Mexico Accepts $3.6 Billion in Bids

Mexico said Thursday that it had accepted $3.67 billion in bids from foreign banks in its innovative debt-for-bonds swap, just over a third of what the country was hoping to receive to retire some of its mountain of debt.

The Mexican Finance Ministry, presenting the official results of the bid auction held last Friday, said it would issue $2.56 billion in 20-year U.S.-backed bonds, which the banks are to accept in exchange for some of their Mexican loans.

The purpose of the auction--the first of its kind--was to offer foreign banks the chance to swap Mexican debt at a discount for 20-year bonds backed by the U.S. Treasury.

The ministry said the scheme would reduce its foreign debt by $1.11 billion, saving the country $2.65 billion in debt-servicing payments over the life of the bonds.

Mexico’s $78-billion commercial debt is the second largest by a developing country.

When Mexico first announced the plan in late December, which it devised along with New York-based J. P. Morgan & Co., it was hoping to issue up to $10 billion in new bonds to retire up to $20 billion in old debt.

“It wasn’t much of a success and can hardly be viewed as setting anything of a precedent for the future,” said an American banker here.

The ministry said the average discount on the accepted bids came to just over 30%. The country had hoped for discounts of about 50% on the bids that it accepted last week at an auction in New York.

But the Mexican government refrained from expressing any disappointment with the results.

“The results can be considered satisfactory, since (this) constitutes the first big international operation whereby a major debtor has managed to share part of the discount,” the ministry said.

It also described the auction as an important step toward finding new ways to bring about a fundamental solution to the debt crisis, which is stunting the growth of many developing countries.

“Mexico will continue to actively seek new mechanisms to reduce its foreign debt,” the ministry said.

It said 139 banks from 18 countries presented a total of 320 bids worth $6.7 billion. Mexico rejected nearly half the bids because the discount offered was too small. The ministry previously had said it would reject bids offering discounts of less than 30%.

Banking sources in the world’s financial capitals previously speculated that the auction might fall short of expectations. They said banks might be unwilling to steeply discount their Mexican debt because the resulting losses might exceed their loan-loss provisions.

Many of the big U.S. money center banks, among them Citicorp and Chase Manhattan Corp., shunned the auction, which seemed to them to be geared to lenders who wanted to get out of the business of lending to Mexico.