(Bloomberg) — Mexico needs to overhaul its financial regulations and boost incentives to revive an all-but-dead market for initial public offerings, according to one of the country’s biggest investors.
Sergio Mendez, who serves as BlackRock Inc.’s country chief in Mexico, said in an interview that he’s urged regulators to take steps that would ease listings such as reducing the amount of information companies need to disclose when they go public. His recommendations, he said, are based on conversations with executives about what it would take to help ease Mexico’s drought.
“We need some adjustments in the regulation about IPOs in order for companies to be more incentivized,” Mendez said. “If we had more participants and proper regulation we could see Mexico exploding.”
It’s been 17 months since the last initial public offering by a company and four years since the market saw a listing close to $1 billion, a drought that risks curbing economic growth as companies struggle to find capital for investment. A pawn-shop operator that plans to carry out an IPO in February is the first by a company that is not a real estate trust since 2017.
Mendez came to BlackRock, the world’s largest asset manager, in 2020 after stints at Afore Banorte and Santander Asset Management. BlackRock manages more than $90 billion in Mexico through its ETFs and mutual funds, according to Mendez.
Read More: Mexico Stock Market is So Dead That Buyouts Are the Only Action
Easier to be Private
Mexico’s market is so dead that bankers, desperate to drum up business of any kind, spend their days pitching companies to de-list. In the past year, five companies have started the process to leave the stock exchange.
“It’s easier to be private,” Mendez said. “That’s why we’ve seen some de-listing of companies. There’s an uneven field in which there’s a heavy burden on disclosing information.”
Mendez said some of these requirements aren’t particular to Mexico.
But many of the biggest companies are controlled by families who don’t want to bring attention to their wealth given the endemic violence, which has always been a factor discouraging them from going public and disclosing financial details.
Mendez also points to the fact that some Mexican special purpose acquisition companies, known as SPACs, have listed in the U.S. instead of their home country.
“It’s a Mexican strategy, it’s a Mexican vehicle but it’s listed abroad,” Mendez said. “That tells you something.”
Retail Customers
Mendez says one way BlackRock is trying to help develop Mexico’s market is by getting more people involved, especially the middle class.
BlackRock has been working in alliance with Citibanamex to attract retail clients, Mendez said.
The target is “regular people, private clients, from savers to investors,” he said. “One of our first problems is we don’t have many participants, the retail isn’t there.”
Mexico’s pension funds hold assets equivalent to more than 20% of gross domestic product, he said. Mendez said a reform that came into effect this year will help boost internal savings in pensions to about 50% of gross domestic product by 2040.
“We’re talking about a lot of internal savings, but the problem is that they’re only concentrated in 10 participants,” he said. “We have been successful in transforming savers into investors by telling them ‘You’re going to lose purchasing power, we better diversify.’”
Another strategy has been to push for investments that are ESG-compliant, referring to projects or targets that are tied to environmental, social and governance measures.
“You’d be surprised how new generations are demanding these types of products,” Mendez said. “Our first ESG observant vehicle launched about 14 months ago in Mexico and that’s been one of the fastest-growing products, it’s around $1.6 to $1.7 billion,” he said.
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