Mexico priced its first US dollar sustainable bond on Monday, a US$2.2bn deal that allowed the Latin American sovereign to manage its liabilities and burnish its ESG credentials.
The 4.875% global notes due 2033 printed at 98.123 to yield 5.105% or 235bp over US Treasuries. Bookrunners BBVA, Goldman Sachs, JP Morgan and Natixis opened price talk 265bp area over US Treasuries, set guidance at 235bp–240bp and launched at the tight end.
The pricing momentum benefited from the year's longest rally in emerging markets bonds – one that also encouraged Guatemala to price an unexpected deal last week. The JPMorgan Global Emerging Market Bond Index has risen about 6.5% since July 14, the date it hit its lowest point in 2022 (following an 18% decline).
Proceeds from the offering are earmarked for refinancing, including concurrent bond tender offers. However, Mexico said it would invest a sum equal to the proceeds on programs included in its 2022 fiscal year budget that combat climate change and decrease social inequities in the country.
The bond is the first in US dollars issued under Mexico's Sustainable Development Goals Sovereign Bond Framework after the country priced an SDG offering in euros in September 2020.
These ESG credentials were among the reasons why the deal ended up more than three times oversubscribed, according to one money manager who, after putting in an order for the deal, pulled out because of the price pressure.
"It was an SDG bond, so it found strong demand from big ESG/green pockets," said Laszlo Lueska, portfolio manager of Brazilian fund manager Octante. "It tightened a lot, and I did not want to buy at those levels."
In contrast, Europe's Fideuram Asset Management did not find the bond expensive.
"The new issue was about 25bp cheap to the secondary curve so we participated," said Scott Fleming, global emerging markets portfolio manager at Fideuram.
Fleming said that Fideuram has an overweight position in Mexico, "given attractive valuations and solid credit fundamentals."
The ultimate size of the financing is subject to change based the results of a concurrent tender offer. Mexico initially said it planned to use US$404m of the proceeds to fund a so-called "switch tender" for existing notes from twelve series maturing between 2034 and 2061. That figure was adjusted on Tuesday to US$487m based on final acceptances in the tender offer.
The remaining US$1.8bn of the proceeds are intended for the redemption any or all of the US$1.7bn of outstanding 3.6% global notes due 2025.
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