Much of the talk at the 3rd Annual Securitization in Latin America Summit centered on Mexico, the industry's golden child in terms of recent growth and opportunities. And within that country, the most promise was pinned on real estate. "The mortgage market is by far the biggest area where Mexico can grow," said Jose Antonio Gonzalez, director general for insurance and securities with the Ministry of Finance. The private market originators that dominate the sector, known as Sofols, will need an estimated Ps47.4 billion (US$4.1 billion) of financing in 2006, a 110.8% jump from 2004, according to a presentation by Armando Guzman, chief executive officer of leading Sofol Metrofinanciera. Mortgages will eat up 71% of the total.
On top of that explosive growth is the fact that a traditional state-run funder for the market, the Sociedad Hipotecaria Federal, is slowly pulling out of direct financing for Sofols, as mandated by the government. These are among the factors pushing issuers such as Metrofinanciera to consider the cross-border (see cover story).
Another factor, which concerns the entire structured finance market in Mexico, is the continued crowding out of any non-government issue in the treasury-laden portfolios of pension funds, a phenomenon that resonates in other Latin American countries. While the share of non-government bonds in fund portfolios has increased in the last few years, participants suggested that it was not keeping pace with growth. Gonzalez from the Ministry of Finance said that the reason was not due to the government's poor fiscal standing, but because the financial sector was not expanding quickly enough. Directly before the Tequila crisis of 94, "the government was crowding out' on a percentage basis about the same as today, but back then banks were lending [more]."
Hope for REITs
The topic of REITs surfaced as well at the conference. Gonzalez is hopeful that the structure will finally appear in Mexico this year. An unscientific survey of Mexican participants found similar optimism. Legislation laying the groundwork for REITs was passed in December. "What we did was to look at the tax legislation in U.S. and tried to copy it," Gonzalez said, adding that some rules and regulations in the U.S. were discarded. Under the Mexican law, REITs are not subject to income or asset taxes.
On the sub-sovereign front, issuance will be skewed more toward the states than municipalities, according to Luis Videgaray, managing director of Protego Asesores. For many Mexican cities, the economies of scale are simply not there, he added. "Municipalities have found that it isn't efficient to do transactions," he said. "It's become the states' market." Still by pooling receivables, cities might be able to tap the market. Such a structure has yet to materialize, though there is talk.
Ministry official Gonzalez also weighed in on the sub-sovereign sector. "We view governments' ability to finance themselves positively," he said. States and municipalities, however, should seek ways to wean themselves off federal participation revenue, which remains by far the leading securitizable asset. "We're always working on ways to have local revenue increase," he said.
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