Mexico bonds chief looks to Asian market

21/03/2010 | Greg Brosnan

Mexico can afford to be opportunistic in international debt markets, and hopes to make further inroads in Asia, public debt chief Gerardo Rodriguez has said

Mexico can afford to be opportunistic in international debt markets this year, and hopes to make further inroads into Asia, public debt chief Gerardo Rodríguez has said.

Mexico’s borrowing requirements this year are relatively low, and are for the most part already met, he told Emerging Markets.

“We have a lot of room for manoeuvre during the rest of the year,” Rodríguez, the nation’s director of public credit, said. “We are looking to sell between $2 billion and $3 billion, and we’re not thinking of doing anything more.”

Rodríguez said Asia is a great market for Mexican bonds because of the quantity of institutional money that has been concentrating there. “Asia’s participation is currently very small, but there are some players, and we think there is a lot of potential,” he said.

Mexico has also been pushing the envelope in its local currency debt market. In February it issued 25 billion pesos in 10-year local currency debt through a syndication with several banks, with a yield of 7.66%. It plans to sell a 30-year inflation-indexed local bond next week through similar channels.

Mexico has been pushing out maturities on its local debt, making it increasingly popular with foreign investors, but its system of regular auctions means it takes months of reopening for a local bond to reach benchmark weight.

It hopes the February bond will unlock the door to new foreign markets by earning it a place in Citigroup’s World Government Bond Index (WGBI) – a coup that would make it accessible to a wider pool of international investors, especially in Japan.

Rodríguez believes Japanese retail investors are a great potential market, noting Japan has one of the highest savings rates in the world and an enormous asset management industry.

Mexico issued a 150 billion yen Samurai bond in December, using a guarantee from the Japan Bank for International Cooperation (JBIC), and Rodríguez says it would definitely consider doing that again.

Mexico may face competition from Brazil. The country has no outstanding yen debt, but Paulo Fontoura Valle, undersecretary for public debt at the Brazilian treasury, told Emerging Markets that he is also considering an eventual strategic return to the yen market.

Economists raised doom scenarios last year when Mexico, suffering from declines in oil revenues, stared into a fiscal abyss. It saved itself by pushing through a last minute tax hike.

“In Mexico we took measures on the fiscal side that lots of other countries are going to have to do now,” Rodríguez said. “That’s what investors are worrying about now. They’re not worrying about us because we took action.”

Total debt coming due in 2009 was $6.96 billion, at the height of the crisis. This year only about $2.4 billion comes due, two thirds of which Mexico already has covered. Borrowing requirements for 2011 are down to about $1.6 billion.

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