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Cablegate: Mexico's Stock Exchange Goes Public

VZCZCXRO3507
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1868/01 1711751
ZNR UUUUU ZZH
P 191751Z JUN 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2275
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHC/DEPT OF LABOR WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MEXICO 001868

SENSITIVE
SIPDIS

STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
TREASURY FOR IA (LUYEN TRAN, RACHEL JARPE)
TREASURY FOR WILBUR MONROE, BILL FOSTER
DOE FOR INTL AFFAIRS KDEUTSCH, ALOCKWOOD, AND GWARD
NSC FOR RICHARD MILES, DAN FISK
EXIM FOR MICHELE WILKINS
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (BORA DURDU)

E.O. 12958: N/A
TAGS: EFIN ECON MX
SUBJECT: MEXICO'S STOCK EXCHANGE GOES PUBLIC

REF: A. MEXICO 1504

B. 07 MEXICO 6187

1. (SBU) SUMMARY: The Mexican Stock Exchange (BMV) sold a
41% stake of itself in an initial public offering (IPO) on
June 12. After four days of trading, shares of the exchange
finished 5.5% lower than the initial price set on June 12,
losing ground alongside the broader market. Many consider
the offering a success because the BMV was able to raise
much-needed resources and because the IPO will make the BMV
more transparent. Other local experts are more pessimistic,
however, citing the BMV,s &weak fundamentals.8 END
SUMMARY.

-------------------------------------------
Stock Exchange Makes its Long-Awaited Debut
-------------------------------------------

2. (U) The Mexican Stock Exchange (BMV) launched an initial
public offering (IPO) to list its own shares on June 12. The
BMV -- which had been closely held by Mexico's banks and
brokerages -- sold a 41 percent stake. The IPO was
oversubscribed by 12 times in Mexico and seven abroad. More
than 13,600 individual investors and 100 institutional funds
participated in the operation. The strong demand
notwithstanding, in its first day of trading, exchange shares
slipped one Mexican cent from the $16.50 pesos (USD 1.60) a
share price set on June 12. The BMV stock closed at 15.60
pesos (USD 1.52) on June 18, losing ground alongside the
broader market.

--------------------
Local Reaction Mixed
--------------------

3. (SBU) The chief equity analyst for HSBC in Mexico told
Econoff on June 18 that the IPO was successful because the
BMV was able to raise the resources it needed to increase its
stake in the derivatives exchange and other related
businesses, and to invest in new technology. He believed
that the timing of the placement was not a problem because
the Mexican stock exchange has been profitable this year
despite global market volatility. Alejandro Reynoso, the
BMV,s Managing Director of Corporate Strategy, also
expressed his belief that the offering was successful, noting
that the IPO will make the stock exchange more transparent.
He said the fact that the BMV,s Board of Directors now has a
majority of independent members cannot be understated.

4. (SBU) By contrast, another local equity markets expert
told Econoffs on June 17 that he was surprised demand for the
IPO was as strong as it was because the issue was not &high
quality.8 This expert and an economist from Banamex cited
the shortage of new issues in Mexico -- the BMV only had four
IPOs last year -- noting how new listings spell future
trading growth for stock exchanges. He added that Mexico
faced competition from the Brazilian Bovespa exchange,s IPO
in 2007 since some investors who bought into the Bovespa did
not feel the need for more exposure to equity trading in
Latin America. Reynoso agreed with this assessment,
commenting that this was one of their biggest challenges
during the selling process. BMV officials had to convince
investors that the Mexican exchange is more open and has
closer relations with the U.S. and other Latin American
exchanges than Brazil, and that investors need exposure in
both.

5. (SBU) When asked why demand for the new shares far
exceeded supply, the pessimistic equity markets expert said
investors, including institutional buyers, wanted in on the
operation in the event that the BMV is consolidated or sold
to another entity (e.g. the New York Stock Exchange). He
remarked that there has been talk of such an event down the

MEXICO 00001868 002 OF 002


road. The fact that the BMV is not just a stock exchange but
also owns the majority of the clearing and settlements
businesses and the bulk of the country,s futures and options
exchange also sparked investor interest in the offering. The
equity markets contact remarked that some market players have
raised the idea of creating another exchange, but noted that
he did not see this happening in the foreseeable future.

6. (SBU) This expert said he hoped the IPO would lead to a
shakeup in the BMV,s management -- a group he strongly
criticized for not doing more to grow the stock exchange. He
was particularly harsh regarding BMV President Guillermo
Prieto,s public assertion that the stock is likely to be
added to the benchmark IPC stock index next year. The
contact called this statement an abuse of power since the
authorities have no way of knowing if the stock will meet the
requirements to be added to the index. He likened Prieto,s
assertion to a team owner who will do anything to ensure his
team wins. He remarked that being in the index is important
because local pension funds buy indices, not individual
company stocks.

7. (SBU) Both Reynoso and the HSBC analyst expected the price
of the shares to stabilize. Reynoso was not surprised about
the volatility in the stock,s value because equity markets
have been performing poorly. HSBC said that the price seemed
to be following the market as a whole and that it was
possible the price would rebound. The long-term value of the
stock will depend in part on future financial reports the BMV
releases. He noted that the price was particularly volatile
on June 17 because investors looking for a quick profit were
selling shares, while investors with a longer term vision,
such as institutional investors, were buying. The
pessimistic equity markets expert, by contrast, said that the
company,s poor fundamentals suggest the BMV,s shares will
not perform well.

-------
Comment
-------

8. (SBU) Despite the authorities, public and private
statements to the contrary, they are probably a little
disappointed with local reaction to the IPO. Investor and
media interest in the offering was dim in comparison to the
Bovespa,s IPO last year. Of course, they must have known
that volatility in global equity markets, the BMV,s limited
IPO activity, and the fact that a handful of companies
dominate their respective sectors in Mexico would be a drag
on the offering. Regardless, any move that encourages the
exchange to be more active and transparent is welcome.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

© Scoop Media

 
 
 
 
 
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