MBIA Insurance Corp.: Raising money for municipal upgrades in Mexico
Sector: Municipal finance, real estate, infrastructure
Challenge: Like several countries around the world, Mexico struggled with weak local capital markets in the wake of the 2008 financial crisis and this left limited funding available for infrastructure projects. In the country’s densely populated Mexico State, the public registry that stores the official records for land and property deeds had suffered from a lack of investment in infrastructure, resulting in an archaic and inefficient record keeping system that was susceptible to incorrect and improper transactions.
Solution: OPIC provided a loan guaranty of up to $250 million in conjunction with MBIA Insurance Corp. to support a local bond issuance that would raise funds to upgrade infrastructure, including the public registry. The arrangement was structured for the debt from the bond issuance to be repaid with the future revenues from the state’s public registry.
Impact The bond issuance in 2010 raised funds for significant infrastructural developments. Proceeds not dedicated to the registry were deposited in a state infrastructure trust fund.
An archaic and chaotic records system was limiting economic activity
The State of Mexico is one of the more densely populated regions of Mexico, housing about 14 percent of the country’s population and accounting for more than 10% of its GDP. Despite a fairly robust economy, the state’s large and growing population has put a strain on resources and infrastructure.
A good example of this aging infrastructure is the Instituto de la Funcion Registral (IFREM), the state’s public registry, where land and property records are stored. IFREM is the largest registry by volume in the world. Yet a longstanding failure to upgrade the facility meant that – in the year 2009 – land and property titles were still being entered by hand on paper and stored in bound books. The outdated system had lost or deteriorated records and degraded public trust from individuals seeking to officially register their property. The lack of reliable and predictable record management limited investment in real estate and overall economic activity.
OPIC guaranty supports bond issuance
Around the same time, the State of Mexico had launched an ambitious economic development program seeking to improve its competitiveness, and it identified legal certainty of property ownership as a key component in facilitating long term growth and economic activity. But the state faced a parallel challenge of raising funds for this long-overdue upgrade. Mexican financial markets had been hit hard by the global financial crisis and in 2009, when these upgrades were being considered, long-term debt issues were a hindrance.
By providing a $250 million investment guaranty towards a local capital market bond issuance, OPIC, along with MBIA, supported a $315 million bond issuance in local capital markets. OPIC’s investment guaranty provided the additional support necessary in the uncertain financial climate following the financial crash. The bond issuance was the first in Mexico in the wake of the financial crisis to be backed by property registry fees, and provided local capital markets investors with a AAA-rated investment-grade, fixed-rate, peso-denominated long-term asset.
Broad economic impact
The $315 million raised through the issuance was used to invest in State infrastructure including the upgrade of the public registry. This included construction of three new buildings, upgraded security, and a new IT system so that records are all entered electronically and can be viewed at any office. Remaining funds have been placed in a State infrastructure trust fund; this ensures monies are strictly used for the State’s infrastructure capital investment program.
The upgraded registry has introduced new steps to improve efficiency, productivity and reliability as well as reduce corruption by clearly delineating costs for service on the website, and automating registry payments through local banks that deposit them directly into secure accounts. The registry is in the process of scanning all of its paper documents that were registered prior to the upgrade.
Funds from the bond issuance have also been used to upgrade the state’s notary building. Because the old, outdated registry system had significantly limited property record keeping and overall economic activity, the upgraded system made possible by the debt issuance has the potential to deliver a broad economic impact throughout the state.
This project was profiled in 2014