LatinFinance - March/April 2015 - 26

SCORECARD

PUBLIC
CREDIT

As the sun shone on Latin America's capital markets in 2014,
the region's most sophisticated sovereign funding departments
seized their chance to borrow at good rates. By Eduardo García

Making hay

F

avorable market conditions
set a perfect backdrop for capital markets
savvy borrowers in 2014. Despite the year's
ups and downs, across the region bond
sales in the local and international markets
came to $185 billion - a record figure, and
an 8.7% increase on the previous year.
Sovereign borrowers accounted
disproportionately for the growth, issuing
nearly $35 billion in debt, more than 45%
higher than in 2013.
Some sovereign debt offices made
particularly impressive use of the
opportunities. Mexico, Brazil and Uruguay
refinanced their debt at better terms.
Colombia stood out for its excellent timing.
Peru's market comeback was all the more
remarkable for being in local currency.
LatinFinance's Public Credit Scorecard
recognizes outperformance in securing
low cost of funds, and progress in widening
the investor base between January and
December 2014. It takes into account
transparency and clarity of communication
with investors, innovation and
sophistication in accessing bond markets,
diversity of funding sources and the ability
to time market activity well.
The decision is based on a series of indepth interviews with market participants
including ratings agencies, private-sector
credit analysts and Latin America-focused
bond market bankers. The Mexican public
credit office, led by Alejandro Díaz de León,
leads the Scorecard. It stood out by issuing
a long-tenor deal in yen, a 100-year bond
in sterling, and making the best of strong

26 L ATINFINA NCE.COM - March/April 2015

liquidity in the domestic market, where it
issues 80% of its debt.
"I think 2014 went like a dream. It was an
unusual year because we did issuances in
four hard currencies; dollars, euros, pounds
and yen. We hadn't done four currencies in
many years," Díaz de León
tells LatinFinance.
The lackluster performance of other
emerging market issuers amid political
instability in Russia and Eastern Europe,
slower growth in Asia and elections in
several emerging market countries set the
backdrop for Mexico to shine.
"Last year we consolidated our position in
the euro and yen markets," Díaz de León says.
"The strong demand that we saw in the
ALEJANDRO DÍAZ DE LEÓN
UNITED MEXICAN STATES

"THE STRONG
DEMAND THAT WE
SAW IN THE YEN
MARKET WAS
HISTORIC, WHICH
ALLOWED US TO
EXTEND THE MATURITY IN A WAY THAT
WE WOULDN'T HAVE
THOUGHT POSSIBLE
IN THE PAST"

yen market was historic, which allowed
us to extend the maturity in a way that we
wouldn't have thought possible in the
past. ... In February we came across the
right situation to issue the 100-year in
pounds. It was a very special transaction
because we seized a very small window of
opportunity."
But Mexico's achievements went even
further. It was the first Latin American
country to rewrite its bond contracts in line
with recommendations by the IMF and the
International Capital Markets Association,
spearheading a shift in the way bond
contracts are worded.
The new contracts contain modified
collective action clauses that mean
investors will have to accumulate a much
larger position to block an eventual
restructuring. The pari-passu concept
has been dropped, which means the
country cannot be forced to make pro-rata
payments in the case of a restructuring.
"We are very happy with these changes.
This was a profound revision and now
we have incorporated the best practices
possible in our contracts, as advised by
several international organizations," Díaz
de León says.
Mexico also won praise for its successful
drive to attract foreign investors to the local
market, where the sovereign is an active
issuer.
"Around 50% of the sovereign's bonds in
the local markets are in the hands of foreign
investors. That percentage has not suffered
significant changes, even in periods of
volatility and uncertainty about domestic
policy," says Standard & Poor's analyst
Sebastian Briozzo.
Tough year
In second position is another well-honed
public credit office, with long-standing links
to leading investment banks and investors.
Brazil, as with Mexico, was able to refinance
its debt at better terms through a complex
intra-day transaction that showed the
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