By THE PULSE NEWS MEXICO STAFF
According to a report published by Bloomberg News on Monday, Oct. 11, the only significant Mexican stock action in the last year and a half has been buyouts.
In an article Michael O’Boyle, Bloomberg said that while Initial Public Offering (IPO) records around the world are currently at peak levels, with companies having already raised more than $500 billion this year, “not a penny of that money has come from Mexico.”
“It’s been 15 months since the last initial public offering by a company (in Mexico), and that lone deal was a minuscule offering that only trades on the rarest of occasions,” the article said.
“So dead is the market in Mexico City and so desperate are bankers to drum up business of any kind that they now spend much of their time pitching anti-IPO work: In the past year, five companies have started the process to de-list from the stock exchange.”
Quoting Mauricio Basila, a lawyer in Mexico City specializing in capital markets, the Bloomberg article said that the Mexican market is rapidly shrinking, due in part to “years of lackluster GDP growth and poor stock market returns.”
Even with a strong recovery in Mexico this year, the article said, the country’s economy cannot offset structural issues such as the lack of liquidity and a feeble retail market.
Moreover, the article said, Mexico’s banking industry is dominated by foreign financial powerhouses that prefer to keep business on their books rather than tapping public markets.
Also, many major Mexican firms are controlled by families who prefer to keep low profiles and not bring attention to their wealth for fear of kidnappings and extortion.
“All this means that Mexico’s stock market has failed to become an engine of wealth for companies or investors, ultimately holding back economic growth and sticking pensioners with lackluster returns.”
The Bloomberg article went on to say that “Mexico’s deficiencies are especially stark when compared with its longtime regional rival Brazil, where capital markets are robust and $12 billion of IPOs have been priced this year.”
In contrast, Mexico only registered two small real-estate trust issues this year, totaling $25 million.
“A decade ago, Mexico was trying to catch up with its fellow member of the Group of 20 economic powerhouses, seeking to build markets and become a regional financial hub. Now, it’s fallen so far behind that its No.2 status seems firmly entrenched,” the article said.
One major obstacle that is preventing IPO growth in Mexico is a lack of competition among banks, Bloomberg said.
“While Brazil’s economy still has numerous challenges, it can boast a larger ecosystem of independent investment banks and brokerages,” it said.
“Mexico is dominated by a handful of global behemoths that prefer to lend to corporations instead of embarking on a higher-risk proposition to help them raise capital from the public markets.”
Another factor that is weakening Mexico’s equity market is a rush to take companies private, the article said.
“Banco Bilbao Vizcaya Argentaria SA helped milk producer Grupo Lala SAB buy back almost all of its outstanding shares at 37 percent below its 2013 IPO price in September,” the article pointed out.
“It raised $1.1 billion via its listing, with plans to expand into new business lines. It went through three chief executives as investors watched the stock sink as much as 60 percent below its listing price.”
Bloomberg said that the industrial chemicals supplier Grupo Pochteca is the latest company to announce plans to exit the market.
“The stock, which has its roots in a different company that was acquired by Pochteca in 2005, is down 98 percent from a peak in late 1997,” the article said.
Bloomberg concluded by saying that Mexico could potentially bolster its equity markets by selling stakes stakes in state-owned companies such as Petróleos Mexicanos (Pemex).
But given Mexican President Andrés Manuel López Obrador’s obsession with keeping public companies under the government’s ownership, Bloomberg said that that option is unlikely.
“For now, there’s little hope of a quick revival in Mexico’s capital markets,” Bloomberg said.