The Mexican state of Oaxaca will come to market this year with a securitization of federal co-participation revenue, the standard asset for sub-sovereign issuers. The issuer has registered a Ps250 million (US$22 million) program with regulators that might be issued in a single tranche. The preliminary prospectus has the maturity at six years, shorter than most deals executed in the sector over the last two years. Local brokerage Interacciones is leading the transaction, with Valencia de Toro providing legal counsel. The deal follows the structure of other federal participation transactions, a staple of the country's securitization market.

Standard & Poor's and Moody's Investors Service will rate the transaction. Proceeds will go to public works. The latest rating from the latter agency has the state at' on the national scale and at Ba3' on the local currency, global scale. Reports on the transaction are forthcoming from Moody's and S&P.

While the state has maintained a low debt burden, its credit standing is constrained by a weak economic base and limited budget flexibility. Direct debt stood at a moderate Ps346 million (US$30 million), or 1.7% of annual revenues, according to a report by Moody's released in January. Nevertheless, the state-owned Institute of Public Education has been shouldering a heavy debt load and has struggled to pay bonds and teacher bonuses.

Federal participation flows to Oaxaca have been edging up in recent years, totaling Ps5.0 billion (US$438 million) in 2003 from Ps2.9 billion (US$254 million) in 1999. The state is heavily dependent on agriculture, a negative for its credit standing. About 45% of the population is engaged in agriculture, which is mostly small-scale and inefficient. Tourism, on the other hand, is picking up, Moody's said.

The state is located in the south, on the Pacific Ocean.

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