What is your view on the global and Mexican economic outlook?
The world economy has been held back by several major headwinds. Global GDP levels have been revised down, and Mexico is no exception. We are seeing rising levels of volatility in the markets as a result of sociopolitical events, and the economic landscape is being driven by low interest rates, a low price of oil and a flight to high-quality funds.
However, I believe that the economic outlook for investors in Mexico is becoming very positive. Regulation is improving the legal framework for contracts, new products are injecting liquidity into the local markets and new investors are emerging to take advantage of this environment.
What is your outlook on the aviation sector in Mexico?
The aviation sector in Mexico is going through an unprecedented stage of expansion. Passenger growth has historically grown at levels of almost double GDP growth, but in the last four years its rate of growth is in double digits.
Airlines have also been improving their margins, which has been partly driven by cheaper fuel costs due to low oil prices. Furthermore, airports have been steadily growing, following privatisation over a decade ago.
How have funding requirements differed for the various projects under construction for NAICM?
The total cost of construction for NACIM is estimated at US$13bn, and is supported by a financial structure that accomplishes three simultaneous goals: It is a non-recourse facility for the government, it provides enough flexibility to adjust the construction schedule and it minimises funding costs by mitigating risks such as construction risk.
To what extent does GACM rely on external funding versus balance sheet funding? How is this likely to change in the near future?
The financial structure has been designed to support half of the funding requirement through private debt mainly in the form of bonds and loans, and half through budgetary allocations from the Federal Government.
The airport is a self-financing project which means that its excess cash flows will not only repay the private debt, but will also provide a profitable investment for the government.
The asset has a long history of solid and steady cash flow growth that could also potentially generate additional sources of funding.
What are the company’s funding requirements over the near term?
Today we have a US$3bn revolving credit facility that offers sufficient funding requirements for both this year and for most of 2017.
Throughout the remainder of this year we will be tendering some of the most important projects such as two of the runways, the terminal and the control tower amongst others.
How does local funding compare to its dollar equivalent? What is the outlook for peso funding in the near term?
Our debt financing will be focused in US dollars because the source of repayment is also denominated in dollars. This way we can eliminate currency risk from the transaction.
The source of repayment is a tariff called TUA, which is generated by the existing airport and will eventually be generated by the new airport.
What advice do you have to other borrowers looking to come to the markets? What risks should they be aware of?
Investing in infrastructure is not about sourcing good infrastructure assets, but about finding them and making them bankable.
By their own nature, these types of assets are related to illiquid investments with long term credit risks such as regulatory, political, social, environmental and constructive risks.
The challenge is to identify these risks, mitigate them and assign them to the entity to which it is best suited to manage them.