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Appetite for Floating Rate Debt Triggers Mexico’s Debt Market

During the first half of the year, almost $4.2 billion was issued in the country’s two stock exchanges

The amount issued in the first half of the year shows an increase of 62% compared to last year, according to BMV data.
July 22, 2022 | 01:21 pm

Mexico City — Despite growing interest rates and forecasts that they will continue to rise, the appetite for floating debt drives companies to accept a higher reference rate and tap into the local debt market, Luis Gonzáli, VP and Director of Investments at Franklin Templeton Mexico, told Bloomberg Línea.

“Most companies have gone out on floating rate, so companies are willing to accept a higher rate, but if they wait for (Banco de Mexico) to lower rates, then loans will go down,” he said.

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He noted that this year investors are showing a strong appetite for floating rates. “Companies are betting that the rate is going to go down in the next 12 months and therefore, they will finance themselves at a lower rate,” Gonzáli said.

The debt market accumulated an outstanding issuance of more than $4.17 billion during the first half of the year. The Mexican Stock Exchange (BMV) placed an amount of $3.36 billion in the first semester and the Institutional Stock Exchange (BIVA) recorded $811 million.

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The amount issued in the first half of the year shows an increase of 62% compared to last year, according to BMV data.

So far this year, Banxico has increased the Mexican interest rate four times by 225 basis points to settle at 7.75%. Analysts’ expectations are for the Mexican central bank’s reference rate to be set at between 9% and 10%.

In 2020 and 2021, the debt market proved to be scarce, according to Gonzáli. “This year, there is a sort of catch-up to place debt in the market.”

Tapping into the debt market offers another appeal. “It is ‘cheaper’ to finance through a debt emission as opposed to borrowing from the bank,” said Edgar Arenas, manager of Investment Strategy Promotion at CiBanco.

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The bank strategist explained that the spread depends on the banking institution; however, it can reach double-digit figures. “A corporate bond can have a few basis points over CETES or TIIE and a bank credit depending on the conditions can reach double-digit rates,” Arenas said, referring to Mexican Treasury certificates and the local interest rate.

Companies taking advantage of debt markets

Carlos Slim’s Minera Frisco (MFRISCOA) said that it will enter the debt market in the BMV for an amount of $100 million.

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Telco Megacable Holdings (MEGACPO) last week also issued $341 million in long-term stock certificates in the BMV. The capital obtained will be used to accelerate its expansion plans into new territories and the payment of short-term debt, according to a statement issued by the company.

Some of the most recent placements in BIVA were by Operadora de Servicios Mega, which placed $146 million, Grupo Elektra (ELEKTRA*) $243 million, and Grupo Aeroportuario del Pacífico $243, according to data from the stock exchange.