The drought of new companies arriving in Mexico has been long: BMV

Leon, Gto. The cycles of company entries and exits in the capital markets are part of the history of the stock markets worldwide. However, in Mexico these periods are more visible, because the market is small and the current drought of new company arrivals has been very long, acknowledged Jorge Alegría Formoso, general director of the Mexican Stock Exchange (BMV).

In recent years, nearly three handfuls of companies have stopped trading on the Mexican Stock Exchange and a similar number are suspended because they do not comply with listing requirements or are in bankruptcy proceedings. In addition, the last Initial Public Offering (IPO) in the country took place in November 2017, which implies a desert of almost seven years.

It is worth remembering that an IPO is when a private company decides to sell its shares to the public for the first time, allowing investors to participate in the development of the company.

Behind this drought there are factors specific to the country, such as low valuations, reluctance to publish information, the cost of procedures and the red tape that companies have to deal with, mainly, which is why Mexican companies prefer to obtain financing on Wall Street in the United States, mainly.

However, the decline in IPOs has been a global trend, not just in Mexico, which according to analysts has to do with the increase in interest rates, the uncertainty generated by wars and geopolitical tensions, but also the preference for instruments that allow companies to raise funds directly from private investors.

““It is not good for a capital market that companies are delisted and that new companies do not arrive through an IPO, but it is part of a cycle in the markets. In the case of Mexico it is more noticeable because it has been a very long period and it is a small market,” Alegría accepted.

In the United States alone, he said, the world’s largest capital market by market capitalization, there are periods of delisting when companies buy other companies and delist them because their value is attractive; or companies have a low cost (their shares) and are taken off the market. But since the market on Wall Street is so large, it is hardly noticeable.

Now, with the amendments to the Securities Market Law (LMV), approved at the end of last year, it is expected that the secondary regulation will be ready shortly, with the aim of offering greater flexibility for companies to be listed on the stock market and eliminating procedures that were previously in the hands of the National Banking and Securities Commission (CNBV), so that the authorization process is faster. It is expected that the secondary laws will shape a new, simpler public offering scheme.

According to the BMV’s general director, this will mean that more financing activity will begin to be seen in the stock exchange.

However, secondary regulation is still awaiting approval.

For his part, Alegría described the development of the International Quotation System (SIC) as very positive, because it has given Mexico the opportunity to invest in stocks and internationally referenced securities since 2003. And although it represents 50 percent of the BMV’s operations, it is a win-win for the national investor.