América Móvil has created a new debt capital markets structure to enable it to achieve sufficient liquidity for its future peso-denominated financing needs. At the end of November the Mexican telecoms company raised Ps15 billion ($1.1 billion) in 10-year bonds that are registered with both the SEC and Mexico’s regulator, the CNBV, and will trade on a fungible basis in the domestic and international markets.
The securities, known as titulos de crédito extranjeros, attracted an order book of Ps50 billion and were sold to 122 accounts globally.
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"América Móvil’s aim was to create an alternative to the mbono [Mexican government bonds denominated in pesos, of which about 60% are held by international investors]," says Carlos Mendoza, director and co-head of DCM Latin America at Deutsche Bank in New York. "The biggest complaint that investors have about buying local-currency bonds from corporates is secondary market liquidity when compared, for example, with mbonos. América Móvil’s global Mexican peso bond enhances the liquidity typically associated with corporates as for the first time there is a corporate note that can be purchased by both international and local investors without any structural or legal limitations." No greenshoe
The issue is rated triple-A on a national scale and A2/A/A- internationally. The deal priced at 99.989 with a 6.45% coupon to yield mbonos plus 93 basis points, at the tight end of guidance. The bookrunners told investors that initial price thoughts were of mbonos "plus very low 100s". The deal also tightened in the secondary market to around mbonos plus 70bp. The issuer decided not to exercise a greenshoe.
Deutsche Bank, HSBC and Morgan Stanley were active bookrunners, with BBVA, Citi and Credit Suisse as passive bookrunners.
Mendoza says the issuer’s commitment to return to the market approximately every quarter, and to build up outstanding paper in this global peso structure to over $2 billion-equivalent per tranche in the next few years, encouraged investor participation. "Typically local-currency deals are seen by investors as one-offs, and that perception of liquidity risk has an impact on pricing," says Mendoza. "América Móvil’s commitment to return to the market avoids this." América Móvil has announced that it will not issue domestic peso-denominated bonds again, but will in the future issue through the global peso programme. "We had investors selling mbonos to buy this deal, which is proof that the company achieved the objective of providing a credible alternative to mbono," says Mendoza. "The liquidity will likely not match the level of the mbono in the near term, but América Móvil, with higher credit ratings than the Mexican government, is currently paying an additional spread as compensation."
The deal was allocated to investors in the US (58%); Latin America (33%), which was dominated by accounts in Mexico but also saw demand from the rest of the region; the UK (8%); and Europe (1%). The roadshow was extensive, visiting Santiago, Bogotá, Mexico City, Lima, New York, Los Angeles, Boston, London, Geneva, Zurich, Hong Kong and Tokyo.
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| Carlos Mendoza, director and co-head of DCM Latin America at Deutsche Bank in New York |
There was also strong diversification by investor type: fund managers were allocated 61% of the transaction, pension funds 22%, banks 10%, hedge funds 4%, retail investors 2%, and insurance companies 1%. The deal has been labelled as a Europeso transaction by some but Mendoza says that there are key differences in this structure when compared with América Móvil’s 2005 and 2007 Europeso transactions. Those deals were denominated in pesos but were payable (interest and principal) in dollars, converted from pesos. This created valuation issues, especially during times of volatility, as counterparties had to agree on Mexican peso yields as well as the Mexican peso-dollar exchange rate. The América Móvil transaction is denominated and deliverable in Mexican pesos, so investor valuation and trading is simplified. Crucially, the Mexican peso is a Euroclearable currency.
Other interest
Mendoza says the structure might be utilized by other high-grade Mexican companies, as well as multinationals registered in the country. Conceivably other Latin American companies might register in Mexico to simultaneously access Mexican and international investors with a peso-denominated deal – and there are some Chilean companies, for example, that have already registered and issued bonds in the Mexican domestic market. However, the registration process – and the mismatched peso-currency receivables (or requirement for cross-currency swap) might deter others from following this route. However, the deal might become a template for other jurisdictions: "I think it shows the path," says Mendoza. "The Brazilian real is not Euroclearable today. However, should that change in the future, and if the aim is to access international and domestic investors through the same note, this structure makes that happen."
Despite the applicability of the structure for other issues it was necessary for a standout credit like América Móvil to be the first company to bring the structure to market. Many investors do not regard América Móvil as an emerging market credit and it is one of the highest-rated global telecoms companies behind AT&T. Its reputation for scale of issuance and innovation in structures – it has accumulated a number of debt capital markets firsts in recent years – also helped investors feel confident in assessing the deal’s innovation and risk.
