MEXICO: An introduction to Capital Markets

Mexico’s Securities Market: A New Era for SMEs

Mexico’s financial sector is undergoing a significant transformation, with a new regulatory framework facilitating small and medium-sized enterprises (SMEs) to access the stock market. The introduction of the Simplified Securities Issuance in the Mexican Stock Exchange marks a milestone – deriving from the reform to the Ley de Mercado de Valores published inDecember 2023 – in democratising capital markets, fostering a more inclusive financial ecosystem. This reform is expected to boost economic growth by providing SMEs with the opportunity to secure financing through a streamlined regulatory process on an offering available to institutional and qualified investors.

According to Mexico’s Minister of Finance, SMEs represent 99.8% of Mexico’s economic clusters and generate over 70% of formal employment. However, these businesses have historically faced significant barriers accessing financing, limiting their growth and expansion. The New Simplified Regime offers an efficient, cost-effective and transparent framework for SMEs to issue securities, enabling them to become active players in Mexico’s debt and equity markets.

The Evolution of the Securities Market

The Mexican stock market has traditionally been dominated by large blue-chip corporations able to navigate and complain with complex regulatory and disclosure requirements. High costs, lengthy approval times and stringent documentation standards have deterred both smaller businesses and intermediaries from seeking public financing.

Inspired by successful models from countries like the United States, the United Kingdom and India, among others, this new regulatory framework offers a differentiated approach tailored to emerging businesses.

Types of Issuers Under the Simplified Regime

The Simplified Regime allows for three types of issuers, each designed to cater to different financial needs and risk profiles.

Equity issuers

• Companies seeking to raise capital by offering shares to qualified and institutional investors.
• Provides growth capital.
• Offers investors the opportunity for dividends and capital appreciation.
• Equity issuances are limited to a maximum of 1,250 million Unidades de Inversión (Investment Units also known as UDIs), which equate to approximately MXN10.48 billion, subject to periodic updates by the Bank of Mexico (the “Banxico”).

Level I debt issuers

• Designed for companies issuing debt of 75 million UDIs (~ MXN628.75 million) per issuing and up to 900 million UDIs (~ MXN7.54 billion) per fiscal year.
• Exempt from credit rating requirements, reducing costs and administrative burdens.
• Ideal for SMEs looking for structured yet accessible debt instruments.

Level II debt issuers

• Targets companies with larger debt financing up to 1,250 million UDIs (~MXN10.48 billion).
• Subject to more rigorous financial scrutiny, including credit rating requirements.

Each type of issuer benefits from the streamlined regulatory framework, making it easier for businesses to select the most appropriate financing mechanism for their growth strategies.

Key Features of the Simplified Regime

Lower costs and reduced requirements

The requirement for credit ratings has been waived for level I debt issuers, reducing financial burdens.

Simplified issuers may benefit from reduced registration costs, including exemptions from study and processing fees for securities registration and maintenance. Also, the industry has been indicating that the first year of listing may include additional financial incentives to encourage participation and economic growth.

Faster approval process

Unlike traditional issuances that require extensive reviews, and previous approval for registration by the Comisión Nacional Bancaria y de Valores (CNBV), the new system allows issuers to file directly with stock exchanges to register the securities with the CNBV.

The CNBV is only notified, therefore, no commission previous approval or review is needed, expediting the listing process.

Although the official guidelines have not yet been published by Mexican Stock Institutions, current industry discussions suggest that stock exchanges may take approximately seven to 14 days to review and approve the information submitted by issuers.

Exclusive access for institutional and qualified investors

This approach mitigates risk by ensuring that only financially qualified investors (which meet certain criteria) and/or institutional investors (as defined by federal law) participate, preventing potential risk for retail investors.

A Smart Strategy for SMEs

For SMEs, leveraging the Simplified Regime may be a strategic move that can lead to significant growth opportunities. Traditional financing options such as bank loans are scarce and often come with high interest rates and strict collateral requirements, making capital access challenging.

The benefits extend beyond financial access. Listing in the stock market enhances an SME’s credibility and visibility, positioning it as a trustworthy and stable investment. This transparency and governance compliance also make SMEs more attractive to potential business partners, investors and customers.

Moreover, participating in the stock market fosters a culture of professionalisation and institutionalisation within SMEs. Over time, this can translate into improved valuations and stronger financial positioning, giving SMEs a foothold in both domestic and international markets.

Opportunities for Foreign Investors and Issuance Vehicles

The Simplified Regime is not only advantageous for Mexican SMEs but also presents compelling opportunities for foreign investors and issuance vehicles. Mexico’s evolving financial ecosystem, characterised by increased transparency and efficiency, makes it an attractive destination for global capital. The reduced regulatory burdens and streamlined listing process encourage international investors to participate in the market with lower entry barriers.

Foreign companies and issuance vehicles looking to tap Mexican capital markets can benefit from the regime’s flexibility. The simplified registration and reduced documentation requirements will allow international firms to set local vehicles to issue securities in Mexico without the traditionally cumbersome approval process. This provides a strategic advantage for companies seeking to raise capital, diversify their funding sources, or expand their presence in Latin America.

Additionally, the exclusive targeting of institutional and qualified investors ensures that foreign issuers engage with sophisticated market participants, reducing exposure to retail investor risk.

Impact on the Mexican Economy

The introduction of the Simplified Regime is expected to unlock a new wave of capital flow into SMEs, encouraging innovation and expansion. With greater access to funding, businesses can scale operations, create jobs and contribute to GDP growth. Additionally, a more diversified securities market enhances Mexico’s global competitiveness, positioning it as a more attractive destination for foreign investment.

By breaking down barriers and fostering an inclusive financial system, Mexico is not only supporting its SMEs but also laying the foundation for long-term economic resilience. As more businesses enter the stock market, the country’s financial sector will evolve into a more dynamic and robust ecosystem.

By leveraging Mexico’s stock market, international firms can enhance their financial strategies, gain exposure to emerging markets, and enter a growing pool of investment capital.

Looking Ahead

With the right support from financial advisers, brokerage firms and stock exchanges, SMEs can leverage the opportunity presented by the simplified issuance of securities in Mexico to fuel their growth and strengthen their market presence.

Furthermore, for companies looking to take advantage of this new financing framework, Basila Abogados and Momentum Mexico have developed the Handbook for the Simplified Issuance of Securities in Mexico, a practical resource outlining the key requirements, procedures and benefits of the Simplified Regime. This guide, supported by Mobilist and introduced at the British Embassy in Mexico, provides businesses with the clarity needed to navigate this opportunity efficiently.