Opening Mexican Infrastructure Investment to the WorldThu, 11/01/2018 - 11:09
The need for private investment in infrastructure development is not recent news. Globalization is pushing countries and cities to improve their infrastructure development to remain as competitive as possible and to keep up with the demands of its populations. Governments have figured out that they cannot do it alone. According to the World Bank’s Private Participation in Infrastructure 2017 report, investment in infrastructure in 2017 increased 37 percent in comparison to 2016, yet it is at the second-lowest level of investment in the past 10 years, and 15 percent below the average for the past five years.
Mexico was one of the Top 5 destinations for infrastructure investment in 2017, with the highest level of private investment in Latin America. Through 20 projects, Mexico collected US$8.6 billion from private investors, making this the highest level of investment in the last 25 years. Mexico’s infrastructure development is composed of 63 percent commercial banking while in the other four destinations (China, Indonesia, Brazil and Pakistan), the share of commercial financing was relatively low.
Among the key sectors for investment is telecommunications. The Telecommunications Reform invited new players and new projects. Mexico’s Red Compartida project brought in US$946 million. In the international telecom sector, the Red Compartida and a project in Myanmar contributed to more than 80 percent of the global 2017 telecom investment. Mexico’s transport infrastructure sector also attracted a great amount of private investment through the construction of the new Mexico City International Airport (NAIM).
Although Mexico is receiving a great deal of private investment, the country’s construction sector still requires greater financing to boost the development of its internal economy. “The industry needs more fiscal incentives, including better interest rates for construction companies,” says Alejandro Ruíz, Head of Construction at KPMG in Mexico.
He says a solution may be a new financial entity designed to this end. “We need a development bank that can provide financing and maintain competitive market rates to motivate investment in infrastructure projects. At the beginning of this administration, companies would pay TIIE + 4 to 6 percent (averaging 7 to 9 percent) and now rates are around TIIE + 6 to 8 percent (averaging 12 to 14 percent),” Ruíz explains. “This makes debt much more expensive, leading to higher costs for companies, which then must look to reduce their structures and get rid of assets to complete their projects. This has led many companies to bankruptcy, mostly SMEs.”
A 2018, Mexico said hello to its second stock exchange, Bolsa Institucional de Valores (BIVA), which looks to boost the participation of SMEs in the stock market. “Small to medium-sized enterprises (SMEs) are the engine that drives Mexico, representing approximately 99.8 percent of the economy. The country’s construction sector is home to many of these SMEs that are growing quickly, representing major challenges in oversight and working environments,” says Ruíz.
FIBRAS, CKDs AND CERPIS
Infrastructure developers are also taking advantage of various instruments being issued in the stock markets. The number of CKDs and Fibras in the Mexican stock market continues to grow and during 2018, more Fibra Es and a new CerPI were issued to fund infrastructure development. The real estate sector now has 11 Fibras and 23 CKDs.
CerPI is a fairly new instrument, created in 2016 to compliment CKDs. In 2018, the second CerPI was issued by GD Structure, an affiliate of Glisco Partners and Discovery Capital Management for a total of US$72 million. These instruments can be used for large greenfield projects, including projects in the energy sector. Fibras have gained traction, but they are designed for developing and acquiring assets and may not be the best fit for companies that look to rent and sell assets.
In February 2018, CONSAR announced changes to the Circular Unica Financiera (CUF) that gave Afores greater flexibility in the type of investments they could make. Most importantly, it allowed Afores to now invest internationally.