Tags: Mexico | Latin | America | First | Century Bond

Mexico Sells Latin America's First Century Bond

Wednesday, 06 Oct 2010 12:57 PM

Mexico launched Latin America's first 100-year bond Tuesday to win cheap funds from global investors who are snatching up risky emerging market assets that promise relatively high yields.

The first tranche of the century bond attracted enough demand for an issuance of $1 billion, double the $500 million expected earlier in the day, Mexico's finance ministry said.

The offering was 2.5 times oversubscribed.

The bond, with a 6.1 percent yield, attracted institutional investors from the United States, Asia, Europe and South America to Latin America's No. 2 economy.

"Today we made our biggest ever placement ... making Mexico the first Latin American country to issue paper with this maturity," the finance ministry said in a statement.

China sold a century bond in 1996, it added.

The finance ministry said the bond sale, plus a planned bond denominated in Japanese yen later this month, would cover Mexico's financing needs until 2012 when President Felipe Calderon leaves office.

The appetite for Mexico's first-ever century bond was another example of investors' hunger for emerging market assets that promise a return bigger than those available in the world's most advanced economies.

"You don't have anything paying 6 percent on the sovereign side right now," said Klaus Spielkamp, a fixed income trader with Bulltick Capital Markets in Miami.

For Mexico, the hunger means welcome access to cheap funds, while in other Latin American economies like Brazil authorities are raising taxes to turn back the flood of investors.

The clamor for emerging market assets has grown as investors have watched economies considered rock-solid struggle with massive debts.

"The credit quality of Mexico has been improving as opposed to Ireland et al," said Tom Sowanick, chief investment officer of OmniVest in Princeton, New Jersey.

Mexico is not desperate for funds, even as it struggles out of a punishing recession. Mexico's credit rating was downgraded last year but the country remains investment grade and has a stable outlook.

MORE LATAM CENTURY BONDS AHEAD?

Gabriel Casillas, chief economist at JPMorgan in Mexico, said the debt sale, via Deutsche Bank and Goldman Sachs, represents a sensible government step to shore up overall public finances while debt markets are inviting.

"If the government can bring a bond with this maturity, it means you have healthy finances, (but) I don't think it represents any structural change in the way bonds are issued," he said.

The yield on Mexico's 10-year bond was down 2 basis points at 6.14 percent on Tuesday afternoon. Yields on 30-year bonds were down 6 basis points at 7.11 percent. The benchmark's yield hit the historically low rate of 5.96 percent in August.

As investors lavish money on growing economies, nations like Brazil have fretted about inflation and tried to keep a lid on the value of their currencies.

Earlier this week, Brazil doubled to 4.0 percent a tax on foreign investors buying local, fixed-income assets to curb a rise in the real which threatens to hurt exports.

Analysts expect other nations to sell century bonds.

"There is nothing stopping Brazil from doing one," said Nick Chamie of RBC Capital Markets. "It's literally having an investment bank coming to them saying 'We have clients lined up to do it, are you interested?' And they'll say 'yes."'

The big debt issuance follows other fund raising by Latin American countries. Last month Brazil's state-controlled oil company Petrobras raised a record $70 billion in an IPO.

The last time the region saw a 100-year bond was in a corporate issue in 1997, when Chile's Embotelladora Andina sold a $100 million century bond, according to IFR Markets.

Mexico's 100-year issue could reach up to $80 billion, according to a securities filing with the U.S. Securities and Exchange Commission.

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Mexico launched Latin America's first 100-year bond Tuesday to win cheap funds from global investors who are snatching up risky emerging market assets that promise relatively high yields. The first tranche of the century bond attracted enough demand for an issuance of $1...
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Wednesday, 06 Oct 2010 12:57 PM
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