Mexican companies are tapping the local bond market at a record clip as lower interest rates at home, looming maturities and a growing pool of institutional capital spur deals.
Long-term issuance for non-bank companies has totaled 234.8 billion pesos ($13 billion) through September, according to data compiled by Banorte. That’s up 14% from last year’s total, and the highest annual volume since the firm began compiling the data in 2004.
“We’re noticing a great deal of openness among investors to these placements,” Yazmín Matus, deputy director of debt markets at VALMEX Casa de Bolsa, said in an interview. The strong appetite has often allowed issuers to price at tighter spreads than initially anticipated, she added.
The flurry of activity in the local corporate market, now at 1.4 trillion pesos outstanding according to Banorte, comes after issuers stayed on the sidelines last year amid trade uncertainty and geopolitical conflicts. With maturities looming for some of the country’s largest borrowers — including state-owned oil company Petroleos Mexicanos — and rates coming down, companies have increasingly turned to the domestic market.
In the last month, sizeable offerings from electricity commission CFE, for 20 billion pesos, and a unit of milk and dairy products company Grupo Lala, for 9 billion pesos, have added to this year’s volumes. These transactions wrapped as much as 35 basis points and 25 basis points, respectively, tighter than initially projected, Matus said.
It’s a shift for markets that weren’t always deep enough for deals of this size — and comes as Mexico institutional investors, including pension funds and insurers, grow quickly, according to René Robles, a director and credit analyst at Moody’s Local Mexico.
“It used to be difficult to issue, say, 10 billion in Mexico,” he said, but now, that’s not the case, pointing to the “unprecedented” Pemex issuance. “It is a positive sign that companies are beginning to find the market depth they are looking for,” he said.
Still, the market is maintaining some level of selectivity. MercadoLibre Inc.’s Mexico lending unit didn’t meet a 5 billion peso target for its own offering, instead placing 3.75 billion pesos in debt.
MercadoLibre said in a statement the company is “pleased” with the amount raised and the rates secured, highlighting what is said was strong demand from local pension funds, insurers, development banks, qualified funds, corporate treasuries and private banks.
Banorte expects the accelerated pace to keep up through October and November, driven by the “heavy volume of maturities” as well as a “seasonal uptick in activity” one of the bank’s analysts, Gerardo Valle, said in an email. Real estate investment trust Fibra Educa has already said it plans to reopen bonds issued in June, and large deals are expected for Fondo Especial para Financiamientos Agropecuarios and Toyota Financial Services Mexico, according to Banorte.