At the end of 2008 and during 2009, the world lived through
one of the worst financial crisis of the last years which
caused billions of dollars of losses in the capital markets and
the global economy. Mexico was not an exception and suffered
some of the consequences of the global financial crisis:
companies experienced great difficulties in obtaining financing
from financial institutions or from the debt and capital
markets which caused the slowdown of the Mexican economy.
In order to reactivate the economy and to minimise the
damage caused by the global financial crisis, the Mexican
authorities made some modifications to the regulations of
certain financial instruments and created new ones to support
the companies to raise capital from the financial institutions
or the general public to finance its activities and thus, to
reactivate the Mexican economy.
Those instruments were created or modified to finance
medium- and long-term projects (infrastructure projects, for
example) in order to achieve certain objectives of the Mexican
Development Plan 2007-2012 (Plan Nacional de Desarrollo
2007-2012), such as to have a competitive economy with an
accelerated and sustainable growth which improves the living
conditions of the population.
In this respect, there are three financial instruments that
have helped companies to obtain financing for their projects
and thus to reactivate the Mexican economy. The first is the
capital development certificate (CKD), whose main purpose is to
allow the development of medium- and long-term projects or the
acquisition of securities, shares, stocks, bonds, and so on,
representing the capital stock of entities. The second is real
estate trusts (Fibras), which are trusts created to finance
medium- and long-term real estate projects. Finally initial
public offerings (IPOs), which already existed, had an
extraordinary response from investors in the capital markets
over the past year.
Capital development certificates
CKDs have their origin in a structured instrument created on
2007 by the Mexican authorities, which guaranteed its nominal
value at maturity date and with returns partially or totally
linked to assets held in trust. The structured instruments
granted the right to receive the proceeds from the financed
project and from the assets held in trust.
This instrument had two main components, a guaranteed
component, which was a bond or debt instrument issued by
national entities, and a variable component linked to the
performance of the promoted company, financed project or the
guaranty, collateral or security granted. This instrument was
created to expand the investment regime of institutional
investors such as Mexican pension funds but it did not achieve
the expected results due to inconsistencies between the
regulation issued by the National System of Retirement Savings,
the Mexican Stock Exchange and the National Banking and
Securities Commission and also due to the investors' risk
aversion caused by the lack of understanding of such
instrument. For these reasons, the structured instrument
existed only for two years (from 2007 to 2009) and only one
public offering was approved and placed in the Mexican Stock
According to the amendments made on 2009 by the Mexican
authorities to the regulation of the structured instrument, one
of the legal reasoning to create CKDs was the development and
dynamism of the securities market which presented trust
securities certificates with these particularly characteristics
(for example financing development of companies projects or
activities or the acquisition of certificates representing
In addition, the authorities considered that investments
through these instruments could create a mechanism to
reactivate the Mexican economy, generate employments and
minimise the adverse effects of the global financial
From a risk analysis perspective, this type of trust
securities certificate may be considered more as an instrument
close to capital securities than to debt securities due to its
characteristics (no obligation exists to pay principal amounts
invested nor its interest). In this respect, the authorities
were concerned about the former regulation of the structured
instruments, so they put special attention on including
specific rules to protect the interests of investors and ruled
in a better way the behaviour of issuers within the stock
The vehicles to issue CKDs may be used to finance one or
more projects (or companies) or may be also structured as a
private equity fund to acquire participation in capital stock
Likewise, CKDs were created to finance medium- and long-term
projects in Mexico (infrastructure, forest, ecological, private
equity funds, and so on) by institutional investors. In this
respect, the investment regime applicable to specialised
investment companies of Mexican pension funds
(Siefores) allows them to invest in CKDs.
In order to minimise the risk exposure of the
Siefores, and therefore, the risk exposure of the
savings of Mexican workers while investing in CKDs, the
authorities compel the Siefores to attach the CKDs to
a national or foreign debt instrument which guaranties at
least, the principal amounts (and its interests) invested in
As mentioned above, one of the main characteristics of CKDs
is that they do not incorporate the obligation to pay the
principal amounts (nor the interest) obtained through their
The returns of the CKDs are linked to the achievement of the
financed project or the business plan of the company and,
therefore, the authorities imposed more strict regulations on
these types of trust security certificates (such as the
corporate governance and business plan).
CKDs are a type of trust security certificate defined as a
general rule by the Securities Market Law as negotiable
instruments representing the individual participation of its
holders in a collective credit of a company or the assets held
in an irrevocable trust which grant any of the following
rights: (i) a part of the property or ownership of the rights
or assets held in trust; (ii) a part of the returns or proceeds
of the rights or assets held in trust; (iii) a part of the
product of the sale of the rights or assets held in trust; or
(iv) the right to receive payment of capital contributions and,
as the case may be, interest.
However, a specific approach to the definition of the CKDs
is contained in the Internal Regulations of the Mexican Stock
Exchange which defines the CKDs as trust securities
certificates issued by trusts for a specific or determinable
period of time with uncertain and variable returns, and
partially or totally linked to underlying assets held in trust,
which main purpose is to finance the development of activities
or the accomplishment of companies' projects or the acquisition
of titles representing capital stock of companies.
There are two types of CKDs: Type A which were created to
finance companies, projects or to acquire participation of
capital stock of two or more companies, and Type B which were
created to finance only one company or project.
An irrevocable trust agreement must be created for the main
purpose of (i) setting the rules to finance the project or
projects, the company or companies or the structure similar to
a private equity fund and (ii) to issue the CKDs to obtain
resources from its public offering.
The trust will hold the assets and/or rights contributed by
the company or the project seeking for financing and the
resources obtained through the public offering of the CKDs.
The trust will include a business plan for the development
of the activities of the project or the companies that are
To protect the investments made by the holders of the CKDs,
the delivery of the resources to finance the company or the
project will be conditioned to the compliance of the business
The CKDs' holders will be designated as first beneficiaries
and will have minority rights, depending on the ownership they
hold. To this date, 15 CDKs have been authorised and placed in
the Mexican Stock Exchange raising an amount of approximately
M$37.4 billion ($3.17 billion) from investors to finance the
development of Mexican projects.
The second financial instrument is the real estate trust, or
Fibra, which is an instrument created to finance the
development of real estate projects, offering to its holders
periodic payments obtained from the lease of the real property
held in trust and with the possibility to obtain additional
proceeds from the increase on the surplus value of the real
The Income Tax Law defines Fibras as trusts created for the
acquisition or construction of real estate for its lease or for
the acquisition of rights to receive proceeds from its lease as
well as to provide financing for such purposes.
Fibras must comply with the following characteristics:
(i) It must be incorporated under Mexican laws and the
trustee must be an authorised banking institution (commercial
(ii) its main purpose has to be the acquisition or
construction of real estate for its lease or the acquisition of
rights to receive the proceeds from its lease as well as to
provide financing with mortgage for such purposes;
(iii) at least 70% of the funds held in trust must be
invested in the activities referred to above and the remaining
proceeds must be invested in debt instruments issued by the
Federal Government or in shares of mutual funds;
(iv) the real estate may not be sold for a period of four
years from its acquisition; and
(v) the trustee must issue security trust certificates which
will be placed in the Mexican Stock Exchange through a public
offering or through a private offering to at least 10
investors, none of which may hold more than 20% of the total
security trust certificates.
There are certain tax benefits for Fibras. For example, the
settlors of the trust which contributes real estate to form the
trust estate and which receives securities trust certificates
in exchange, may defer the payment of the income tax on the
gain of the contribution of the real estate.
In this respect, the settlors will have to pay the income
tax until they sell the security trust certificate or until the
trustee sells the real estate to third parties.
Another tax benefit is that the trustee of the Fibra is not
bound to calculate and pay provisional payments as it otherwise
would have to do with a trust with similar characteristics.
Foreign residents and Mexican individuals are exempt from
paying income tax on the proceeds received from the sale of the
security trust certificates provided that such sale is made
within a stock exchange. Likewise, the Siefores are
exempt from paying income tax on the proceeds received from the
security trust certificates. This benefit encourage these type
of institutional investors to invest in Fibras and thus, to
finance real estate development in Mexico.
Although the regulation of Fibras existed since a few years
ago, it was not until 2011 that the first Fibra, Fibra Uno, was
authorised and placed in the Mexican Stock Exchange.
Fibra Uno is a trust with 15 real estate properties and the
lease rights of an additional real estate property of
industrial, commercial and business nature and it intends to
expand its real estate portfolio by acquiring three additional
It was placed in the Mexican Stock Exchange on March 17 2011
obtaining approximately M$3.62 billion from its public
The last financial instrument is the IPO, which aids
companies in the financing of mid- and long-term projects.
A company that intends to go public in the stock exchange
must register its shares with the National Registry of
Securities and must file the company's audited financial, legal
and corporate information as well as the public offering
The company must also file any additional information
required by the General Dispositions for Issuers issued by the
National Banking and Securities Commission. In this respect,
the company must prepare an offering prospectus for potential
Afterwards, the company must obtain the approval from the
Mexican Stock Exchange and an official authorisation from the
National Banking and Securities Commission. Once these are
obtained the initial offering may take place.
Companies with shares registered in the Mexican Stock
Exchange must provide audited quarterly and annual financial
information and an annual report, and comply with the Code of
Best Corporate Practices in Mexico as well as provide all
corporate information and information regarding every relevant
event of the company.
The company establishes the price of the stock they will be
placing in the market depending on the market's current
conditions, offering investors an attractive annual rate and
allowing the company to finance its projects.
The advantages of an IPO are liquidity and cash flow for the
company. When a company goes public it acquires efficiency and
becomes more competitive, increasing its value.
There are three types of IPO: primary IPOs, when the income
received goes directly to the company; secondary IPOs when the
income goes to the shareholders; or joint IPOs when the income
goes to both.
The number of companies that have gone public since the
global financial crisis has been increasing.
In 2008, only two companies went public (The Mexican Stock
Exchange and Genomma Lab Internacional); in 2009 no company
became public; and during 2010 and until the date of writing,
seven new companies went public, obtaining in total
approximately M$21.7 billion.
A silver lining
Mexico has also suffered consequences due to the global
financial crisis, but in 2010 and 2011 the implementation of
new financial instruments has helped the financing of companies
and thus the economic development in the country.
Through IPOs, CDKs and Fibras, Mexican companies have
obtained financing to create or develop medium- and long-term
projects by accessing the capital markets.
Since the global financial crisis and to date, Mexican
companies have had the opportunity to obtain financing by these
means for a total amount of approximately M$62.71 billion.
In this respect, the Mexican Stock Exchange expects to
approve and place more Fibras, CKDs and IPOs to continue with
the financing of Mexican companies and thus, the improvement of
the Mexican economy.
About the author
Miguel Angel Peralta has been partner of the firm
since 2007 in the banking, finance and capital markets
practice group at the Mexico City office. His
professional practice has developed in the area of
banking, finance and capital markets as well as in
M&A and real estate. He has participated in
national and international transactions including
syndicated loans and other financing transactions,
IPOs, securitisation, financial regulatory matters,
LBO, formation of businesses, agreements among
partners, strategic associations, M&A,
reorganisations, banking investments, acquisitions
through the stock exchange, public and private offers.
He has also participated in the incorporation or
affiliation of foreign financial institutions.
Peralta is a member of the College of Lawyers of The
Mexican Bar and of The International Association of
Young Lawyers. He graduated from the University Del
Valle De Mexico Law School, and has a diploma degree in
corporate law from Iberoamerican University and a
master’s degree in North American Law from
Boston University. He speaks Spanish and English.
Miguel Angel Peralta
Basham Ringe y Correa
Paseo de los Tamarindos No. 400-A, Piso 9
Bosques de las Lomas
05120, México, D.F.
t: +52 55 5261 0400
f: +52 55 5261 0496
About the author
Christian Dorantes obtained his law degree in 2008
from the Instituto Tecnológico Autónomo
He joined Basham Ringe y Correa in 2010 as an associate
specialising in securities, corporate, finance and
banking law. He has actively worked as Mexican counsel
in structured finance, securitisations, credit
structuring and financial services in general for
domestic and foreign clients. Dorantes speaks Spanish,
English and German.
Basham Ringe y Correa
Paseo de los Tamarindos No. 400-A, Piso 9
Bosques de las Lomas
05120, México, D.F.
t: +52 55 5261 0400
f: +52 55 5261 0496