Deals of the YEar awards
Green mobility and safe havens for vulnerable women were two areas targeted for support last year by the State of Mexico, commonly known as Edoméx, via a new ESG bond issued by the state’s government.
The MXN2.89 billion ($145-million) bond was designed taking into account the U.N. Sustainable Development Goals (SDG’s), but it goes well beyond what others have done. Funds will be used for very specific projects, including expansion of the state’s cable car system, creation of new parks and construction of safe spaces for women.
“It is a bond that is sustainable and social, but also the first in the country with a gender perspective,” says Rodrigo Jarque, Secretary of Finance for Edoméx.
The transaction marks the first issuance of ESG bonds by a subnational entity in Latin America. Another important innovation – in both subnational and ESG contexts – is its use of blockchain technology to make sure that what was promised with the issuance of the bond is accomplished, via reporting on use of proceeds and the progress of projects financed by the transaction.
“This is the first bond at the subnational level committed to channel proceeds under the ESG criteria. Each of the 18 projects has its own mapping that allows us to monitor impact,” Jarque says.
The bond, which matures in 2035 and carries a coupon of 11.56%, also marked the return after six years of state and municipal governments to the bond market since the Mexican government implemented its Financial Discipline Law in 2016.
The interest rate was higher than the norm for local bond issuances in Mexico, but Jarque says this was due to the lengthy absence of subnational governments from the marketplace and so a yield curve has still to be developed.
“We are not in the place where we want to be [on the coupon] because this is our first emission,” Jarque says. “Once we have a program in place and other states follow us, we will be able to build a curve. It will take a little time, but we are confident it will happen.”
The funds raised by the bond will be used for projects in three large categories: green projects, with account for 52%; urban projects, such as roads and parks, at 34%; and gender equality, at 14%.
Among the green projects are an array of electromobility options, including electric buses and expansion of the Line 2 of cable car system, Mexicable, which is the longest in Latin America. The line includes more than 300 cars and covers 10.6 kilometers. The bond will also be used to finance bus, Mexibus, and trolley, Trolebus, systems. The Mexibus lines I and III also have a very specific gender component, with 10% of the units earmarked as “pink cars” only for women. Jarque says the decision to set aside units just was a respond to complaints of sexual harassment on public transportation.
Also in the gender component, the bond includes the construction of two centers for women, known as “Ciudad de las Mujeres,” which will provide shelter and services, from legal assistance to daycare for children.
Jarque says all the projects – which should be finished by September 2023 when the term of current Governor Alfredo del Mazo’s ends – will comply with the full set of commitments.
“Many times we have seen that bonds are issued and they are supposed to be for X or Y, but in the end are used for Z. This is not going to happen with us. There will be no greenwashing with our bond,” he says. LF
Joint Bookrunners: Banorte; BBVA; Scotiabank
Sole Sustainable Structuring Agent: Scotiabank
Issuer's Legal Advisor: Gaxiola Calvo
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com