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Viewing cable 08MEXICO1868, MEXICO'S STOCK EXCHANGE GOES PUBLIC

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Reference ID Created Released Classification Origin
08MEXICO1868 2008-06-19 17:51 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Mexico
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