WHAT S NEXT: DEVELOPMENTS AND NEW EXPECTED POLICIES IN MEXICO S NEW ADMINISTRATION

Transcription

1 WHAT S NEXT: DEVELOPMENTS AND NEW EXPECTED POLICIES IN MEXICO S NEW ADMINISTRATION

2 What has made Mexico an attractive country for investment So close to the US and its economy Strong labor regulation Biggest FTAs network and bits Civil law regime Limited restrictions to foreign investment Limitation on liability Substantial double taxation treaty network Diverse corporate structures Steady economic growth over three decades Arbitration friendly Political stability Independent autonomous entities (Bank Market of 130 million people of Mexico, antitrust, others) Trained and trainable work force at reasonable cost A good access point to other markets Free flow of funds Stable open economy for 30 years Appropriate taxation levels Issues Personal Security / Organized Crime + Disparity in Income Distribution + Corruption + Lack of Transparency + Lack of Rule of Law

3 Reforms that have reshaped Mexico in the past decade Energy Reform New players Oil and Gas Power Legal reforms of the past decade Financial Fintec Education Transparency, Access to Public Information and Privacy Criminal Corporate Liability Anti Corruption, AML, Compliance Corporate Criminal Liability Telecom, Financial Labor Still A Long Way To Go, But With Solid Foundations Hogan Lovells 3

4 New Form of Government AMLO/ MORENA won Presidency and Congress Leftist populist party Intend to reshape the manner in which the economy work Fight insecurity Fight corruption Close the gap between rich and poor

5 What is the agenda, and why it matters Lower salaries for public officers Greater control of economy Labor reforms: Employee outsourcing Profit sharing Stronger unions New labor tribunals Reform administration structure Reverse parts of energy reform Referendum to take State decisions and revoke mandate Less educated/sophisticated public officers Limitations / Price Controls? Revisit outsourcing structures Active unions Labor disputes will depend on judiciary Independent regulators? Suspension of investments/less production of hydrocarbons/higher costs on Power New refinery/infrastructure May be used to extend mandate Populist decisions with no business sense

6 Biggest concern - Manner in which power will be exercised Referendum = No Checks And Balances New Mexico City International Airport Cancelled Creates uncertainty of future projects; Affects structuring Affects EPC contractors and financing Featured image from Hogan Lovells 2018 Capture Photography Competition

7 Impact for companies and investments What s next? Do we really know? Look at other jurisdictions /LatAm Listen to actions, not words Proactive not reactive Revisit investment protection structure Revisit compliance Stronger MAC provisions Analyze options Asset ownership Exit strategies Opportunities for the grasp New approach to investment? Higher risks mandate higher rewards; Investors with different risk appetites reshaping the players & new players Increased M&A re: family owned businesses Mixed reactions by investors Hogan Lovells 7

8 U.S. perspectives Heighted concern if it involves: Material contracts/partnering with governmental authority Natural resources Infrastructure and other high profile projects Less sensitivity outside those parameters still some impact on: Employment/labor relations Overall regulatory/permitting Currency/foreign exchange risk Hogan Lovells 8

9 Dealing with heightened risk Managing exposure control over capital Enforcement of contracts Counterparty private vs. governmental authority Remedies Actively monitor Hogan Lovells 9

10 New possible ways of financing for AMLO The resolution of the Mexico City Airport Bonds will shape the future of financing options in Mexico. AMLO has stated that the bonds will be repaid in spite of cancellation of the project, but how? Cash flow for payment is based on the revenues stream of the current and future airport (passengers and concession fees). Without the new airport there will be no increase of those revenues needed for repayment. Cancellation of Airport Concession will trigger an acceleration event, and prepayment tender of the bonds represents more money for bondholders (make-whole). Show me the money! AMLO promises to pay bondholders in spite of cancellation of the project. The position goes in contradiction to populist speech (free money to banks and less to the people).

11 New possible ways of financing for AMLO AMLO platform of more infrastructure and social projects needs a lot of money. The Mexico City airport mishandling may have an important impact in the future of westernized classic project financing in Mexico. Asian lenders are watching and will be ready to step in and they could be AMLO s survival option for new money and infrastructure development. Chinese model of financing The three package model implemented in Africa and other Latin American countries. Lenders/Contractors and repayment with commodities. What will be the reaction of the U.S. if massive amount of Chinese money and contractors land in Mexico?

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