Mexico’s Stock Exchange Reform Aims to Facilitate SME Access to Debt

There are 32,000 small and medium-sized companies in Mexico that could benefit from access to the debt securities market

There are 32,000 small and medium-sized companies in Mexico that could benefit from access to the debt securities market
September 07, 2022 | 12:15 PM
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Ciudad de México — The reform of Mexico’s stock exchange laws seeks to facilitate companies’ entry into the debt market as a first step into the stock market world on their way toward the capital market, Álvaro Garcia Pimentel, president of the Mexican Stock Markets Association (AMIB), told Bloomberg Línea in an exclusive interview.

“The placements should be listed on the stock exchange in order to promote a more transparent procedure and provide investors with investment schemes with the same tax structure as IPOs,” he said.

In Mexico there is a potential market of 32,000 small and medium-sized companies that could benefit from access to the debt market in the short term, and for which the window could be as short as one month, he added.

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The bill to reform the law was drawn up by Finance Minister Rogelio Ramírez de la O, Jesús de la Fuente, president of the country’s Banking and Securities Commission (CNBV), the head of the Banking, Securities and Savings Unit, Alfredo Navarrete, and the central bank (Banxico).

The objective, according to García Pimentel, is to democratize the stock market and improve it as an efficient financing vehicle, and which would promote more transparent procedures, in addition to providing investors with investment schemes with the same tax structure as public offerings.

According to an analysis conducted by AMIB since 2020, Mexico, unlike other countries, does not have a fast-track and exclusive placement system for institutional investors, and the reform therefore seeks to make such system more accessible to companies and obtain financing in a shorter period of time.

Boosting the debt market

Thirty-percent of the issuers that place debt in the mature market also end up placing shares in the stock market in a period of less than five years. “That’s why we are pushing debt so hard,” García Pimentel said.

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On September 2, the CEO of the country’s institutional stock exchange (BIVA), María Ariza, told reporters that the two Mexican stock exchanges, in collaboration with AMIB, had reached an agreement to push forward the proposal, which she said would be presented at a press conference.

Investor concern over a shrinking market is currently growing with delistings of companies such as Monex, Grupo Sanborns, and Bachoco.

“Evidently, the reform project is not exclusively for debt placements, but also for equity placements,” said García Pimentel.

The AMIB president explained that the proposed modifications are still being analyzed, and the reform’s proponents are looking to achieve a freer scheme for placements.

“We are looking at how to strengthen the importance of being listed on a stock exchange, through financial benefits,” García Pimentel said.

Few tax incentives

One element that inhibits the possible entry of companies into the Mexican stock market is the lack of fiscal incentives.

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Since the publication of the decree in January 2019 on stimuli to incentivize corporate bonds, the president of the AMIB acknowledges that it has impeded new companies’ access to the Mexican stock market.

“It has not boosted the placement of issuers because it takes away the tax benefit. That is why there has not been any placement in the market after that decree,” García Pimentel said.

The tax element is a factor that would favor the entry of more companies into the stock market; however, he said that the administration of President Andrés Manuel López Obrador lacks resources to offer such benefits to companies, he said.

“We did not want to overload our reform proposals in terms of fiscal benefits, since we know that the federal government has few resources and the capacity to offer fiscal stimuli.”.

Álvaro García Pimentel, AMIB preaident

The head of banking, securities and savings at the Finance Ministry, Alfredo Navarrete, said in June that the package of proposals to reform the stock market law would be delivered to Congress this month.

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García Pimentel said he is not in a hurry to present it, but does want it to have the necessary elements to continue developing the Mexican debt market.

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“We prefer that it comes out a little later, so that it has all the necessary details to compete with other markets, not only in Latin America but in the world,” he said.

The reform to the stock exchange law is not the only project under development, with the finance ministry also keen to strengthen demand through the creation of multi-asset funds.

“The next project we are proposing is to build a very efficient scheme to create a hedge fund, which we are calling multi-asset funds,” he said, as well as promoting the work of brokerage firms to add new investment accounts that, as of the second quarter of this year, already exceed four million.

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