In the last few years, Fibras and CKDs have sparked the interest of international and national investors to invest in Mexican infrastructure. But there is a new instrument (sort of) that has not seen as much action since its debut on the BMV in September 2016: Fiduciary Security Certificates of Investment Projects (more commonly known as CerPIs). Here is the 101 of the structure of a CerPI, the players and where you can find more information on them.
What is a CerPI?
According to DGs in the sector, CerPIs mean holders can take on development risks associated with higher expected returns. They can be used for large greenfield projects, including projects in the energy sector. Fibras have gained traction in the sector, but they are designed for developing and acquiring assets and for companies that look to rent and sell assets it may not be the best fit. CerPIs can be seen as evolved CKDs made to attract more sophisticated funds into the market, while allowing pension funds to delegate more responsibility and risk to fund managers.
- Was created in 2016 as a compliment to CKDs.
- Manager has full responsibility of the instrument, granting greater flexibility
- Framework is closer to that of an international instrument.
- CKDs are public offerings and require more time, whereas CerPIs are generally faster and must comply with fewer requisites.
- Afores are exceptions that have to comply with many more requisites to invest in a CerPI.
- Only institutional investors can participate in a restricted offering.
- The Afore can subscribe to up to 100 percent of the CerPI, as long as it adheres to its diversification limits and it has a qualified and experienced co-investor.
- Unlike other instruments, a CerPI can now be used to invest internationally only if it allocates at least 10 percent of its funds to finance projects inside Mexico.
CONSAR recently allowed Afores to acquire 100 percent of a structured instrument as long as it does not exceed 3 percent of a SIEFORE’s net assets. The Afore must have a co-investor for the project with at least 20 percent participation for issuances less than MX$4 billion or 50 percent for higher issuances.
Recent Regulatory Changes
- Feb 23 2018, CONSAR announced changes to the Circular Unica Financiera (CUF):
- Gives Afores more flexibility to part take in structure instruments
- Managers must now participate with 2 percent of more of the value of investments
- Encourages Afores to consider issuance size, manager experience and projects/sector
- SIEFORE 1 will now have access to invest in CerPIs and CKDs
- Integrate Environmental, Social and Governance criteria into projects, raising the attractiveness of ESP (Afores must include it in their investment analysis)
- New eligible countries for investment by SIEFOREs: New Zealand, Taiwan, Thailand, South Africa and Malaysia
Both CKDs and CerPIs must have a Technical Committee composed of 21 members
- In comparison to CKDs where the holder has the right to assign a committee member for every 10 percent owned and the rest is appointed by the manager, in CerPIs holders can only name a committee member for every 25 percent owned.
- In a CerPI, the committee focuses only on administration supervision and conflict of interest resolution, NOT the approval of investments.
The housing market has shown the most interest in using CerPIs to develop projects. So far, only one CerPI has been issued in Mexico.
- Company: Mira Companies
- Ticker: MIRAPI
- History: Mexican company funded by Black Creek Group in 2007. In 2014, Canadian real estate company Ivanhoé Cambridge purchased 50 percent of stakes.
- Co-Investor: Ivanhoé Cambridge
- Other participants: CI Banco, Monex, Barclays
- Portfolio: Mixed-use projects for Mexico City, Monterrey, Queretaro and Guadalajara
- 1st Issuance: MX$800 billion, 50 years
- 4Q2017 Report
Afores Involved in Structured Instruments
As of Dec. 2017, Afores have participated in 78 CKDs and one CerPI, contributing more than MX$159 billion, which is approximately 87 percent of the total amount issued in these instruments and 4.9 percent of the Afores’ total portfolio. The Afores involved most in structure instruments: Afore Citibanamex and PENSIONISSSTE.
Main challenges for issuing a CerPI:
- Afores teams are too small
- Lack of experience in the market and in investing in asset class
- New market and instruments for investors
- Presidential elections/ NAFTA renegotiations
Regulatory Framework/ Regulators
- Circular Unica Financiera – Discusses changes in regulations for how Afores may invest in structured instruments
- Ley del SAR
- AMEXCAP, ADI
Check out what Directors & Experts from Mexico’s most important infrastructure companies have to say about CerPIs in MISR18 here:
- 245 Mira Companies
- 322 Barclays Mexico
- 318-319 Financing Instruments: The Infrastructure Cash Cow
- 320-321 Afore XXI Banorte
- 323 Afore Citibanamex
- 330 GBM Infraestructura
- 324-325 Pension Funds to the Rescue: Infographic
- Inversion de Fondos de Pensiones en Infraestructura, Feb. 2018
- Mexico Infrastructure & Sustainability Review 2018; 2017