Game changer
When it comes to local currency trades in Latin America over the awards period, it is impossible to ignore America Movil’s Ps15bn (US$1.2bn) dual-listed 10-year, as well as the series of taps that followed it.
Not only was it the largest cross-border local currency trade seen from the region’s corporate borrower-base, it was an instrument that had broad global appeal – a trade that in one fell swoop sorted the illiquidity issue that had long been plaguing this asset class.
While the Mexican telco may be unique in its ability to issue on such a scale in local currency, the transaction nevertheless showed what could be done in this market, and it opened a whole new space for other LatAm borrowers willing and able to try.
“The peso trade really is a game changer,” said Michael Cummings, head of Latin America DCM at Credit Suisse, which along with BBVA, Citigroup, Deutsche Bank, HSBC and Morgan Stanley, were mandated to be market-makers and leads on this and future transactions.
The deal was neither a global depository note (GDN) nor a pure europeso transaction. Indeed, it was a different breed altogether, as America Movil created a security that facilitated investment among a broad group of accounts by registering it both in Mexico and with the US SEC – in addition to making it clearable through both Clearstream and local clearinghouse Indeval.
Those innovations, plus the promise to tap the bond regularly through dedicated market-makers, proved to be an elegant solution to the perennial liquidity problem.
“[America Movil] wanted to give the international investor the best possible security they could possibly ask for in local currency,” said Chris Gilfond, co-head of Latin American debt and equity markets at Citigroup.
By having the liquid Mexican peso market at its disposal, America Movil was also better able to follow through on its strategy of rebalancing its funding mix in favour of pesos. Ultimately it obtained cheaper financing in its own currency, given the broader base of accounts able to participate, including mutual funds and retail investors that are typically unable to buy other local currency instruments like GDNs and europesos.
In the end the company priced a Ps15bn 10-year bond at 99.99 to yield 6.45% or 93bp over the government’s 6.50% Mbonos due 2022 after generating an order book close to US$4bn-equivalent. About 35% of the paper was placed in Latin America, 56% in the US and 9% in Europe.
“There really is a lot of demand for Mexican pesos because it is the most traded currency in Latin America,” said Credit Suisse’s Cummings. “People use it as a benchmark for other currencies and like moving in and out it.”
Since the inaugural issue in December 2012, the company has sold several issues off the Ps100bn five-year programme, with Mexican media firm Televisa quickly following America Movil’s lead.
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