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 Business News | February 2006 
Mexico Plans Bond Sale to Small U.S. Investors
 Marla Dickerson - LATimes
Mexico City - Mexico this month will become the first foreign nation to sell small-denomination government bonds in the United States aimed at mom-and-pop investors, the Mexican Finance Ministry said Friday.
Starting Feb. 13, investors in the United States will be able to purchase the Mexican bonds, each priced at $1,000, from a network of brokerage firms such as Charles Schwab, Merrill Lynch and Morgan Stanley. The investment-quality government bonds will be available with various maturities, ranging from approximately three years to 10 years.
The Mexican securities have been rated low investment grade by three major bond agencies, with Moody's giving the bonds a rating of Baa1, and Standard & Poors and Fitch a BBB.
For investors willing to stomach the extra risk, the Mexican bonds will likely pay interest that is 70 to 100 basis points, or up to 1 percent, above what U.S. treasuries pay.
The U.S. retail market offers a new segment of investors for Mexico to tap and a chance to capitalize on its hard-won financial stability. "We are able to reach out all the way down to the individual investor" with this program, said Gerardo Rodriguez, the Mexican government's deputy undersecretary for public credit.
But some money-managers said that Mexico will likely have a lot of work to do to convince mom-and-pop investors that their investments will be safe.
U.S. Treasuries are tax-free and are seen as the ultimate blue-chip investment, with the full faith and backing of the U.S. government. Investors buying the new Mexican bonds must pay a tax in the United States.
In addition, when a lot of American investors think of Mexico, "they think of the currency crisis," said Bill Hornbarger, fixed income strategist with AG Edwards in St. Louis. "It is going to be a hurdle."
The fact that Mexico is attempting to sell bonds directly to U.S. retirees says a lot about how the nation has recovered from its mid-1990s peso crisis. Mexico has reduced its debt load, trimmed its budget deficit, brought inflation in check, stabilized the peso and returned the country's debt ratings back to investment grade.
"This would have been impossible ten years ago," said Bret Rosen, assistant vice president of Los Angeles-based Trust Co. of the West, which manages assets worth $5 billion in Latin America and other emerging markets. "It shows how far Mexico has advanced."
While Mexico's retail bonds are denominated in dollars, these securities still carry an inherent currency risk, according to Christian Stracke, emerging markets analyst with CreditSights. That's because the main source of repayment of these bonds is tax money that the Mexican government collects from its citizens in pesos.
"So the worst case scenario is that Mexico is scrambling to find dollars, it can't find them and it can't pay you," he said. "It's very unlikely that's going to happen. But it's more likely to happen to Mexico than it is to Wal-Mart." |
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