Deals of the YEar awards
Mexico’s government rarely goes to the market with a debt instrument that does not include some kind of innovation.
It outdid itself, however, in May 2022 with its inaugural sustainable sovereign bond in pesos. The dual-tranche bond for 20 billion pesos, with maturity dates in 2024 and 2028, was oversubscribed 3.2 times. The transaction, which wins the award for Sovereign Local Currency Deal of the Year, will not only fund the state’s environmental and social projects, but provide investors with new instruments.
“This mechanism is innovative for many reasons, providing a green instrument and a new benchmark for the local market,” says María del Carmen Bonilla, deputy undersecretary for public credit in the finance ministry.
The key objectives are to further strengthen the government’s commitment to the U.N. Sustainable Development Goals, as well as its targets to reduce greenhouse gas emissions by 2030 and become carbon neutral by 2050. Proceeds from the bond will be used on projects in the country’s most disadvantaged areas and among vulnerable populations.
Another important consideration in planning the bond was to deepen financial inclusion by providing sustainable investment options for small-scale investors. The new bonds, or BONDESG, are available on the Cetesdirecto platform that was originally created in 2010 to allow Mexicans to invest in government instruments with as little as 100 pesos. According to the finance ministry, the platform currently has close to 1 million investors.
While there are many pieces to BONDESG, Bonilla says there are several components that will give the state, corporations and banks new mechanisms for funding going forward.
Bonilla says Mexico became one of the first countries in the world to issue sustainable government debt instruments referenced to risk-free reference rates. “This new market will be one of the largest in Latin America,” she says.
The BONDESG is a floating rate peso-denominated bond that is an alternative to the BONDESF, which is the peso-denominated floating rate sovereign debt issued by the government in the local market. The bond is linked to the benchmark TIIE Funding (TIIE Fondeo).
“The bond creates a new instrument in pesos for corporates and banks, making access to financing less expensive,” Bonilla says. “Our sustainable strategy will have a multiplying effect on the economy, because it is not only interesting for investors, but also on the sale side.”
Bonilla says the other highlight is BONDESG’s potential impact on the derivatives market. She says the finance ministry has been working with the central bank on changes. Local banks dealing with European banks discount in euros and with U.S. banks in dollars, because there is no reference for local banks to discount in pesos, she adds.
“As part of the transition we are working to make it possible for locals to be able to discount in pesos,” Bonilla says. “We are helping to develop the local curve.”
According to the finance ministry, Mexico has completed 82 thematic bond placements since 2015 for 356.2 billion pesos ($18.2 billion), with half of the transactions in the past two years. LF
Joint Bookrunners: BBVA; J.P. Morgan; Scotiabank (structuring agent)
Sustainable Structuring Agent: Natixis
Legal Advisor (in-house): SHCP
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email firstname.lastname@example.org