Mexico to issue $1 billion local bonds

23/03/2010 | Greg Brosnan

Mexico will sell more than $1 billion in inflation-indexed bonds today, its directors of public credit said

Mexico will sell more than $1 billion in inflation-indexed local bonds today, Gerardo Rodríguez, director of public credit, has told Emerging Markets.

The deal is the second leg of a novel syndication plan aimed at better positioning its local debt on the world stage. “This morning we are announcing a transaction for just over 15 billion pesos,” Rodríguez told Emerging Markets on Monday. “It’s going to happen tomorrow. We are starting the whole book building operation and hope to be able to complete the transaction tomorrow around midday.”

Mexico has been pushing the envelope in its local currency debt market, pushing out maturities to as long as 30 years, and making it increasingly popular with foreign investors. But its system of regular auctions means it takes months of re-opening for a local bond to reach benchmark weight.

In February it issued 25 billion pesos in 10-year local currency debt through a syndication with several banks, getting a yield of 7.66 %.

International investors only make up about 5% of the buyers of inflation-adjusted bonds, known in Mexico as udibonos after the udi, the inflation-adjusted financial currency unit developed in the wake of Mexico’s 1995 peso crisis.

But Rodríguez hopes Tuesday’s auction will entice more global players. “This is a bit more of a local affair [...] but this is a chance to boost that,” he said. “There is some interest. Some people have been asking us about it,” he said. “We don’t know what the foreign participation ratio will be but we hope it will be higher than the current levels.”

Mexico hopes the February bond, the first tranche in its debt syndication programme, will open the door to new foreign markets, by earning it a place in Citigroup’s World Government Bond Index (WGBI) – which would make it accessible to a wider pool of international investors, especially in Japan.

With no word yet on inclusion, Rodríguez said Mexico was eagerly waiting a decision, but not overly concerned. “There’s still no news,” he said. “They told us last time we spoke that it would be in the first quarter, but the first quarter is nearly finished.”

Inclusion in the index “is not essential, but it would be very positive to help make our local bond market more international.”

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