Mexico’s CFE taps Formosa bond market with 30-year trade
June 23, 2017 |
The Mexican electric utility becomes the latest lender to print long-dated bonds after Chile, Argentina and Petroperu
CFE became the first Mexican issuer to tap Taiwan’s Formosa bond market on Thursday, raising $750m in 2047 paper sold at a yield of 5.15%.
Credit Suisse, HSBC and Morgan Stanley priced the 30-year trade at par, debt capital markets sources said. The notes come with a 15.5-year average life and sources have said the long-term bond may serve as a harbinger for similarly-rated credits both in Mexico and across Latin America.
“If you want to diversify, the Asian markets are a good option because there is a lot of money to put to work out there,” a DCM banker not involved in the trade said. Development bank Nafin and export credit agency Bancomext have both talked of possible Formosa bond sales this year.
The same banker also said CFE would have likely been satisfied with $500m, given its first go around in the market, but order books were liquid enough to justify a larger-sized trade.
“They paid next-to-nothing in terms of concessions, so it would seem like a big win for them,” he added.
CFE seized on an improvement in its outstanding bonds, which have tightened in secondary trading over the last month, a second banker noted. The utility’s $700m in outstanding 2045s have come in 10bp to 12bp in recent weeks to a yield of 5.68%, while its 2027s tightened at similar levels to 4.35% on Friday.
Proceeds will finance government-approved electric infrastructure projects under CFE’s Pidiregas program. Under Pidiregas rules, amortizing bonds are a preferred financing instrument because it serves as a yardstick for project revenues.
Baa1/BBB+/BBB+ rated CFE also notably, is the first LatAm triple B credit to get a response from Taiwan’s typically conservative investor base. The Central American Bank for Economic Integration (CABEI) was the last name to tap Formosa bond buyers, raising $167m in five-year floating-rate notes in March, while Santander Chile printed $185m in 2021 Formosa notes last November.
CFE joins Chile, Petroperu and Argentina, which have all sold debt maturing at least 30 years or more this month. Investor demand for longer-dated securities has grown of late as bond buyers search for new avenues of yield and issuers seek to capitalize on a predictable interest rate environment, sources have said.
In Mexico, markets are also opening up, with the peso trading at its highest levels since last November’s US presidential elections. More certainty with US and Mexican interest rates, along with simmered trade rhetoric from the US administration may have opened up a positive window for Mexican credits.
Local conglomerate Grupo Kuo booked investor meetings for a potential bond sale, while Banorte talked plans of a Basel III-compliant trade. Cement company Grupo Cementos de Chihuahua also sold $260m in 2024s this month, issuing the new bonds in conjunction with an exchange for its 2020s.
CFE last sold bonds in October last year, raising $1bn in 2027s. In June 2015, the utility printed $700m in 2045s.