Interview: Luis Téllez Kuenzler
Why was there a record number of new listings in 2013, a year of economic slowdown?
LUIS TÉLLEZ KUENZLER: Mexico already has a very solid base of institutional investors in pension funds and investment funds, which have over $150bn and $160bn, respectively, under management. This base was non-existent 15 years ago but is now a mainstay of our capital markets. The size of foreign investment, mainly channelled through New York, shows confidence in the Mexican market. The share of foreign trading averages 60-70%. Generally two or three companies per year are listed, but 2013 had many more initial public offerings (IPOs) across a wide range of industries. This is important for the Mexican market, as it implies that companies are looking to capitalise in order to grow, and it gives the market greater depth. The fact that many of these IPOs were oversubscribed indicates the high level of institutional investor interest. This record came in a year when growth was much lower than projected, suggesting that investors are considering high growth rates in the coming years and the market is buying into that expectation.
What do you think are the main factors behind the improvement in Mexico’s credit rating?
TÉLLEZ: Based on purely macroeconomic principles, the main risk in the Mexican economy is that eventually government debt holders will not have the debt and debt service payments covered. Years ago, Mexico’s problem was much like that of Greece today, where the public sector presence in productive industries was very high, leaving them overly exposed to the country’s macroeconomic situation. However, we had a process of privatisation linked to income consolidation, which took public debt to below 30% of GDP, one of the lowest ratios in the world.
The second key variable is financial and pricing stability, which has been achieved through an independent central bank, and very appropriate and prudent monetary policies, in which the Banco de México has not expanded its balance, as happened in the US for example. Finally, the main structure or fundamentals of the Mexican economy are relatively solid.
We are a very open economy and this is also important for the country’s rating, but at the same time very little changed in recent years in our institutions and institutional framework until 2013, when all the planned and announced reforms arrived. The challenge or risk, depending on how you look at it, is that the structural reforms are approved and in due time implemented, yet give the country lower growth rates than those expected by the financial market.
To what extent do you think the new 10% capital gains tax will deter companies from listing?
TÉLLEZ: Mexico was the only Organisation for Economic Cooperation and Development (OECD) country that did not have a tax on capital gains. The tax the government has introduced is not competitive relative to other OECD countries, but it is not a confiscatory tax. This tax still provides advantages in relation to other countries, and what becomes very important is that its implementation is easy and does not intervene in the flow of capital into and out of the Mexican market. For this it will be important to closely monitor the final version of the tax reform. There are conflicting theories. Some argue that this tax invites savings. Others say it invites speculation. Without addressing these theories, I think that, from the perspective of the Mexico tax framework, it is a suitable tax and will promote the capital market.
What has caused real estate investment trusts to become such attractive financial instruments?
TÉLLEZ: Through these investment trusts, the possibility was opened for pension funds to enter new industries, financial instruments or private capital investment financing systems. The Mexican market has evolved towards financial instruments that have been used in other markets, such as the US and Canada.
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