At the end of October, the Brazilian stock exchange had listed a record 147 IPOs in 2007. In contrast, the Mexican market has had one new listing all year. In April, Banco Compartamos did a $466 million listing and became one of 133 companies on the exchange.
Several explanations for the exchange’s poor performance, when compared with Brazil, have been given. "Mexico has been investment grade for a while, the markets have been open for years, the cost of debt is pretty low and the companies, in general, are reasonably well capitalized," says Antonio Quintella, country head of Credit Suisse in Brazil. "The IPO market in Brazil was [inaccessible] for many years. The Brazilian economy is now growing at a faster pace; the local companies have significant opportunities and need equity capital to invest."
Eduardo Cepeda, country head of Mexico at JPMorgan, says: "Mexican issuers are more mature and have been capitalized well for a long time. Since the crisis in 1995-96 the corporates moved to maintain a very conservative capital structure. Doing an equity deal for the sake of it is not a high priority."
In the past 12 months there has been a renewed drive to lure companies onto the exchange. Capital requirements have been eased and legislators passed a law permitting real estate trusts to go public. The stock exchange also cut fees and offered to pay for consultants to help with new listings.
Family and friends
But the exchange is facing an uphill struggle against traditional Mexican companies that are family or state owned. Companies controlled by the billionaire Carlos Slim and family have also increased in prominence and account for 42% of the Bolsa’s index. América Móvil accounts for one quarter alone. It is this trend for high savings and huge family wealth that is thought to be further hindering the IPO market. "Liquidity in Mexican families is very high so some of the capitalization needs are met by family and friends," says Cepeda.
In the past decade the number of listed companies in Mexico has declined from a record of 200 to just 133 in October. Since June, three companies have left or have said they are about to leave the exchange. Grupo Corvi, a household goods retailer, announced its plans to go private in July. Jugos del Valle, Mexico’s second-largest juicemaker, and steelmaker Grupo Imsa are in the process of being bought and will also cease to list their shares.
Despite this worrying trend, Cepada is optimistic. "I think there is huge potential in the IPO market because, despite the low level of issuance, it is not a demand issue, it is a supply issue and soon companies will see IPOs go well and be encouraged to do the same."
This high level of demand was shown by the Banco Compartamos transaction, which was 20 times oversubscribed, and has since traded well. "This market will be nothing like as big as Brazil but we are aiming at 10 to 12 listings between the last quarter of this year and the first quarter of next year," says Cepeda.