LatinFinance - January/February 2016 - 30

SOVEREIGN ISSUER
SOVEREIGN BOND

UNITED MEXICAN
STATES € 1.5BN
CENTURY BOND
The sovereign set records
and precedents for crossborder bonds across billions
of dollars of issuances
From efficient liability management to
breaking ground in the euro market and
pioneering new documentation for Latin
American sovereign issuers, the United
Mexican States shone brightly for its work in
the debt capital markets.
In the year ending September 30, 2015,
Mexico rose above its competitors to receive
the award for sovereign bond issuer of
the year in Latin America for the second
consecutive year.
Mexico faced tough competition for the
award, especially from Peru, which issued
four bonds during the awards period. The
active Andean sovereign executed three
Peruvian soles transactions and a dollar
bond in August, a typically difficult time to
get deals done.
Nonetheless, Mexico's
bond issues, including
its century bond in
euros, which wins
LatinFinance's Deal of
the Year for a sovereign
bond, demonstrated
remarkable innovation
and set precedents for
future sovereign borrowing
in the region. The head
of Mexico's public credit
officer during the award
period, Alejandro Díaz de
León, says that the country
sought to raise dollars
first to anticipate volatility
around a possible interest
rate rise from the US
Federal Reserve.
"That's why we launched
an issue of external debt
in November with the
objective and goal in mind
to do some prefunding for

30 LATINFINANCE.COM - January/February 2016

Issuer: United Mexican States
Finance Type/ Size: €1.5bn ($1.6bn)
2115 bond
Supporting Banks: HSBC,
Goldman Sachs
Law Firms: Cleary Gottlieb, Sullivan
& Cromwell, Ritch Mueller

2015," he says.
In November, the A3/BBB+/BBB+ rated
sovereign hit the dollar market with a
3.6% $2 billion 2025 note, adding a new
style of collective action clause. The new
documentation followed recommendations
by the IMF and International Capital
Markets Association, allowing a
restructuring plan agreed with at least 75%
of bondholders to become binding for all
creditors.
"Given that we see our presence in
international markets as a permanent one,
we always want to be involved and engaged
at the best terms and conditions, and the
best contractual language that we can put
in our bonds," Díaz de León says.
"We had been involved with different
THINKING AHEAD: Mexico's former
head of public credit head Alejandro
Díaz de León prioritized dollar funding
before expected rate hikes

groups and key players that were discussing
the lessons learned from the debt
restructuring of Argentina and its litigation,
and also the restructuring in Greece. From
those, we found that there were some
improvements that could be incorporated in
our debt contract."
The country returned to the dollar bond
market in January, adding $500 million to
its 2025 notes and issuing a new $1.5 billion
2046 bond. The sovereign offered existing
bondholders to switch into the new paper.
The longer tenor note carried an interest rate
of 4.6%, the country's lowest coupon in that
currency.
After fulfilling its dollar financing through
2016, the sovereign went after euros. In
February, Mexico raised €2.5bn in 2024
and 2045 notes, becoming the first nonEuropean sovereign to sell a 30-year bond in
the currency.
With a larger-than-expected fresh round of
quantitative easing by the European Central
Bank and a large reverse inquiry from
European investors, Mexico went back to the
euro market, this time with a century bond.
"The debate about the potential for
QE in Europe had been talked about for
months, but clearly the size and details
of the announcement by the ECB were
stronger than anticipated by the market,"
says Díaz de León. The 4% €1.5 billion 100year bond yielded 4.2% at the time of issue.
Joint bookrunners Goldman Sachs and
HSBC dropped pricing from the 4.5% area,
equating to a spread that was 100 basis points
tighter than Mexico's 100-year dollar bond
issued in October 2010.
German investors bought most of the
note, with 36% of the allocation, followed
by the UK with 29%, and the US with 28%.
Fund managers took more than 70% of the

ALEJANDRO DÍAZ DE LEÓN,
UNITED MEXICAN STATES

"WE CONTINUE TO
SEE A DIVERGENCE OF
MONETARY POLICY IN
EUROPE VIS-Á-VIS THE
US. I THINK THIS WILL
CONTINUE TO OFFER
FUNDING OPPORTUNITIES IN THE EURO
MARKET"

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