Full Disclosure in Mexico Includes New Warning: Beware U.S.

  • At least five companies include warning in recent prospectus
  • New talks on Nafta, immigration bans rank as top risks

Despite Donald Trump’s habitual barbs targeting trade deals and Mexico, business leaders south of the border have largely refrained from talking about the U.S. election. Their lawyers and advisers say it’s time to speak up.

The race, the Republican candidate and his Democratic rival, Hillary Clinton, are increasingly popping up as key risk factors in Mexican bond and share-sale prospectuses. They’re appearing alongside run-of-the-mill warnings that have long been staples in such documents, like recession and an unforeseen drop in demand. The disclosures to investors, which companies are legally required to make, highlight concern that this quirky and contentious election will upend a global economy built on two decades of free-trade deals.

"I don’t recall ever having risk factors that called out individual U.S. major party figures,” said Jorge Juantorena, a partner at law firm Cleary Gottlieb Steen & Hamilton who advises on securities sales and other corporate actions in Mexico. “It definitely says something about the situation right now.”

Since July, at least five Mexican companies with plans to sell bonds or shares have mentioned the outcome of the Nov. 8 election as a risk factor that could throw their business models for a loop. RLH Properties SAP, the operator of the Four Seasons Hotel in Mexico City that raised 1.34 billion-pesos ($71 million) in an add-on share sale, warned that the vote could have “negative impacts” on U.S.-Mexico relations. Cement producer Grupo Cementos de Chihuaha said the race injects “uncertainty” about future cross-border trade, and tequila maker Jose Cuervo said the victor of the elections and possible overhaul of the North American Free Trade Agreement could have a “significant” impact on its activities.

“There can be no assurance as to what a new U.S. administration will do,” El Puerto de Liverpool SAB said in its bond prospectus. The retailer said Trump’s threats to build a wall or pull out of Nafta altogether could cause “frictions” among the two nations. “The impact of these measures or any others adopted by the new administration cannot be predicted.”

Trump regularly rails against trade deals like Nafta that he blames for the downfall of the U.S. manufacturing industry. Even Clinton, who’s been much more accepting of the deals (her husband signed Nafta when he was in office), has also acknowledged they could be reworked to better benefit U.S. workers.

Trade between Mexico and the U.S. has grown five-fold to more than $500 billion in goods annually since the agreement took effect in 1994 . The Latin American nation is now the largest U.S. trade partner after China and Canada, according to data from the International Monetary Fund.

Mexico’s peso is bearing the brunt of the political uncertainty in global markets, acting as a barometer of investor anxiety about the November election. The peso fell more than any other major currency in September as polls showed Trump gaining on Clinton, then posted the biggest rally so far this month as support waned following the release of a video showing him talking crudely about women. The peso on Wednesday fell 0.1 percent to 18.9377 per dollar at 8:26 a.m. in Mexico City.

“Any time you do a deal, you spend time thinking about what could go wrong, where the risks are,” Juantorena said. “But it was always one emerging market area affecting another one. It’s rare to think now that something going on in a developed country could affect the developing one.”

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