Co-financing with Mexican Pension Funds

Transcription

1 Co-financing with Mexican Pension Funds Board of Directors Meeting Hermosillo, Sonora June 15, 2017

2 Introduction NADB-BECC Charter Pension System Law NADB shall fulfill the following functions: a) promote the investment of public and private capital b) encourage private investment in projects, enterprises, and activities, and supplement private investment when private capital is not available on reasonable terms and conditions; and The AFORES investment regime will foster: Productive activity within the country Job creation Housing construction c) provide, under the direction of the Board of Directors, technical and other assistance for the financing and the implementation of the plans and projects. Strategic infrastructure development Regional development In carrying out its functions, the Bank shall cooperate, as appropriate, with national and international institutions and with private sources supplying investment capital. 2

3 Billions of MX pesos AFORES: Administradores de Fondos para el Retiro Mexican pension fund created in 1997 that went from a pay-as-you-go system to a defined contribution system based on individual accounts. Given Mexico s demographics, managed assets have increased exponentially in recent years. AFORES have a lot of liquidity readily available for investment. AFORES are not active players in the project-finance sector for infrastructure projects. Because of limitations, other investment vehicles had to be created to allow their participation in private equity and infrastructure projects. 3,500 3,000 2,500 2,000 1,500 1, % 1, % 12.67% 1,903.2 Afores Net Assets 2, % 2, % 2, % 2, % 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 1.0% -1.0% % of GDP Source: Consar 3

4 AFORES: Administradores de Fondos para el Retiro Participation of Government Securities in Afores Portfolio AFORES Portfolio (As of December 2016) 0.70% 5.70% 7.00% 58.8% 54.0% 49.7% 49.4% 50.2% 52.8% 12.10% 54.20% 20.30% Source: Consar Mexican Government Debt Foreign Equity International Debt Local Private Debt Local Equity Other 4

5 CKD: Capital Development Certificate CKDs is a publicly-listed financial instrument that allows institutional investors to invest in projects or companies with the oversight of a qualified manager. To date, more than 65 CKDs totaling about MX$255 billion have been issued. CKDs are subject to all corporate governance requirements set forth under the Mexican Stock Market Law and must comply with all information disclosure rules that apply to public companies. CKDs have been used by institutional investors to invest in various sectors including infrastructure, real estate and private equity. The proposed CKD would be the first of its kind, as it would cofinance infrastructure projects alongside NADB. 5

6 Proposed CKD Structure Governing Bodies General Assembly of Certificate Holders Technical Committee 1) AFORES funding in exchange for ownership certificates issued by Trust AFORES Issuer Trust* Acts as CKD Advisor and submits projects for funding approval Manager Acts as CKD Fund Manager 2) Co-funding of projects with NADB or other lenders Bank Syndicate Project 1 2) Co-funding of projects with NADB or other lenders Bank Syndicate Project 2 Project 1 SPV** Project 2 SPV** * The certificates are publicly listed on the Mexican stock exchange and are subject to all the regulations. ** Special-purpose vehicle (SPV) 6

7 CKDs Governing Bodies General Assembly of Certificate Holders Main governing body representing the investors. Approves investments that exceed 20% of the assets. Approves investment policies. Designates Technical Committee members. Technical Committee Comprised of members designated by investors and the manager (25% of the members must be independent). Establishes investment policies. Approves investments that exceed 5% of the assets. Establishes the terms and conditions of the scope of work of the manager. Manager Identifies and submits investment opportunities for approval. Leads due-diligence reviews of financed projects. Procures and coordinates external advisors. Negotiates and closes loan agreements. Bookkeeping. Cash management. Prepares annual budget. Gives instructions to confer powers of attorney. Prepares and submits reports required pursuant to regulations (quarterly, annual, etc.). 7

8 NADB Role The proposed CKD will leverage NADB s expertise in originating and structuring projects. NADB would present financing opportunities to the CKD and co-finance approved projects with the CKD and other lenders. NADB would support the CKD during the due-diligence review of each project. Administrative and reporting activities would be carried out by the Manager. NADB is open to assuming that role in the future. 8

9 Additionality Offers a long-term financing product from the private sector where commercial banks have limitations in terms of amounts and tenors. Leverages NADB s expertise in underwriting and overseeing projects during the construction phase. NADB s capital exposure will be limited to the amount that the Bank lends to each project. Promotes the development and construction of more projects that comply with NADB/BECC s requirements, which would ultimately benefit the residents of the border region. Provides access to significant untapped resources to finance infrastructure. Allows AFORES to invest in a new asset type, diversify their portfolio away from government debt and boost returns for the benefit of their enrolled employees. Provides more options for projects to be financially viable. 9

10 Conclusion This co-financing structure: Presents an opportunity to promote and encourage the investment of private capital in projects located in Mexico and certified by the Board, while leveraging NADB s expertise. Bridges the gap between the financing requirements of environmental infrastructure in the border region and the AFORES liquidity and appetite to fund infrastructure projects. Leverages NADB s capital by bringing additional resources for infrastructure projects. 10

11 Co-financing with Mexican Pension Funds Board of Directors Meeting Hermosillo, Sonora June 15, 2017