07 April 2017
The green label on Mexico City’s 1 billion peso ($49 million) bond helped it to raise money at a time when the country’s bond market was reeling in the wake of Donald Trump’s presidential election victory in the US.
Never before has the issuer placed a bond in such difficult market conditions – the fact it was green helped. Some investors participated only because it was a green bond"
Yamur Munoz, HSBC
“At that time the market was very closed and no one wanted to issue because spreads were very high and uncertainty was very high,” said Yamur Munoz, head of debt capital markets for Mexico at HSBC, which was the sole underwriter and structuring agent on the deal. “Even in the middle of that turmoil, we managed to print a trade that was 2.2 times oversubscribed and we managed to tighten the price by around 10 basis points on original guidance.”
The five-year bond priced in December with a coupon of 6.02%. It is listed on the Mexican Stock Exchange.
Issuer: Mexico City
Deal type: Use of proceeds bond
Issuer rating: Fitch (AAA), Moody's (Aaa)
Governing law: Mexican
Lead managers: HSBC
Size: 1 billion pesos ($49.26m)
Tenor: Five years
Spread: 79 basis points over mid-market
Date of issue: 7 December 2016
Use of proceeds: Sustainable transport, water and wastewater management, energy efficiency
External assessment: Sustainalytics
Highlights: First sub-national government in Latin America to issue a green bond to refinance projects for mitigation and adaptation of climate change.
“Never before has the issuer placed a bond in such difficult market conditions – the fact it was green helped. Some investors participated only because it was a green bond,” he adds, including some pension funds.
Proceeds of the bond, which has a second opinion from Sustainalytics, were for projects such as improving water infrastructure and the Metrobus public transport network (see picture).
It was the first green bond from a Latin American city, which Munoz describes as “an important milestone”.
The green bond is Mexico’s fourth. There had previously been a $500 million issue by development bank Nacional Financiera, followed by 2 billion peso deal from the same issuer. And Mexico’s airport raised a $2 billion green bond in September 2016.
“We are happy that the market is developing in Mexico,” Munoz added. “This was an important start for Latin American sustainability,” said one of the awards judges.
Mexico’s mayor, Miguel Ángel Mancera Espinosa, told Environmental Finance that the city planned to issue another green bond this year. He suggested that it could raise 1.5 billion pesos in August, and hopes to tap the market every year.
“We were the first city in Latin America to issue,” he said. “We call to cities around the world - this is a great option.”
Munoz thinks it is likely that other cities in Latin America will follow Mexico City’s example.