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Investment Banking And Start-Ups Thriving In Mexico’s Strong Economy

16 November, 2015

Mexico is emerging as the go-to destination in Latin America for investment banking and new business start-ups due to its strong economy,reported the Financial Times. Factors like the Chinese-led economic slowdown,internal political strife and the Petrobras scandal have caused Brazilian investment bank revenues to fall by more than 52 percent in 2015,while Mexico has enjoyed a relative outperformance of 24 percent.

At the same time,Mexico’s banks had enough capital to boost their credit portfolios by one-third,according to Luis Robles,who serves as head of the Mexican Banking Association (ABM). Robles said this means raising money for start-ups in Mexico is easier than ever,since the banks have “unused installed capacity” that is equivalent to $100 billion.

“What is more,Mexican initial public offerings raised $1.7 billion between the start of the year and mid-October,” according to Thompson Reuters data," writes the Financial Times. “In Mexico,investment bank revenues chugged along,following a steady upward trend.”

Still,most investments in Mexico remain in traditional sectors or infrastructure,according to Jacques Rogozinksi,who serves as head of Mexican Development Bank Nacional Financiera. This means venture capital is available in Mexico,but remains largely accessible only by people who are well connected and involved in well-established sectors. In fact,according to Ary Naïm,head of the Mexico office of the World Bank’s International Finance Corporation,credit for venture capital in smaller start-ups in the private sector amounts to less than 30 percent of Mexico’s total GDP,compared to around a 44 percent average for all of Latin America.

“With capital not available for all industries equally,the government is determined to make sure key infrastructure and energy projects are first in the queue,” writes the Financial Times. “It has created new instruments modeled on the successful real estate investment trusts,known in Mexico as Fibras,which have raised more than $11.3 billion since 2011.”

Known as Fibra E’s these new investment vehicles are similar to the master limited partnerships that are available in the United States and they exist in order to monetize Mexico’s existing energy and infrastructure projects,which include pipelines and transmission lines. According to the report,the first batch of new Fibra E’s will be launched in early 2016.

“Ultimately,finding funding depends on the project,” writes the Financial Times. “Mexico’s emblematic infrastructure project – a new Mexico City airport,expected to become the biggest in the region – this year secured a $3 billion credit facility,the biggest syndicated revolving bank facility in the history of Latin America.”

Still,Mexico’s loan market is “wide open for well-structured cash flows,” and funds will be increasingly easy to tap,according to Alfredo Mordezski,who serves as head of Latin America fixed income at Santander Asset Management. 

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