After years in Brazil's shadow, Mexico's stock market is enjoying a listings boom, fueled by hopes of economic reforms and strong demand from pension funds breathing life into a long-stagnant market.
From airlines to banks, Mexican companies have raised $9.8 billion this year - more cash than the previous four years combined. That is just $1.1 billion shy of the total issuance in regional powerhouse Brazil, which has an equity market more than twice the size of Mexico's, during the same period.
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And with various initial public offerings (IPOs) and follow-on listings worth $1 billion announced in the last two weeks, experts say the momentum will continue if the clutch of economic reforms being pushed by President Enrique Pena Nieto bears fruit.
The pace of listings is expected to ease following the Mexican economy's contraction in the second quarter. But demand for companies seen offering diversification and growth in a market that has been starved of new stocks in recent years should remain firm, investors say.
"I've been in this business 20 years and it's the first time I've seen it like this," said Citigroup's head of investment banking for Mexico, Alfredo Capote. "The opportunities for growth are among the best in the history of this country."
Solid domestic demand from pension funds that are feeling increasingly comfortable buying individual stocks persuaded companies such as dairy producer Lala and budget airline Volaris to list.
"Mexican companies ... see growth opportunities and they want to increase their capital base," Luis Tellez, chief executive of Mexico's stock exchange, told Reuters this week.
Budget airline Volaris , which went public last month, was among the companies driven to sell stock, which it did in order to invest in new routes and expand, Chief Executive Enrique Beltranena told Reuters.
Beltranena said it seemed like a good moment since there was great interest in Volaris' offering, which was three times oversubscribed and attracted mostly institutional investors.
Up to five more companies could announce listing plans this year, Tellez said.
Among the recent rash of IPO applications in Latin America's second largest economy is dairy company Lala, which had toyed with the possibility of going public for years, and last week said it will list its shares. This week it said the deal could raise up to $980 million.
Just days later, Mexican conglomerate Alfa said it is planning to list its food unit Sigma Alimentos.
Mexico's nearly $400 billion equity market, with about 100 listed shares, is well behind Brazil, which has a market capitalization of $822 billion and twice as many listed shares.
Looking at just IPOs this year, Brazil is also ahead of Mexico with 6 deals raising $7.6 billion, while Mexico has had 7 deals raising $3.2 billion, according to Thomson Reuters data.
But companies going public in Mexico have raised more than six times that raised by their peers in Russia and India this year, Thomson Reuters data show.
Brazil's Bovespa, which attracted high levels of foreign investment, particularly in 2007 when it saw a rash of IPOs, has seen a decline in issuance over the last few years.
The Bovespa has underperformed Mexico's IPC index this year and investors have lost money on many of those 2007 IPOs.
Mexico is benefiting from domestic demand in the form of local pension funds (afores), which experts say give a solid foundation to the current equity boom.
The afores have "provided the market with a pool of liquidity that didn't exist four years ago," said Jaime Martinez-Negrete, head of Morgan Stanley in Mexico.
The afores currently invest about 9 percent of their 1.9 trillion pesos ($149 billion) in Mexican stocks.
That is up from 8.1 percent in 2009, when regulators first allowed them to invest in Mexican IPOs. However, the pension funds' asset base is up some 120 percent since then.
Mexican IPOs also got a boost last year with the election of Pena Nieto, who is trying to push through a series of market-friendly reforms to revamp Mexico's energy and telecom sectors and to increase paltry tax revenues.
The local unit of Sempra Energy , gas pipeline company IEnova , is up more than 50 percent since listing in March, with investors drawn to a previously closeted sector.
Energy reform will lead to listings from "a surprising number of companies," said Citi's Capote, who also sees more Mexican tech and transport companies going public in the future.
The reforms also aim to rein in some of Mexico's most powerful businesses, like billionaire Carlos Slim's America Movil , leading investors to look more kindly on companies and sectors that offer new investment opportunities.
"The Mexican market is still very concentrated in large-cap companies and it should be more diversified, with more names and many more industries involved," said Jaime Alvarez, chief investment officer at Principal Financial Group's $10 billion afore in Mexico City.
This investor demand coincides with cultural changes in the boardrooms of Mexico's many family-run companies.
Executives are now considering passing on liquid assets to their children rather than just control of the family company, said Jorge Juantorena, a partner at Cleary Gottlieb law firm who has worked on most of the Mexican IPOs this year.
Another factor driving new listings is Mexico's growing private equity sector, which has expanded by nearly 50 percent since 2000 to total $14.6 billion last year.
Private equity companies were behind the IPO of low-cost airline Volaris, whose shares have risen 27 percent since it went public last month.
To be sure, not all of Mexico's IPOs have outperformed the market this year.
A sudden vogue for real estate investment trusts, known as FIBRAs, stoked listings but the increasingly saturated market has led to poor returns in recent months.
Slim's cafe and retail business Grupo Sanborns is down 4 percent since listing in February - although that is still better than Mexico's benchmark IPC index , which is down 8 percent over the same period.
The example of Brazil, where valuations soared out of control and a series of deals failed to make good on promised returns, also looms large.
Only 37 of Brazil's 117 IPOs since the start of 2005 have yielded returns above the benchmark CDI interbank lending rate, a recent Credit Suisse presentation showed.
Among the worst performers is Brazilian tycoon Eike Batista's OGX Petroleo e Gas Participacoes SA , which has lost more than 90 percent of its value since listing in June 2008 as it fails to pump enough oil to cover debts.
A year ago, Batista was one of the world's richest people with a fortune close to $35 billion, which has all but evaporated as his EBX mining to energy conglomerate collapsed.
A Reuters study of 28 of Mexico's IPOs since 2005 showed a mixed success rate, with just shy of two thirds of the companies above their listing price.
Spanish bank Santander's Mexico unit was up about 15 percent since listing a year ago, while Mexico's biggest airline, Aeromexico , has fallen more than a third since its 2011 IPO.
However, experts say certain differences between Mexico and Brazil, such as the former's proximity to an improving U.S. economy, should prevent the country from experiencing a meltdown on the same scale as Brazil's.
Investors and bankers surveyed by Reuters said they expected a slight slowdown in the pace of equity offerings next year, and expect a slew of companies to spin off subsidiaries. Grupo Mexico is mulling listing its ITM trains unit.
"How many years has it been since we've really had IPOs in Mexico?" asked Stacy Steimel, managing director of PineBridge Investments Latin America. "I think there are a lot of good companies in Mexico that could come to market."
(Reporting by Gabriel Stargardter and Elinor Comlay; Editing by Simon Gardner, Kieran Murray and Phil Berlowitz)