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Mexico's Eurobond sale an 'extraordinary result'
Mexico raised 1.6 billion euros ($2.1 billion) in 10-year euro-denominated bonds this week, the largest single-tranche Eurobond from a Latin American borrower
Mexico’s head of public credit has told EuroWeek that the sovereign’s record-breaking euro 10-year bond on Tuesday was a sign of its commitment to maintaining dialogue with European investors, after the borrower printed the largest ever single tranche euro deal from a Latin American borrower.
After a near three year absence from the European market, Mexico — which has seen increased appetite for its paper as new president Enrique Peña Nieto’s reform agenda lures investors — raised €1.6 billion of 10 year money at a yield of 2.81%.
This is the lowest Mexico (Baa1/BBB/BBB) has ever paid for a decade-long deal in any currency and came as part of a tender and exchange offer that saw the sovereign buy back €459 million of shorter dated, more expensive debt.
“This transaction is a statement of our commitment to conserving and improving our dialogue with the European investor base,” Alejandro Díaz de León, head of the Mexico’s public credit unit, told EuroWeek shortly after the deal priced.
“Our euro-denominated instruments were showing signs of illiquidity, so one of our main objectives was to carry out a new 10 year benchmark with a critical mass of investors and significant volume. We managed this and did so on very good terms, with our lowest ever in any currency for this maturity.”
In a statement, the Mexican Treasury said the elevated yields and low liquidity of the outstanding 2013, 2015, 2017 and 2020 euro-denominated bonds were partly due to the government's long absence from the euro markets.
“This transaction has the following objectives: a) to capture resources at the lowest ever cost in euros; b) to extend the maturity profile of the federal government’s liabilities; and c) to consolidate a new 10-year reference bond in euros and strengthen its liquidity,” added the Treasury.
LIABILITY MANAGEMENT
United Mexican States’ final spread of 120 basis points over mid-swaps was inside the issuer’s existing curve. Pricing had started with initial thoughts of 135bp area over mid-swaps. Official guidance was then set at 125bp area, plus or minus 5bp, and the deal priced at the bottom of the range.
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“For an emerging market sovereign to print a deal of this size in euros, even as part of a liability management exercise, is an extraordinary result,” said a syndicate official on the deal.
More than 170 investors from Europe, Asia and the US participated in the deal, with the total book size hitting €4 billion after the terms were tightened. BNP Paribas, Deutsche Bank and HSBC acted as leads on both the bond and the tender and exchange offer, which ran from 8am until 4pm London time on Tuesday, although the Treasury said afterwards that it might keep the offer on the table for a few more days.
The tender offer includes all the Mexican sovereign’s outstanding euro notes, comprising a €750 million 5.375% June 2013, a €750 million 4.25% June 2015, an €850 million 4.25% July 2017 and a €750 million 5.5% February 2020. The buyback price on the 2013s has been set at €1,007.50 per €1,000 of principal.
No Latin American borrower had tapped the euro market since September, when Petrobras raised €1.3 billion of April 2019 funding and €700 million of October 2023 in conjunction with a sterling offering.
Fellow Brazilian issuers Vale and Banco do Brasil have also accessed the single currency in the past two and a half years but Mexican supply has been limited to outings by America Móvil in June 2010, October 2011 and July 2012.
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