9

**Table 3**

**Terms of Offshore Debt Issues**

|Issuer|Date of Issue|Amount|Currencv|Interest<br>Rate|Spread over<br>USTBill|Maturitv<br>l|
|---|---|---|---|---|---|---|
|Bancomext|06/01/89|100.000.000|US Dollars|10.250|820|5|
|Nafin|08/02/90|100.000.000|US Dollars|11.750|424|5|
|Pemex|12/13/90|100,000.000|US Dollars|11.430|377|_5_|
|Pemex|10/08/91|150.000.000|tUSDollars|10.250|245|7|
|Cemex|11/15/91|100.000.000|US Dollars|10.00|280|_5_|
|Nafin|06/01/92|100.000.000|US Dollars|9.375|195|10|
|Cemex|11/05/92|280.000.000|US Dollars|10.000|455|7|
|UMS(UN Mex St)|03/16/93|200.000.000|US Dollars|7.250|208|5|
|Bancomext|07/06/93|200.000.000|US Dollars|7.5|215|7|
|Cemex|08/31/93|120.000.000|US Dollars|8.5|311|7|
|Nafin|11/10/93|100.000,000|US Dollars|6.25|225|5|
|Pemex|11/18/93|250.000.000|[JS Dollars|8.5|220|30|

Source: Comision Nacional de Valores

# B.2 Commercial Bank Offshore Borrowing Rates

20. Besides data on the cost to the Mexican government on borrowing in international markets and to larger non-financial corporations through ADR and ADS offerings. it is interesting to examine the costs of short term borrowing in intemational markets to different banking groups. This can be done by examining the costs of short-term borrowing rates in the offshore Euromarkets. Rates quoted in this market suggest significant tiering across Mexican commercial banks of different size and capital strength. For example, immediately after commercial bank privatization, the cost of funding in the Euro-bond market hardly reflected any dispersion. The range of rates had widened by as much as 200 to 300 basis points for Mexican commercial banks of different size by December 1993. This can be seen by examining the differences in similar maturity zero coupon bond offerings by such banks as seen in Table 4. These changes reflect investor expectations about the relative solvency and risk of investments in these institutions. Such differences have started to become more pronounced as the Government of Mexico (GOM) increasingly sends the signal that it is prepared to permit commercial banking groups to take significant losses as witnessed by the 1992 episode with Ajustabonos.' These trends would suggest that remaining competitive may require that medium and small Mexican financial groups without extensive branch networks and limited capital strength will increasingly consolidate with other smaller financial groups. This is a trend that has already begun.<sup>3</sup>

> 2 In the first quarter of 1992, the real interest raid paid by the Ajustabonos (inflation indexed public debt) declined to a record low of about 2 percent. Following a series of measures aimed at curbing the growth of the dollar exposure of commercial banks, as well as a sharp increase in the current account deficit, real interest rates began to increase. As a result, many banks that were holding Ajustabonos as part of the liquidity requirement imposed by the Bank of Mexico, incurred substantial capital losses since their purchases of these bonds were funded with short term repurchase agreements. The government suspended new issues of Ajustabonos for the rest of 1992. At this writing, at least 2 mergers between financial groups are in process.