Mexico joined the rush of hybrid capital issuance at the end of 2006 when cement manufacturer Cemex offered a dual-tranche senior perpetual bond issue through Barclays Capital and JPMorgan. Although Cemex is a global firm with a BBB rating it is still Mexico-based, and market participants say that this deal could well be followed by similarly complex, bespoke structures from other emerging markets issuers in 2007. Although sources close to the deal say that Cemex would have done the deal regardless of its hostile bid for Australian rival Rinker Group, the ability to raise funds with non-dilutive hybrid capital structures could prove extremely useful for the growing numbers of leading emerging markets firms looking to acquire rivals, especially in the developed world. Other obvious candidates include Brazil’s CVRD, which has just completed its acquisition of Canada’s Inco, and CSN, which is bidding for the UK’s Corus Group.
The Cemex structure is best described as quasi-hybrid because it is unsubordinated and receives no equity credit from US ratings agencies; its aims were rather to get equity treatment under Mexican generally agreed accounting principles (GAAP) and to swap yen coupons into dollars.
“The real significance of this landmark deal,” says Carlos Mauleon, head of Latin American investment banking and debt capital markets at Barclays Capital, “is that we were able to borrow features from the US and European hybrid markets, such as dividend stopper and dividend pusher language, step-ups and deferrals and adapt them to meet the needs of the issuer and sell the structure successfully to investors.”