NEW YORK, March 14 (IFR) - With a new Single A rating under
its belt, Mexico (rated A3/BBB+/BBB+) opened up new funding
territory last Tuesday, when it printed a rare century bond in
sterling, raising £1bn (US$1.7bn) and, arguably, piercing its US
dollar curve in the process.
The value of a 100-year has long been called into question
but bankers broadly saw it as a successful diversification play
for a Latin American country heading into the upper echelons of
"It is our first sterling transaction in almost 10 years and
our first in the external markets since Moody's put us in a
Single A category," Alejandro Diaz de Leon, the country's head
of public credit, told IFR.
The deal marks the country's third 100-year issue - the
first two came in US dollars - and follows closely in the
footsteps of Electricite de France's century bond in January,
when it became the first-ever issuer to go this far up the curve
Ever since investors took a shine to EDF's 100-year paper,
bankers have been furiously pitching the idea to qualified
borrowers. These included Mexico, which was seen as one of the
few, if not the only, LatAm sovereign ready and willing to test
"The success of the EDF deal surprised a lot of people in
terms of the strong demand and the size achieved," said Jonathan
Brown, head of fixed-income syndicate, Europe at Barclays, which
acted as lead, along with Goldman Sachs. "Everyone has been
trying to find a way to replicate that trade and find issuers
that would like to do that."
The Mexico trade stemmed, in part, from some reverse
enquiries and was placed mostly with UK investors, some of whom
were unable to take exposure to the Latin American country
before this year's upgrade.
"It was important for us to go to a different pool of
investors, dedicated long-term sterling," said Diaz de
Leon. "We haven't gone to this market for quite some time."
Indeed, Mexico's last sterling deal took place as long ago
as 2004, when it sold a 6.75% 2024 issue through Barclays and
HSBC. At the time, it was rated Baa2/BBB-, but now, with one
foot in the Single A universe, the country can throw a wider net
among the buyside.
"[It is a] nice way to get diversification and not pay up,"
said a banker away from the deal.
Flat to dollars
Starting with talk in the 6% area, leads were able to revise
guidance to 5.75% (plus/minus 0.125%) before pricing the issue
at 97.834 with a 5.625% coupon to yield 5.75%, or 223.2bp over
Gilts, on the back of £2bn-plus in demand.
At that level, rival bankers calculated an equivalent yield
in dollars at anywhere between 5.841% and 6.10%. That put final
pricing flat to 20bp inside a dollar curve where Mexico's
century bond had been trading at 5.90% and bankers thought a new
100-year would be priced at 6% or more.
Yet while borrowers can certainly beat their chests at
achieving century status, some bankers see little value in
extending this far up the curve when a 30-year would suffice in
capturing a similar group of investors and result in cheaper
"There has to be an element of ego to a century bond," said
a banker away from the deal.
Similar comments prevailed when Mexico debuted a US$1bn
century dollar bond in 2010 to coincide with the country's
bicentennial celebrations. That deal was priced with a 5.75%
coupon to yield 6.10%.
At the time, pricing was seen as overly generous for the
minimal increase in duration from its existing 2040s, but placed
against the 5.5% coupon seen on Mexico's 30-year print this
January, such levels look attractive in retrospect, noted one
"There is no way that 100-year money at thatcoupon
is a bad thing for Mexico," said a senior banker away from
sterling trade. "I really do believe that when you have the
chance to extend your maturity profile at attractive levels, you
should take it."
How much more Mexico paid for a century bond in sterling
versus, say, a 30-year is largely a matter of conjecture given
the country's long absence in this sector and the dearth of
Some compared it with higher-rated Mexican telco America
Movil, which one banker thought could come with a new 30-year in
sterling at around 5%. That would put the sovereign - which
trades wide to America Movil in the euro market but tight to it
in dollars - at a print around the same level or 75bp tighter
than where the 100-year ended.
From an investor perspective, a 5.75% yield also represented
a decent pick-up on the 5.20% secondary level on EDF's 100-year
sterling issue and looked attractive versus the dollar market,
where EDF and Mexico essentially trade flat to each other.
"It got a yield handle for EM buyers, too, and if it is
well-bedded with real-money sterling accounts, why wouldn't you
buy it [if you're an EM investor]?" asked the rival banker.