Smog-Hit Mexico’s $8 Billion Clean-Up Bid Heralds Bond Sale Rush

  • Oaxaca wind-farm bonds are second-best performers since March
  • Smog forced Mexico City to ban driving earlier this year

Mexico’s push to reduce air pollution may set the stage for a surge in clean energy-related bond sales.

For the first time, the government will auction $8 billion worth of clean energy projects this year, according to Pricewaterhouse Cooper. The move comes as dangerous air quality in vast industrial hubs across the nation has made cleaner energy a necessity. Earlier this year, some of the worst smog in a decade prompted Mexico City to impose a driving ban and factories to slash production.

While only one company in Mexico’s clean-energy industry has sold bonds in recent years, the notes have been among the most lucrative investments in the nation’s debt market. Wind farms located in southern Mexico known as Oaxaca II and Oaxaca IV have seen their $299 million of notes return 15 percent since March 30, when the Spanish construction company that owns them was among 10 firms awarded power projects worth $2.6 billion at an auction in Mexico. That’s the second-biggest gain in Mexico and twice the emerging-market average.

Claudio Robertson, who helps manage $4 billion at Investment Placement Group in San Diego, said Mexico’s burgeoning clean-energy industry will need to tap the bond market to finance projects.

“This is an industry that’s in diapers,” he said. “In Mexico, every lawmaker is voting for better air quality. This is going to be much more important than what it is today.”

Standard & Poor’s affirmed its BBB- rating for Oaxaca IV bonds late Tuesday, saying its 20-year contract to sell power to Mexico’s state utility Comision Federal de Electricidad eliminates market risks. Fitch Ratings had upgraded its outlook on the Oaxaca II bond to positive from stable in April, saying operational costs have been considerably lower than expected. Fitch also rates the bond BBB-, the lowest investment grade.

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