Mexico’s market for initial public offerings may be staging a comeback.
Leasing company Unifin Financiera SAB plans to go public next week on the Mexican stock exchange, potentially ending an IPO dry spell in Latin America that has lasted six months, the most since 2009.
The Mexico share sale could begin to fill the issuance void left by Brazil, the long-time regional leader that’s headed for its biggest economic contraction in more than two decades. That’s especially true if next week’s deal opens the door to a mounting list of issuers waiting for market volatility to abate.
“In Mexico specifically, we’ve really in the last few weeks turned a corner,” said Ian Taylor, a New York-based investment banker for Goldman Sachs Group Inc. who works on equity issuance in the region. “Investors are a lot more constructive about looking at potential new issues.”
The pipeline sets Mexico apart. At least five Mexican companies have filed to go public in the past six months, including car-parts manufacturer Tenedora Nemak SA and real estate developer Grupo Gicsa SAB, stock exchange documents show. Gicsa is targeting a June IPO, according to a spokesman for the company. In Brazil meanwhile, only one company has filed to go public in the past six months.
A representative for Nemak declined to comment.
Jose Maria Muniz Liedo, Unifin’s deputy director general of institutional financial relations, said his company had initially considered a listing in the first quarter, but he’s glad it decided to wait.
“This timing is very different for Mexico shares,” he said by phone from Mexico City. “We decided to wait a bit longer, and that was a very good decision.”
Unifin, which says it’s Latin America’s biggest independent leasing company, would raise 3.08 billion pesos ($202 million) next week at the midpoint of the offering range, which would give it a market capitalization of 9.24 billion pesos. The Mexico City-based company provides leasing products for airplanes, medical equipment and construction machinery, and says it wants to profit from the under-penetrated and fragmented local credit market.
Gicsa, the real estate company, would raise 7.6 billion pesos in its base offering based on the midpoint of the marketed range, which may also include a “hot deal” option to upsize it by 20 percent.
Jose-Oriol Bosch, the chief executive officer of the Mexican stock exchange, said in an interview this month that about $1 billion in Mexico IPOs is likely before July. He said that in addition to Unifin and Gicsa, homebuilder Servicios Corporativos Javer SAB and real estate investment trust Fibra HD Servicios SC have expressed interest in going public in that timeframe.
A Javer official declined to comment. Fibra HD referred questions to its banker at Corp. Actinver SAB, which didn’t immediately respond to a request for comment.
Money raised in Mexico’s equity capital markets -- including IPOs and follow-ons from existing issuers -- soared to a record $12.3 billion in 2013, a time when the country was first working to open its energy industry to private investment. Since then, the momentum has fizzled as economic growth lagged estimates, the global oil rout weakened the local currency and the prospect of higher U.S. interest rates sowed uncertainty among investors.
Now, the benchmark IPC has pulled within 3 percent of a record as of yesterday. The IPC rose 0.5 percent at 8:58 a.m. Thursday in Mexico City. Historic volatility -- as measured by the annualized 30-day standard deviation -- is at a six-month low of 10.3 percent.
The peso seems to have stabilized -- a welcome sign for foreign investors who calculate returns in dollars. It has declined 11 percent in the past six months, the most among major Latin American currencies after Brazil.
The economy is poised to expand 2.8 percent this year, according to forecasts compiled by Bloomberg, in contrast to the expected 1 percent contraction in Brazil.
“It feels like most of the weakness has probably worked its way through,” Goldman’s Taylor said of the currency. “International investors can start to do a valuation analysis with a greater level of confidence that there won’t be further FX weakness that might impact the performance of their investment.”
Among other companies waiting for an IPO are some that could command global attention for their size. Nemak, the car-parts company, represents about quarter of revenue for Alfa SAB, the 164 billion peso ($10.7 billion) parent company. Alfa has said it may also carve out its meats and cheeses division Sigma Alimentos SA -- 31 percent of 2014 revenue.
Miguel Brinkman, head of investment banking at Grupo Financiero Interacciones, said that companies selling shares in the next several months can take advantage of a window before an anticipated U.S. Federal Reserve interest rate increase in September, which could spur volatility. The Fed will probably raise the benchmark rate in the third quarter, according to the median forecast of 79 analysts surveyed by Bloomberg.
“Mexico is one of the most stable markets in Latin America,” Brinkman said in an interview in Mexico City. “If the Fed waits until December, we could have a great year for the IPO market.”