AMLO clears hurdle to canceling $13 billion Mexico airport project
Bondholders agreed ‘overwhelmingly' to accept buyback offer
Project scrapped after referendum organized by AMLO's party
Juntin Villamil, Nacha Cattan and Andrea Navarro / Bloomberg
Petroleumworld 12 20 2018
A majority of bondholders accepted Mexico's offer to buy back $1.8 billion in debt used to fund the construction of an international airport that President Andres Manuel Lopez Obrador has said he'll cancel.
There was "overwhelming" acceptance by bondholders, Mexico's Finance Ministry said in a statement on Wednesday. The acceptance by bondholders will allow the government to avoid a mandatory repayment of all $6 billion in bonds that would have been triggered by the cancellation of the airport.
"This is a favorable result for the Mexican government," said Omar Zeolla, a corporate debt analyst at Oppenheimer & Co. "It was approved as we had hoped and in line with market consensus."
The announcement makes it cheaper for Lopez Obrador to dismantle the $13 billion airport project, a decision that had caused the peso and bond market to tank when he announced it in late October. Bondholders had initially rejected the deal until the Finance Ministry sweetened the offer last week with a buyback price of par plus accrued and unpaid interest.
The tender offer was oversubscribed in all four of the bond series outstanding, according to a person familiar with the transaction, who asked not to be named as he is not authorized to speak publicly on the matter. Over 70 percent of bondholders participated in the consent, according to the person.
The Mexican peso was little changed at 20.1025 per dollar in early Asia trading. The currency has weakened 3.7 percent since Lopez Obrador's decision to cancel the airport in late October.
Lopez Obrador scrapped the project after a widely-criticized referendum organized by his own party. Situated in the Mexico City suburb of Texcoco, northeast of the capital, the new airport was slated to replace the cramped and aging Benito Juarez International Airport, Latin America's busiest last year. The airport became a lightning rod during this year's presidential campaign as Lopez Obrador vowed to cancel the project that's more than a third of the way to completion.
Now, the administration will stand by its proposal to add two runways to the Santa Lucia military base while upgrading the current airport in the neighboring city of Toluca. Construction at the Texcoco airport is continuing while Lopez Obrador's team negotiates with creditors. Officially canceling the project could be grounds for bondholders to demand immediate repayment of the outstanding notes.
Why Mexico's Airport Is Rattling the Bond Market: QuickTake
In addition to the bonds, another $1.6 billion in funding came from an initial public offering of Fibra E shares - a hybrid between a master-limited partnership and a real estate investment trust. The Fibra E shares were bought mostly by billionaire Carlos Slim's Operadora Inbursa through its pension fund.
The acceptance is a win for the new government, which was seeking to avoid mandatory repayment on the outstanding bonds. Under the terms of the initial contracts, cancellation would have constituted an event of technical default. By accepting the offer, bondholders have waived that right.
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Story byJuntin Villamil, Nacha Cattan and Andrea Navarro from Bloomberg News.
bloomberg.com 12 19 2018
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