The Mexican state of Veracruz is getting a head-start on 2004. Looking to finance some of next year's capital projects before the current governor leaves office, the issuer is securitizing payroll taxes in a Ps450 million (US$42 million) deal. Protego Asesores has structured the transaction and Grupo Bursatil Mexicano will be issuer. The issue is the third payroll-tax structure to emerge in Mexico. With Protego as structurere, the State of Mexico issued the first such transaction via Santander Serfin. Currently, the state of Nuevo Leon has a payroll deal in the pipeline via Value Casa de Bolsa (see ASR 7/21, p.17).

Veracruz raked in Ps863 million (US$81 million) of payroll taxes last year, totaling a marginal 2.5% of total revenue. Like most subnationals, the bulk of the state's income comes in the form of federal participation revenue. Earlier this year, Veracruz pledged up to 55% of those revenues in a two-part loan totaling Ps2.73 billion (US$256 million). State development bank Banobras provided Ps2 billion (US$187 million), while homegrown bank Banorte extended Ps733 million (US$69 million).

Moody's Investors Service has rated the payroll transaction' on the national scale and Ba1' on the local currency, global scale. The state has pledged the totality of payroll taxes to the structure. Interestingly, the deal has a lower rating than Veracruz itself, which is at' on the national scale. Part of the reason is the young life of the payroll tax in Veracruz, which started up only in mid 2001.

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