Latin Finance - May 2008 - 36

mexico outlook has had difficulty meeting the standards set by the Afores, which have been supporting infrastructure through buying Pemex and Comision Federal de Electricidad debt. Schwartz expects Afores to become more New Roads Ahead active in supporting the development of The government hopes to capitalize on Mexico’s mid-sized companies, which have interest generated by the first package to direct funds to new roads. Bids will be taken more limited access to capital and are more later this year for the second roads package, vulnerable to a slowdown. There is work to be done in getting them capable of offering a bit riskier for bidders, with added securities the Afores can invest in, but he greenfield projects. notes greater effort. Rodríguez says a third road package should be revealed in a few months, with the intention of launching the auction by Equity Blockage the end of the year. He estimates that there Changing the culture of medium, and even will be about 160 billion pesos in debt from large-sized companies in Mexico, from a the total infrastructure fund, which will also family-owned mentality to a more public mentality, has been slow and a drag on the be capable of providing debt equity, country’s corporate sector. Nowhere has financial guarantees, mezzanine or this been more apparent than in the equity subordinated debt, and even subordinated market. capital and subsidies. The main challenge remains selling investors on infrastructure, which has a higher degree of government involvement than other asset classes. An international roadshow is in the works. The success of Fonadin and corporate borrowing in the medium term depends on the 875 billion pesos controlled by Mexico’s Afores. “A very important challenge we’ve had is allocating the Afores’ resources,” says Moisés Schwartz, president of the National Commission for Retirement Savings of Mexico (Consar), who has seen resources grow at about 20% each year. This year, Consar cut the Afores into five different agegraded accounts, allowing the most “The Mexican stock exchange needs to aggressive to invest in 20% equity. “We expect the financial markets to deepen as a deepen,” says Valenzuela. “There is still too much in too few hands. When you compare result,” he says. it to other countries like Brazil, Mexico is Going forward, the emphasis is on way behind the curve.” The solution is boosting returns. The laws that went into more incentive for companies to go public. effect in March include making net returns “We have faced a difficulty regarding – income minus the commissions charged our ability to bring in new issuers to the by the Afore – as the official means of market,” says Pedro Zorrilla, general comparison, giving the government and director of the Mexican Bolsa. “This will workers a clearer idea of which Afores are be a process, with a growing number in earning most for participants. “The differences are huge,” Schwartz the coming years.” So far, mid-size says of the competition intended to spur companies have started to tap the debt markets, but not equity, as their Brazilian diversification. “You have Afores counterparts have. Listings have been generating 14% returns, and you have sparse in the past year, and those listed some others generating 7%-8%. We’ve are not pushed to increase their floats to started to see a much more aggressive US and European levels. and diversified portfolio.” Zorrilla says the Bolsa is working on a Schwartz says so far project finance debt toll road concession resulted in a 37 billion seven-year peso loan package that revolutionized the Mexican loan market. “There is a problem in relying on oil for one third of total expenditures,” says Banorte’s Valenzuela technological platform to encourage liquidity. Private capital can also help, he explains, as a complementary source of capital in companies’ initial stages, bringing them to a point where they can go public. “I see the development of private equity in Mexico as good development that may bring new companies to the exchange,” Zorrilla says. “Of course we’ve seen in many markets that private equity may become competition for exchanges by buying and delisting, but so far the developing financial services and regulation have involved it in the early stages.” The exchange’s most important task, however, is going public itself. The bolsa has yet to establish a clear timetable for this. “We’re working on it,” says Zorrilla. “We expect that the Bolsa to go public in the near future.” Funds raised from an IPO would be key to establishing itself as a regional magnet, attracting issuers from Central America, potentially. It may face competition from São Paulo’s Bovespa, which recently merged with the BM&F. “We’ve paid very close attention to the steps taken by the Bovespa and BM&F with their IPOs,” says Zorrilla. “It’s been good for the Brazilian market and also has put the region in the spotlight.” He adds that the Bolsa has not discussed anything with the Bovespa regarding any type of combination. The Bolsa and the pension funds cannot change everything by themselves. Continued reform is needed, particularly when involving private investment. “It’s clear that Mexico has evolved to other challenges,” says Valenzuela. “Mexico needs to depetrolize the budget. There is a problem in relying on oil for one third of total expenditures.” The Calderón government sees private money in Pemex as the only way to fight diminishing production. As LatinFinance went to press, a plan to allow a small amount of private involvement in Mexico’s oil faced stiff opposition. “Reforms are terrific in Mexico – pension reform, tax reform, electoral reform,” says Geoffrey Dennis, LatAm equities strategist at Citi. “But what they really need to reap the long-term economic growth benefits of their reforms, is to start reforming the process of supplying energy. So far they haven’t done that.” LF 36 LATINFINANCE May 2008
Latin Finance - May 2008

Table of Contents for the Digital Edition of Latin Finance - May 2008
