accompany international investment.” He cites investments that Pemex will have to make in the next 5-10 years as an example. Even as the crisis has delayed many projects lined up in the government’s plan, infrastructure still has the largest role to play in drawing and maintaining foreign investment. “On a risk-adjusted basis, given the nature of the contract we have, we’re happy with the returns,” Jonathan Hunt, vice president in Goldman Sachs’ Infrastructure investment group, says, speaking of his shop’s participation in a 44 billion peso Farac road concession won in 2007 with builder ICA. He highlights the quality of local investors and interaction with policy makers as positive versus other markets worldwide. Goldman remains bullish in its long-term view of Mexico, Hunt says, despite the effects of the current crisis. He adds that banks have yet to take out the 32 billion peso seven-year financing obtained to purchase the roads concession. “We took a view that the market [Afores and other institutional investors] would be there until refinancing, and we have enough term on our loan that we think that is going to happen,” Hunt says of the Farac takeout. Ideally it would be done locally, he explains, but Goldman is prepared to look everywhere. “I think [the loan holders] appreciate that we’re incredibly focused on refinancing in a reasonable timeframe. This will be done over time, and we will be opportunistic,” he adds. Hunt believes Farac could be replicated in the future – if not necessarily under current market conditions – as the assets will remain attractive to the local markets. “In order to be an investor in Mexico, one must have a long-term view,” he affirms. LF More Support Please More help could also come from outside. Multilaterals in particular need to show greater flexibility and creativity in aiding Mexico and other countries, explains Rodríguez. “They could do a lot more,” the Hacienda official says. “These institutions need to prove their worth in current times – supporting sovereigns and supporting financing packages. When you look at the different initiatives in some of the developed markets, we have not seen anything from multilaterals to take them out of their regular lending programs in the order that the current situation requires.” Rodríguez says there are a number of products that his government has been trying to engage the multilaterals in on a bilateral basis. The IDB’s Juan agrees that more needs to be done, noting the unprecedented scale and quick timing of the crisis has complicated multilaterals’ efforts to act quickly. The IDB has been active so far in aiding Mexico’s mortgage sector. It signed a $500 million 25-year loan for Sociedad Hipoteca Federal (SHF), part of a $2.5 billion credit facility, and made $150 million available to Mexican mortgage lenders along with a similar IFC facility. SHF is working on a return to longterm debt markets, perhaps international, to help meet around $1 billion in medium and long-term funding needs this year. “We are talking with the IDB about a guaranteed product to issue overseas,” says Pedro Guazo, CFO of SHF, adding that the target tenor would be 10-15 years. He explains that SHF will maintain short-term debt auctions and raise medium-term funding. Guazo says SHF not been in the long-term markets since 2005. Guazo says SHF is very close to offering mortgage issuers’ crédito puente construction loans the same guarantee it can for RMBS. SHF hopes such a “borhipuente” will be more attractive to investors, and hopes to have it ready by mid-year. Mortgage issuers have struggled to issue this product, a key source of funding in the homebuilding process. 54 LATINFINANCE March/April 2009

Latin Finance - March/April 2009

Table of Contents for the Digital Edition of Latin Finance - March/April 2009