Taking stock of stock of Mexico

11 June 2008

I don’t pretend to understand this, but for those who do, the Financial Times (Great Britain) sees something good about the Mexican Stock Exchange offering stock in themselves. I think.

After 18 months of planning, announcements and delays, Mexico’s stock exchange (BMV) is finally set to launch its own initial public offering on Wednesday.

On the surface, the float is not worth getting too excited about – at least compared with that of Brazil’s exchange last October. For one thing, the BMV is much smaller than its Brazilian counterpart, the Bovespa. Wednesday’s float, which will involve about 40 per cent of the total shares, is expected to value the BMV at about $1bn. The Bovespa, which in May merged with BM&F, the country’s principal futures exchange, is now worth about $20bn.

There is good reason for that huge difference. By the end of last year, the combined market capitalisation of companies listed on the Bovespa was three times greater than that of companies listed on the BMV. The Brazilian exchange is also much more dynamic. Last year, the average number of IPOs exceeded one a week compared with just four in the entire year in Mexico.

But the BMV’s decision is a good one, nonetheless. First, if the history of flotations is anything to go by (and if the rumours from the book-building phase of the IPO are to be trusted), the transaction will generate a nice little profit for the BMV’s 24 current brokerages, which own the exchange.

More importantly, listing the shares should bring about far greater innovation, transparency and corporate governance to an institution that for too long has been run as if it were an uncompetitive quasi-government entity or old boys’ club.

True, most of the obstacles to more listings and greater trading volumes lie beyond the exchange itself and have to do with the way Mexico’s corporate titans squash opposition and stifle competition wherever it tries to surface.

But at least boosting liquidity and introducing innovation – market makers still do not exist in Mexico, for example – will be easier to achieve with profit-seeking investors at the helm. Indeed, while it may be unwise to expect the IPO to perform a miracle, at the very least it should make the exchange better at doing its job.

Adam Thomson