Through the stock market, Mexican companies have the option of obtaining financing through the placement of debt instruments, which can be short, medium or long term.
The debt instruments of private companies in the industrial, commercial, and service sectors, which are handled in the Stock Market and these with greater frequency are:
Commercial Paper (Short Term-1 year)
Promissory note (Medium Term-1 to 3 years)
Obligations (Long Term-4 to 7 years)
Actions.
Commercial paper.
They are called the promissory notes signed by Mexican corporations, denominated in national currency, destined to circulate in the stock market.
Classification:
Unsecured.
Without specific guarantee, because it is the moral solvency and financial soundness of the issuing company that gives security to the holders or investors.
Endorsed.
The title is specifically guaranteed by a credit institution.
Indicated at the peso-dollar free exchange rate.
In addition to the yield that is given by the differential between the nominal value and the placement price, it will generate an exchange guarantee for investors.
Advantage.
Offer an alternative source of financing.
Its operating costs are in accordance with market conditions.
It is adapted to the programs and / or budgets of the treasuries.
Disadvantages:
Qualification by a securities rating company is required.
It is necessary to collect information and provide it periodically to the respective activities, which increases administrative work.
Medium term promissory note
Medium-term promissory notes are considered to be the promissory notes signed by Mexican companies, denominated in national currency, intended to circulate in the stock market.
Classification:
Unsecured.
It is said that it is unsecured, that is, without specific guarantee, because it is the moral solvency and solidity of the issuing company that gives security to the holders or investors.
Endorsed
By indicating that it is guaranteed, it means that the title is specifically guaranteed by a credit institution.
With fiduciary guarantee
If the instrument is issued with a fiduciary guarantee, it will be a requirement to state it on the reverse side of the titles, and specifically indicate the characteristics of the trust and the assets that comprise it.
And in the 3 previous modalities, it will also be indexed at the free peso-dollar exchange rate.
When it is indicated that it is indexed to the peso-dollar free exchange rate, it means that in addition to the yield via the interest rate, it will generate an exchange gain for investors, which will be the result of the variation of the dollar's free sale exchange rate. of the EU between the date of issue and the expiration date, if said reference is positive.
Advantages.
Offer an alternative source of financing.
Its operating costs are in accordance with market conditions, in addition to not requiring reciprocity with credit institutions.
It adapts to budgets, both for those who require the resources and for those who are to invest surpluses, that is, it allows financial planning.
The procedures if you have the information required by the authorities - they are simple and agile.
It does not oblige the company to compromise its liquidity (short-term resources).
Avoid the procedures for renegotiating annual credit lines.
It allows the maturation of investment projects.
It offers the issuing company a margin of maneuver to solve short-term financial problems.
It does not need to be approved by the Governing Board of the CNBA, which meets monthly, which reduces the term of the issue.
It offers the investor in particular:
* A medium-term investment alternative.
* Competitive performance.
* Liquidity (for its secondary market)
* If you invest in instruments indexed at the exchange rate, you obtain protection against the devaluation of the national currency.
Disadvantages.
It is necessary to collect information and provide it periodically to the respective authorities or entities (CNBV, Calificadora de Valores, among others), which increases administrative work.
Obligations (bonds)
They are credit titles that are issued in the medium and long term (generally between four and seven years), and represent a proportional part of a collective credit in charge of a company (issuing company), which undertakes to cover the holders of said financing instruments, the corresponding interest and to restore the capital through amortizations, both in a pre-established and periodic manner.
Classification.
Unsecured:
When the company does not grant a specific guarantee, that is, the support of the issue is found in the economic and moral solvency, as well as in the financial solidity of the issuing company.
Mortgages.
They are backed by a guarantee constituted by a mortgage on real estate, machinery or equipment or industrial mortgage. The goods that make up the guarantee must be insured against all kinds of risks.
Fiduciaries.
To guarantee this type of obligation, a trust is established where the settlor is the issuing company and the trustees are the holders of the securities, said trust is integrated with resources (real or personal property) sufficient to meet the commitment contracted by the company.
Subordinate.
They are issued with payment conditional on the fact that in the event of liquidation of the issuing company, the payment of the obligations will be carried out once the rest of the liabilities in charge of the company have been covered.
Indexed.
They are denominated like all the obligations in national currency, but the payment of interest and principal is settled in relation to the free exchange rate of sale of the dollar of the United States of America. Companies that issue indexed obligations must justify obtaining sufficient income in currency and amount to allow them to meet the debt.
Convertibles.
The holders of the securities will periodically receive an interest, the difference is that when the principal repayments are made, they may choose to receive cash or convert the bonds into common shares representing the capital stock of the issuing company. It may be the case that conversion into shares is mandatory.
Advantage.
It represents an option to obtain medium and long-term resources.
The interest rate that the instrument will accrue is according to market conditions and is set taking into consideration the moral quality and prestige of the issuing company, as well as the rating obtained by the mission.
It is a versatile instrument, since it offers the issuer different alternatives for the term of the issue, the grace period, fixing the interest rate, and, where appropriate, guaranteeing them. Even convert credit to equity if convertible bonds are issued.
It does not oblige the company to commit a significant volume of short-term resources, only those corresponding to interest.
Avoid renegotiation procedures for annual credit lines.
The grace period allows the maturation of investment projects, the start-up of plant extensions and new machinery and equipment.
It offers the issuing company a financial margin of maneuver to solve short and medium-term financial problems.
It does not need to be approved by the CNBV governing board, which meets monthly, which reduces the term of the issue.
Regulatory provisions.
Public limited companies can issue bonds that represent the individual participation of their holders in a collective credit established by the issuing company.
The obligations will be registered and must be issued in denominations of $ 100.00 or its multiples.
The obligations will give their holders within each series, equal rights.
It may not be agreed that the obligations are amortized by means of drawings for a sum greater than their nominal value or with premiums or prizes.
No issue of obligations may be made for an amount greater than the net assets of the issuing company.
The issuing company may not reduce its capital, if it does, it must reduce in equal proportion the amount of the issuance of the obligations issued by it.
Companies that issue bonds must annually publish their balance sheet.
If a mortgage is constituted as guarantee of the issue, in addition to being recorded before a notary, it must be registered in the public property registry and in the commercial registry.
If securities or assets are pledged to guarantee the issue, the pledge must be established in accordance with the provisions of the LGTOC.
If the purpose of the resources from the issuance of obligations is to substitute liabilities, the common representative of the bondholders will sign the titles and authorize their delivery once the documents relating to said liability have been canceled.
If the issuance represents a new credit for the issuer, the common representative of the bondholders will subscribe the securities and authorize their delivery, once it has been verified that the resources are in the possession of the issuing company.
Actions
It is a value that represents one of the equal fractions into which the capital stock of a public limited company is divided. Via the action, its holder obtains the quality, rights and obligations of partners, its amount is the limit of the owner's responsibility to third parties and the identity.
Advantage.
The process of buying and selling shares is facilitated, since by participating in the market, the opportunities become greater by increasing the number of potential sellers and buyers.
If shares are sold in circulation, since it is the shareholders who sell all or part of their shares, they make their profits.
If new shares are issued, the increase in resources will go to the company's treasury, with which its financial room for maneuver will increase and it will be able to carry out its expansion and growth plans.
Disadvantages.
Loss of control, that is, one must be aware that once the company is listed on the stock market and consequently part of the capital belongs to third parties, it will already be the absolute owner of the business.
Given the increase in the number of shareholders, after the IPO, the main managers tend to feel greater pressure, since the decisions they obtain will not only be analyzed by a few but perhaps by hundreds.
Decisions of greater importance for the business that are used to making without major consultations and consulting only a few shareholders must now be approved by a shareholders' meeting who will defend their own interests.
Comparing investments in instruments in two different markets.
| Stock market | Banking sector | |
| Does it guarantee performance? | Not on instruments in general.
Only in repurchase agreements. |
Only in PRLVs and CEDEs as instruments.
Also in repurchase agreements. |
| Do you have insurance to protect the saver? | Not. | Yes, through the IPAB (in 2003 it will be limited). |
| Who is responsible for making the interest payments? | The issuers of the securities.
In the case of repurchase the brokerage house or the bank. |
In all cases the interest is paid by the bank. |
| Type of intermediation | Hint:
It only puts the parties in contact, so they have to go out and find a buyer or seller. |
Direct:
The bank is the counterpart in all operations, so it directly quotes the operation. |
| How does the intermediary make his profit? | Charging commissions or applying differentials in interest income. | Charging commissions or paying less interest than you earn. |
| How is the relationship between risk and return? | Higher risk, higher return. | Lower risk, lower return. |
| How are returns adjusted in the market? | Daily according to supply and demand. | There is no adjustment, it is defined until maturity. |
| Investment term | At maturity or with market liquidity. | To the expiration. |
| Is it possible to finish the trade before expiration? | Yes, according to the liquidity of the instrument.
Not in the case of repos. |
Not generally, there may be charges for this reason. |
CONCLUSIONS
Financing through the stock market provides a wide variety of options and in order to make an adequate choice for our needs, it is necessary to consider certain factors that provide us with a panorama to take less risks and make a good choice. It must be considered that no private or banking instrument is guaranteed by the Federal Government, so it is important to evaluate the credit quality of the private issuer, including municipalities and states, to know the risk incurred. For this, it can be supported by the evaluation made by the securities rating agencies; When the instrument is purchased, the person responsible for paying the interest and amortization is the issuer and not the intermediary (brokerage house or investment company).The only case in which the intermediary (bank or brokerage house) is obliged to pay interest is when repos with him.
The higher the rate paid by the debt instrument, the greater the term and the risk.
Another important aspect to take into account for each issue are the rate review dates (semi-annual. Quarterly, every 28 days, this applies to instruments with periodic interest payments). The terms between payments and the calculation of the interest rate in all cases affect the yield: "the longer the term, the greater the risk", because the longer the term, an upward variation in the rates can occur that affects to a greater extent the market price. A measure to avoid taking a loss in these cases is to invest in the long term only that amount of money that you are sure not to use before the expiration or date of recalculation of the rate.
GLOSSARY
Escrow
Commercial legal figure by virtue of which a settlor allocates certain assets to a specific lawful purpose, entrusting their realization to a fiduciary institution.
Act by which certain assets are used for a specific lawful purpose, entrusting a fiduciary institution to carry out that purpose. Mexican law only accepts express trust.
Legal instrument, contemplated in the legislation and established by the "self-financing" company, for the correct administration of all consumer contributions.
Settlor
It is one that delivers certain assets for a lawful purpose to another person called a trustee to carry out the purpose for which the assets were intended. Only natural or legal persons who have the necessary legal capacity to affect the assets and the competent legal or administrative authorities can be trustees.
Fiduciary
Financial institution expressly authorized by law, which has the ownership of the assets or rights in trust. It is in charge of the administration of the trust assets by means of the obligatory exercise of the rights received from the trustor, arranging the necessary for the conservation of the constituted patrimony and the fulfillment of the objectives or instructions of the trustor.
Bonds
Card or voucher exchangeable for any merchandise.
Index
To register data and information in an orderly manner, to prepare an index of them.
Endorsement
Signature that is placed at the bottom of a credit document to answer for your payment, if the person obligated to it does not make it.
I'll pay.
Title of credit that contains an unconditional promise to pay a certain sum of money, given by a person called subscriber to another who receives the name of beneficiary in a certain time. I owe and will pay unconditionally. Literacy requirement in the document.
I will pay stock.
Bank title issued by credit institutions authorized by Banco de México, whose interest is paid upon maturity by the issuing institution. Its performance is based on the differential between the placement or purchase price and its redemption price
Nominal value of a share.
Amount of capital represented by the issue or series, on the issue date, divided by the number of shares; this value being a simple reference in the titles, or it may not be expressed.
Market value.
Replacement cost, either by direct purchase or production as the case may be. This can be obtained from the quotes that appear in specialized publications, if they are articles or merchandise quoted in the market, or from quotes and prices of supplier invoices, among others.
The value of the securities or securities prevailing in the market at a given time, depending on their term and the days that have elapsed since their issue. For its calculation, the rate of return of each issuance is considered for the time elapsed since its issuance until the moment that it is desired to calculate, in other words, it is the placement value adjusted by the interests that are generated daily from each of the outstanding emissions.
Fork
The one who legitimately owns a bill of exchange or other endozable security
Amortization
Operation through which the cost of fixed capital is distributed between each of the periods that make up its economic life.
Mortgage.
Lien on real estate by which they are assigned as a guarantee of an obligation with which the payment of a credit is guaranteed.
Trustee
It is the natural or legal person who has the necessary legal capacity to receive the benefit that results from the object of the trust.
Bibliography
Information source: Internet.
Consulted web pages
- http://www.condusef.gob.mx/index.htm - National Commission for the protection and defense of users of financial services.http: //www.condusef.gob.mx/mercado/II_2.htm - Market of Valores.http: //www.condusef.gob.mx/glosario/glosario.htm - Glossary of financial terms.
