LatinFinance - January/February 2014 - 36

SOVEREIGN ISSUER

previous year.

United Mexican States

Accelerated swap
Mexico is one of Latin America's most
frequent sovereign borrowers. Its ability to
get ahead of market troubles - borrowing
early, long, and in a variety of currencies
- also marks it out as one of the region's
most sophisticated borrowers. This was
further underscored by its use of a new
form of liability management structure.
It used the format, dubbed a one-day
"switch" exchange offer, in the euro
market first. Investors tendered bonds
through dealer managers BNP Paribas,
Deutsche Bank, and HSBC - rather than
through the clearing system. This cut the
execution time for the tender process to a
single day, and enabled the banks running
the deal to give preferential allocations of
the new instrument to investors that were
retiring old paper.
Conducting the liability management
exercise in a single day - rather than
leaving a tender offer open over several
days - also reduced the market risk for
investors and the borrower.
The new issue from the April exercise
was €1.6 billion ($2.2 billion), subscribed
through a combination of new cash from
investors and around €430 million of
tendered paper.
The sale was the largest eurodenominated bond from a Latin American
borrower done in a single tranche. It also
came with Mexico's lowest-ever yield in
euros - 2.809%. "We tried to combine
several objectives," says Díaz de León. "To
go back to European market after three
years, to launch a large and meaningful
benchmark north of €1 billion that could
serve as a reference point in the 10 year
part of curve, and to provide a liability
management transaction to trading
liquidity and yield level improvement."
The sovereign reprised the one-day
tender structure in September in the
dollar market. Taking advantage of an
improved investor mood on emerging
markets, Mexico offered to swap bonds
maturing between 2015 and 2020 for a
new 10-year note. Bondholders tendered
over $2 billion of outstanding notes for the
new issue.
With further buyer interest, the
sovereign brought the total size of the new
2023 bonds to $3.9 billion - its largest ever
debt sale. Bank of America Merrill Lynch,
Goldman Sachs and Morgan Stanley
managed the deal. LF

SOVEREIGN LIABILITY MANAGEMENT

Mexico €1.6bn new issue and tender
Mexico's foresight, nimbleness and use of innovative
structures marks it out as Latin America's most sophisticated sovereign borrower
Mexico may have developed some
predictable patterns in the bond market
since 2009 - typically issuing in dollars at
the start of the year with a five or 10-year
maturity. But last year, it changed course.
The US's worrisome fiscal situation -
highly-charged political discussions over
the country's debt ceiling and planned
budget tightening - sparked market
volatility at the end of 2012, and forced the
sovereign to reconsider its plans.
Instead of borrowing medium-term debt,
Mexico looked long.
It reopened its 2044 bond in early
January, adding $1.5 billion after drawing
$3 billion in demand. The sovereign was
applauded for anticipating potential US
Treasury moves and heavy bond market
supply.
"It was a more
difficult tenor to issue
at the beginning of the
year, but it was a very
good transaction,"
says Alejandro Díaz de
León, Mexico's public
credit head.
The deal offered
investors around
seven to eight basis
points' more yield
than picking up
Mexican bonds in the
secondary market,
Díaz de León says.
Also, concerned by
volatility in the dollar
market, Mexico
borrowed in Japanese
yen. With investors
worried about when
the US Federal
Reserve would begin

36 LATINFINANCE.COM - January/February 2014

cutting its quantitative easing program,
dollar borrowing became more expensive
in May.
Mexico opted for a Samurai deal, seeing
some resilience in the Japanese market
to global concerns. The sovereign raised
¥80.6 billion ($822 million) through a tripletranche Samurai issue, its second deal in
the Japanese market without a guarantee
from the Japan Bank for International
Cooperation.
More than 50 Japanese accounts
subscribed to the deal, which locked in
better spreads than its Samurai issue the
BUSY YEAR: Mexico's euro-denominated
liability management exercise combined
several objectives, says the country's head
of public credit, Alejandro Díaz de León
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