Mexico Raises $1.66 Billion With First 100-Year Bond in Pounds
Mexico sold 100-year bonds in British pounds for the first time after its similar-maturity dollar debt posted the best returns from major Latin American countries this year.
The government sold 1 billion pounds ($1.66 billion) of securities due in March 2114 to yield 5.75 percent, according to data compiled by Bloomberg. The sale shows global interest in Mexican assets and confidence in the government’s finances, Finance Minister Luis Videgaray said in an El Financiero Bloomberg TV interview.
Mexico is selling the century bonds after Moody’s Investors Service upgraded the country to its fourth-lowest investment grade Feb. 5, citing steps to open up the energy industry to foreign investment and broaden sources of tax revenue. The nation’s $2.7 billion of dollar-denominated debt due in 2110 has returned 6.1 percent this year, the most among sovereign bonds from Latin American countries excluding Panama and Honduras, according to data compiled by Bloomberg.
“Given all the attention that Mexican economic reforms have received, it’s no longer just a country that people from North America would invest in,” said Joe Kogan, the head of emerging-market strategy at Bank of Nova Scotia in New York. “It’s part of a long-term strategy to issue in various currencies now that the investor base is much wider.”
The yield on 30-year gilts fell two basis points to 3.51 percent at 4:18 p.m. in London, less than the 3.68 percent rate for similar-maturity Treasuries. The pound has gained 5 percent versus the dollar in the past six months, the best performance after the Swiss franc among 16 major currencies. Sterling climbed 6.9 percent against the peso in the period.
Barclays Plc and Goldman Sachs Group Inc. are managing the sale of the sterling bonds, according to a person familiar with the deal, who asked not to be identified because the information isn’t public.
The 30-year basis swap rate between pounds and dollars is close to zero, implying Mexico would pay almost no penalty for exchanging debt in pounds for dollars. The 30-year pound-dollar basis swap rate rose today to minus 0.75 basis point, or minus 0.0075 percentage point, from minus 21.75 basis points in March last year.
“It is a good way to secure relatively cheap funding on a quasi-perpetual bond,” said Didier Lambert, a portfolio manager who helps oversee $34 billion in emerging-market bonds at JPMorgan Chase & Co. in London. “Borrowing in pounds offers diversification of funding currency.”
Moody’s raised Mexico to A3, the country’s highest ever rating and one level above rankings by Standard & Poor’s and Fitch Ratings.
New laws to open the oil industry to private investment and curb the market power of dominant telecommunications providers will add about 1 percentage point to the long-term economic growth rate, according to Moody’s.
“It’s pretty ambitious to do a 100-year bond, but the market feels comfortable with the outlook of increase in potential GDP growth in the medium term,” Benito Berber, a Latin America strategist at Nomura Holdings Inc., said by phone from New York. “There continues to be a lot of optimism about the structural story in Mexico.”