Saturday, December 2, 2023

Airport bonds buyback planned as construction carries on

The federal government announced today that it would buy back a portion of the US $6 billion of bonds sold to fund the cancelled Mexico City International Airport project.

The Secretariat of Finance and Public Credit (SHCP) said in a statement that “the Mexico City Airport Trust (MEXCAT) will proceed with a transaction directed at holders of international MEXCAT bonds.”

It added that “the transaction is part of a comprehensive plan to attend to the contractual rights of all parties with interests in the development of airport infrastructure in the Mexico City metropolitan area.”

Under the buyback plan, the airport trust will purchase US $1.8 billion worth of bonds at between 90 cents and the par price of US $1.

The newspaper the Financial Times reported that in exchange the bondholders would have to agree to a loosening of their rights on the remaining debt.

“The principal objective of the repurchase and consent request is to give flexibility to MEXCAT in the event that the new administration makes changes [to the airport project],” the SCHP statement said.

It added that the proposal is “part of a comprehensive plan to attend to the agreements and commitments related to the Texcoco airport with contractors, investors and other shareholders, including holders of FIBRA E shares.”

The statement concluded by saying that the Mexico City Airport Group, the state-owned firm responsible for the airport project, intends to guarantee “fair treatment” to all interested parties “in accordance with market practices in these situations.”

Since the cancellation of the airport project in late October following a public consultation, there has been market concern about the economic impact of the decision and FIBRA E shareholders said late last month that they were evaluating their legal options in light of the government’s decision.

The Financial Times said that investors gave an initial welcome to today’s buyback proposal: a US $3-billion bond due in 2047 increased in value to 86 cents on the dollar whereas prior to the announcement it was trading at 75 cents.

Michael Leithead, a portfolio manager at EFG Asset Management, told the Times that on balance the government’s proposal was a positive development.

“As a bondholder, you invest to be paid back over time and when considered against this alternative, the current offer looks potentially attractive,” he said.

The Mexican peso rallied on news of the buyback and was on track to post its best single-day gain since July, the news agency Reuters reported.

While the bond repurchase process takes place over the next 20 business days, construction of the US $14-billion airport, which is roughly one-third complete, will continue.

However, the government hopes that there will be sufficient take-up of the buyback offer to be able to announce a definitive termination to the project during the second half of this month.

During this year’s election campaign period, President López Obrador rallied against the airport project, charging that it was corrupt, too expensive and not needed.

He also argued that the location – an ancient lake bed in Texcoco, México state – was unsuitable due to its susceptibility to sinking.

Almost 70% of people who participated in a four-day consultation on the new airport’s future voted in favor of building two new runways at the Santa María Air Force Base and upgrading the existing Mexico City airport and that in Toluca over continuing with the current project.

In his inauguration speech Saturday, López Obrador pledged that Santa Lucía would be operating as Mexico City’s new airport in three years.

Source: Milenio (sp), Financial Times (en) 

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