Mexican Airport Bonds Jump as Government Sweetens Buyback Offer

(Bloomberg) -- Bonds issued to fund a canceled $13 billion international airport in Mexico City jumped Wednesday after the government improved a buyback offer in a sign that it wants to resolve the dispute and is willing to address investor concerns.

The improved offer, which is still capped at $1.8 billion of a total $6 billion outstanding, includes a buyback price of par plus accrued and unpaid interest as well as a consent payment for investors who enter into the deal before Dec. 19, Mexico’s Finance Ministry said in a statement late Tuesday. The previous tender had offered a reverse Dutch auction to determine the price starting as low as 90 cents on the dollar.

Bonds due in 2026 and 2047 jumped as much as 6 cents to trade at 92 cents and 93 cents respectively.

“It’s not perfect as they will only be buying back a portion of the bonds and the volatility created will still leave a bittersweet taste for the market,” said Guido Chamorro, senior investment manager at Pictet Asset Management Ltd in London. “Nevertheless, versus two weeks back when these bonds were trading at 75 cents, I believe this is a pretty good outcome.”

After upending investor confidence by shelving the ambitious international airport following a public consultation, President Andres Manuel Lopez Obrador is trying to mend some of the damage by sweetening the offer and vowing to protect all investments in the project. The government is treading lightly with its comments and actions in order to avoid violating any terms of the notes which could risk an acceleration of the debt, prompting full payment immediately.

“The Ministry of Finance and Public Credit believes that these changes are in the best interests of holders, and that they address the concerns raised by holders to the fullest extent possible,” according to a press statement.

The offer also adds additional protections for holders including limits on competing airport projects, lower rates of passenger charges at the current Mexico City airport and limitations on new debt issuance by the trust. The final deadline to enter into the tender offer will be Jan. 4.

A group of creditors claiming to hold more than 50 percent of the notes rejected the original offer the government proposed, raising concerns that it would strip them of some of their rights. They balked at stipulations that holders must consent to allowing the project to be canceled and that revenue streams for the bonds would be diverted to the existing Mexico City airport. It’s now up to bondholders to decide whether to accept the new terms.

©2018 Bloomberg L.P.