The IDB is no stranger to the Mexican peso market – it sold its first peso bond in 2004 and has brought another four to the market since. But the development bank set a new landmark last year when it became the first supranational or foreign issuer to place bonds with Mexican pension fund investors (Afores).
HSBC served as sole lead manager on the Mex$1 billion, 10-year Eurobond. The deal paved the way for target Afores investors, a key investor base in Mexico, to buy foreign issued securities for the first time. The bond, sold via auction on October 7, saw very strong participation, with eight bids from seven pension funds, five of which were inside or at the clearing bid.
For Juan Claudio Fullaondo, head of debt finance in HSBC’s Mexico operation, the deal was a benchmark because it was the first Mexican bond to attract both local and international institutions. “Foreigners usually come at a premium,” he says.
However, the transaction was more than twice oversubscribed, with the auction book receiving bids of over Mex$2.3 billion. Strong demand enabled the transaction to price one basis point through the Mexican government curve, and the deal was re-opened in November for another Mex$1 billion to satisfy demand.
After allocations, the Afores received over 68% of the transaction. All told, the IDB was highly successful in penetrating the domestic market, with over 88% of the transaction placed domestically and the rest with offshore investors.
Like all non-dollar currency deals by the IDB, the deal was swapped back into dollars at better levels than in the dollar bond markets. According to Eloy Garcia, treasurer at the IDB, finding the right counterparty to do the swap was the “driver” of this issue.
The IDB benefited from the addition of the Afores to its high quality investor base. The bond provided high quality assets to boost the growth of the Mexican market.
“It spoke a lot for the job the Mexican government is doing in building Mexico’s yield curve,” says Garcia. The transaction paved the way for foreign issuers like GE, Province of Quebec and the World Bank to access the Mexican market in early 2006, he says.
For HSBC the deal built on the strong record of the bank in local capital markets in Latin America. “We don’t see ourselves doing only US dollar deals,” says Gerardo Mato, a managing director and head of Latin America financing within Global Investment Banking. He says that HSBC looks “under every stone” to find local issuers, and uses its global distribution to find investors.
Issuer: Inter-American Development Bank
Date of launch: 7 October 2005
Amount: Mex$1 billion
Maturity: 10 years
Coupon: 8.67%
Credit ratings: Aaa/AAA/AAA
Lead manager: HSBC