During 2017/18 structured finance was an active area in Mexico. Regulatory changes in the country over the past decade have facilitated the use of complex structured financial products like CKDs and FIBRAs (Mexican Real Estate Investment Trusts), and structuring these types of products created work for law firms. In the near future, lawyers anticipate CERPIs will become more popular. Although first introduced in 2015, recent regulation permits the use of the instrument to invest in projects outside Mexico, which could persuade investors to use them as an alternative to CKDs.
Additionally, FIBRA Es – investment vehicles for energy and infrastructure projects introduced in 2015 – have brought a few notable transactions to market. Several issuers sought to raise funds with FIBRA E IPOs, including CFE, Mexico’s state-owned power utility, Grupo Aeroportuario de la Ciudad de Mexico, Mexico City’s Airport group, and Prodemex, an infrastructure construction company.
The energy and infrastructure sectors in general were some of the more active sectors. In addition to FIBRA E IPOs many developers used traditional methods (mainly bank loans) to fund projects. For example, in June 2017 a syndicate of lenders financed the Tierra Mojada 875MW combined cycle power plant.
Another recent notable development was the introduction of SPACs (special purpose acquisition companies) to the market. Vista Oil and Gas and Promecap Acquisition Company have listed SPACs on the Mexican Stock Exchange.
A headline change for the country’s capital markets was the addition of a second stock exchange. The MSE (Mexican Stock Exchange) has been the sole stock exchange in the country for 43 years, but in July 2018, BIVA was opened. The optimistic view is BIVA will broaden the market for derivatives and trading for institutional investors and reduce the cost of listing resulting in more IPOs.
Two notable political developments which could have implications for transactional work occurred in 2018. One was the potential replacement of NAFTA (The North American Free Trade Agreement), an agreement between Mexico, the US and Canada, with USMCA (United States–Mexico–Canada Agreement). The agreement has not yet been ratified, so NAFTA has yet to be retired.
The second development was the election of new president Andrés Manuel López Obrador, which may have an impact on at least one infrastructure project. After 70% of approximately one million voters in a referendum voted to cancel Mexico City’s planned $13 billion new airport, the president-elect said it will be aborted. As he will not take office until December 1, 2018, it is not yet apparent whether this claim is anything more political rhetoric but is concerning investors. In addition to being responsible for one of the few FIBRA E IPOs in the market, the airport group was also responsible for a $4 billion green bond issue in 2017, believed to be the largest green bond issue in Latin America.
López Obrador’s election has also resulted in oil auctions being pushed back to February 2019. In 2013, the country has opened its hydrocarbons sector to private investment, which has resulted in wave of oil auctions in the market. The president, who ran on an anti-corruption platform, has expressed interest in scrutinizing existing contracts to ensure they were awarded fairly.