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It was only the second ever century bond in the currency, and the first ever from an EM issuer.
Bankers working on the deal said the sovereign’s recently obtained A3 rating from Moody’s was crucial in allowing many sterling investors to participate in the deal. Indeed, participation from traditional EM debt buyers was minimal as sterling specialist investors made up the vast majority of the demand. Some 85% went to UK investors, and 85% went to asset managers.
Led by Barclays and Goldman Sachs, Mexico attracted nearly £2.5bn of demand after announcing its intention to issue a benchmark sized bond due 2114. The sovereign priced £1bn of 5.625% notes at 97.834 to give a yield of 7.25%, having indicated initial price thoughts of 5.75%.
Mexico’s director of public credit, Alejandro Díaz de León, believed the sterling bond came around 15bp inside where the sovereign could have priced an equivalent in dollars.
Though some syndicate bankers said the borrower had paid up without gaining much extra duration versus a 30 year, the majority of market opinion was that 100 year money at a friendly coupon was too good an opportunity to turn down.
And for Mexico, the most important thing was reaching an entirely new set of investors.
“The uniqueness of this transaction in terms of currency, maturity, size and pricing were all attractive,” said Díaz de León. “This is the largest issuance of our century bonds, and also the one with the tightest pricing. We were able to obtain very significant funding from investors we had not tapped in quite some time.”
The sovereign had issued in sterling in 2004 but that bond matured this year, before the century bond.
Diversification of funding sources is a crucial part of capital markets strategy for Mexico, which has acquired a reputation as one of the most sophisticated funders in emerging markets.
Moody’s decision to lift Mexico into the A ratings category – on the back of higher expected growth from the country’s reform programme – enabled the borrower to carry out this strategy.
The sovereign had felt it was important to “carry out a transaction that could go hand in hand with the Moody’s upgrade in terms of consolidating Mexico’s strength among the investor community”, says Díaz de León.
For now, it will be difficult for a LatAm borrower to replicate the deal. Only Chile can boast an A grade rating among other sovereigns from the region, and it does not appear to have the funding needs that would make such a niche bond a sensible option.
United Mexican States’ first century bond was a $1bn issue sold in October 2010 at a yield of 6.1%.
The sovereign tapped that bond for a further $1bn in August 2011 at a yield of 5.959%. January 2004 was the last time Mexico sold sterling denominated debt, raising £500m at 6.797%.
The sovereign already has established liquid curves in dollars, euros and Japanese yen.
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