Bancomext’s extra $700m to support Mexico’s IoT and creative industries

The state-owned development bank achieved a first-of-its-kind bond issuance

July 17, 2017

In August 2016, Bancomext issued $700m in tier two subordinated preferred capital notes, to shore up its business of helping Mexico’s exporters improve the country’s foreign trade prospects. CEO Francisco González and CFO Miguel Siliceo explain foreign trade’s significance as the engine of Mexico’s economy and Bancomext’s five goals to develop it – and discuss the bank’s innovative bond issuance.

World Finance: How important is foreign trade to Mexico’s economy?

Francisco González: Foreign trade is really the engine that moves the country. It’s 60 percent of the GDP. Mexico is double the size of all the manufacturing of central and south America together. It’s a huge manufacturing factory.

As a development bank we have very good collaboration with the financial institutions of Mexico. We work with SMEs via these institutions. And what we offer is guarantees, for example, to help banks give loans to those companies, with a better interest rate, lowering the risk, helping to perform in a better way.

World Finance: Bancomext’s mission is to expand and develop Mexico’s foreign trade, and you’ve broken that mission down into five goals?

Francisco González: That’s right. The first one is to promote exports; to promote Mexican companies selling goods and services abroad.

The second one is internationalisation of Mexican companies. The footprint of Mexican companies worldwide is increasing. We are, for example, the number one investor in Ecuador. Number one in Spain, after the European Union. One of the three top investors in the Philippines.

The third one is increasing the value chain and competitive possibilities for Mexican companies: improving the capital expenditures, for example.

Then, Mexico’s really moving also in foreign direct investment, so we can bring more and more anchors to Mexico, like the automotive industry.

The last one is also to increase the possibilities of services like tourism, like IT, and others, so we can have a healthy economy; not only in manufacturing, but also in the service arena.

World Finance: Miguel, turning to your recent issuance: what drove Bancomext to expand your capital in this way?

Miguel Siliceo: When a government institution like ourselves requires capital, the injection of capital that’s the most straightforward mechanism is to have an injection from the owner: from the government, in pesos.

In our case, we were talking to our authorities, analysing different alternatives.

We were able to launch a transaction, a tier two transaction of subordinated debt, that according to our records is the first time that a public bank accessed this particular kind of transaction.

The positive effect for our bank was basically twofold. On one hand, we were able to increase our capital from 11.4 percent to 19 percent. On the other side, considering that 70 percent of our assets are in dollars, when we have the injection of capital in dollar terms, we offset any devaluation, or any movement, from the exchange rate.

World Finance: It was highly successful; what made the issuance such a success?

Miguel Siliceo: First was innovation: it has never been done before. Second was a strong support from the Mexican authorities, from the National Banking Commission of Mexico, from the central bank, and investor banks who helped us launch the transaction.

What we did, in coordination with our banks, was launch the transaction in a one-day roadshow. Five different teams in London, New York, LA, Boston and Mexico.

Fortunately the markets opened very strong for our favour. We initially offered $500m. We had a demand of almost $3.8bn – eight times the demand for that particular bond. We had participation of about 220 different investors. And we were able to increase from $500m to $700m, because that was particularly the number that we were looking for.

World Finance: So Francisco: what’s next for Bancomext?

Francisco González: We’re looking in this troubling worldwide economy to fulfil all the requirements of the Mexican companies. We have to support them, for example, with factoring and letters of credit, to all the countries in which they have trade.

The idea is not to stay only in the area of manufacturing, in services and tourism, but to go beyond. We’re looking for example for medical tourism. For the telecom area. We are really really interested in developing the industry 4.0, with all the IoT, internet of things. This has to do also with software, it has to do also with creative industries.

And we have to continue developing these areas, but not leaving the actual manufacturing companies alone. We have to be with them in new trades, new experiences, new countries. And in this sense we are very happy to be behind Mexican exporters.

World Finance: Francisco, Miguel: thank you very much.

Miguel Siliceo: Thank you very much, Paul.

Francisco González: Paul, thank you very much.