Green Bonds to Transform Future Infrastructure

Q: What impact are Fibras having on the infrastructure industry?

A: We have seen an incredible boom in the creation of Fibras. In the past 36 months, 10 new Fibras have entered the market and we rate nine out of those. The Fibras have become an extremely important segment in Mexico, attracting new investors but also requiring deep analyses. Fibras will bring into the market new types of investor profiles that have experience with the particular risks of these instruments.

Q: How will green bonds impact the development of sustainable infrastructure?

A: There is a growing market for green bonds in Mexico. Many companies have been turning to them as a source of financing. There are only three green bonds in Mexico at the moment and these are targeting NAICM, NAFIN and Mexico City. There are 100 different types of projects that can be catalogued for a green bond that combine the infrastructure Mexico needs with the country's target percentage of national green energy consumption of 35 percent by 2024. We believe that one of the best alternatives to finance these changes is through the issuance of green bonds.

HR Ratings has the capacity to analyze and rate green bonds. We are also part of the Climate Finance Advisory Council in the BMV, where many pension funds and different market participants discuss various green alternatives and how to boost the green bond market in Mexico.

Q: What is the main misconception the market has regarding green bonds?

A: There is a misunderstanding about our position in green bonds. Whenever we rate a specific issuance as a credit rating agency, it involves the cash-flow generation of the entity in order to cover financial obligations. green bond ratings tells the grade of “greenness” the bond will have, so if a company is issuing to investors or equity holders of the company, this does not fall under the remit of a green bond. However, if the debt acquired is for the construction of a hydroelectric plant to improve the sustainability of a building, that project will qualify. The greenness of the bond will depend on the amount of CO2 savings that can be obtained from the asset. The Mexican market is excited about green bonds but the lack of projects and incentives to get them into the public market are the biggest challenges the industry will encounter.

Q: What is your outlook of the infrastructure industry for 2017-2018?

A: In the upcoming year, there will be elections that will shift the priorities of each state. The new infrastructure plans that are expected to be announced, such as in the State of Mexico, are not fully defined yet. New infrastructure projects will also depend greatly on the political parties that will take charge.

In the last 18-24 months, there have only been two to three new projects announced, with most from previous market issuances. The most important projects in the next few years are NAICM and the Mexico-Toluca Interurban Train, but there have been various delays in both projects due to oil prices and a change in priorities.

Even though there is hope for new projects to come, it is definitely not what we expected. A lack of federal resources greatly impacted the development of infrastructure in the country and external conditions increased the effect even more. The main challenges that we have seen, especially with toll roads, is that they are based upon the capacity of each project to generate cash flow. The positive factors that keep us in infrastructure are the announcement of new PPP projects, despite the fact that there were similar announcements made in the beginning of the administration that were not carried out. These PPPs are being used not only to fill the country’s infrastructure gap, but to maintain and improve the existing infrastructure as well.