Mexico reforms for more IPO listings

Mexico is in the process of reforming its securities laws with an eye toward getting more companies to list on the stock market there and to give foreign investors more confidence in the Mexican stock market.

In introducing the bill to create the reforms, the country’s treasury minister cited the fact that there are only 149 companies listed on Mexico’s exchange and that in 2004 there were only two new initial public offerings, more than offset by several delistings during the year.

The treasury minister compared Mexico’s market to South Korea’s, which is a nation that has a slightly smaller gross domestic product than Mexico’s but has 1,500 companies listed on its stock exchange. As it stands, most trade on Mexico’s stock exchange is carried out by a few dozen large international companies.

Meanwhile, smaller companies remain in control of the families that founded them. These families have no incentive to go public because they can fund their operations with credit. This ability to finance their businesses without going public is seen as the biggest factor in the Mexican stock market’s lack of growth.

The main change proposed in the law was the creation of a new category, an “investment promotion group” or “sapi”, which would be sort of halfway to a full listing.

Minority shareholders in such a sapi would have full rights, but companies would not be held to all reporting requirements that fully public companies must meet. Investment in sapis would be open only to institutional investors and to private investors who have signed a wavier indicating that they understand the risks involved in their investment.

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