In July 2018, with great fanfare, the Institutional Stock Exchange (BIVA) began operations with a promise as a banner: one that has been dragged -for decades- by all participants. But far from growing, it is getting smaller. 20 years ago there were 172 companies on the stock market, today there are 145.
And in recent months, five companies have reported, retaken or General de Seguros, Bio Pappel, Santander, IEnova and, last week, Lala. These companies join Grupo Mac’Mac, which since 2017 has been seeking to delist; and to Rassini, who canceled his shares in 2019.
“At some point it was thought that having two Stock Exchanges was what was going to detonate the market, but the truth is that the Mexican Stock Exchange (BMV) did its job well, and that was not the problem, it has already been clear” , says Marcos Martínez, president of Grupo BMV.
There are some companies that have been suspended for more than five years for not meeting the requirements to be on the Stock Market: having a minimum of 100 investors and maintaining at least 12% of the capital stock. This is the case of General de Seguros, which canceled its shares on May 31. In other companies, the problem is due to the low purchase and sale operation of their titles, such as BioPappel. In other cases, the delisting is due to a change in the structure of the company: IEnova leaves and Sempra (its parent company) enters, and in Santander bank, Mexico leaves and the Spanish parent enters. And there is also the case of Rassini and Grupo Lala —which in 2013 made the largest IPO in history by raising 14.055 million pesos— and whose controlling shareholders (those who have the vast majority of the shares) now chose to take them out.
Although the reasons for each one are different, and some are not questioned, the underlying reason is the same: the (low) value that the market places on companies.
The failures are “bad news, because at the end of the day what it shows is that companies are not finding the economic, financial and security environment to go public,” says José Luis de la Cruz, director of the Institute for Industrial Development and Economic Growth.
For Javier Perochena, director of Relations with Issuers at BIVA, it is a matter of cycles, as in the economy. “When we are in a cycle where valuations are cheap, it is more difficult to go out and have IPOs (initial public offerings).” Perochena says that the reason for each station is due to an internal strategy of the company and not to market circumstances, but not all participants think the same.
The root
One of the biggest problems highlighted by members of the market is the lack of liquidity (the ease of buying and selling shares). There are 145 companies in the market, of which 35 (24%) are the most liquid and represent around 70% of the total market value. However, companies with little liquidity, the remaining 76% of the market, become less attractive because they are more exposed to high volatility: a few operations can cause the price to skyrocket or crash quickly, and sell or sell. Buying their shares is not easy, so the investor must take that risk.
“The price is that numerical reference where the value that the owner has in mind and the value that the market places on it, (that is, supply and demand) meet. In liquid companies, the meeting point is narrow, and therefore not very manipulable. In the case of companies that are not very liquid, the perceived values move away, and therefore, the vulnerability that the asset may have in terms of price is extremely high, ”explains José Antonio Espíndola, executive director of Stock Markets at Citibanamex.
Another problem is the low level of floating stocks – those that are in the hands of investors who are not controllers – and a very small trading volume, says Juan Rich, director of Stock Market Strategy and Analysis at Ve por Más.
These elements have a root factor: Mexican companies, even the largest ones that are listed on the Stock Market, “are still family-owned, because the percentage of their capital that is on the Stock Market is less than 20%, and the owner families continue to have the control and making decisions ”, says Román Martínez, leader of Transactions in Accounting and Financial Advisory at EY.
A lame market
The market has different participants: companies, brokerage houses, investors, regulators and Stock Exchanges, among others. And there are several pending issues that have left you incomplete. From the legal and regulatory perspective, the rules have been focused on companies, as potential issuers, and investors have been neglected, especially institutional ones, such as Afores, who are the main investors in the country and have the power to move the demand, says José Antonio Espíndola, from Citibanamex.
In securities lending legislation, particularly long-term investors (Afores), they were allowed to lend fixed income securities (bonds), but lending of stocks is prohibited. “If, as an Afore, you have these shares parked, it would be a better business if they could lend them and generate a deeper market for investors who require investment strategies through short positions (borrowing shares to sell them at a high price and then buy them at a lower price) ”, says Espíndola.
The specialist adds that the market is incomplete because the figure of hedge funds, hedgefunds (which would act as borrowers and Afores as equity lenders), is practically non-existent in Mexico (except for some brokerage houses or family offices that act as such), because “long ago, for the purposes of regulators and the central bank, hedge funds were not well regarded”.
On the business side, the same slopes have remained for decades, especially the lack of institutionalization. When going public, the financial data of the company – and many ‘secrets’ of its business – must be transparent so that investors can make the decision to buy or sell its shares based on that information. “Many of the companies have the size, they have significant growth rates, but in many cases what fails them is corporate governance or having financial statements audited according to the standards,” says Perochena.
In addition, being on the Stock Exchange, you must have an investor service department, explains María Concepción del Alto, director of the Master in Finance at EGADE Business School in Monterrey, who indicates that many of the low marketability companies do not have an area especially for investors, something that is also punished in the price of the share.
In other cases, some companies find the issue of going public to be complicated because they do not consider it as an added value and are not prepared to initiate all the procedures that it entails, says Martínez, from EY. “A capital issue is not easy, you have to align many issues to make sure it is ready: corporate governance, that financial results follow accounting standards or have an area of relations with investors”, says the expert. Regarding the attractiveness of going public to obtain financing at a good cost, there are other channels through which companies can obtain competitive rates.
The lack of financial culture has also weighed on the market. Unlike the United States, where retail investors (ordinary people) represent 50% of the market, in Mexico they do not even reach 15%, according to BIVA’s Perochena. Their number has been increasing in the last year: in 2020, the investment accounts of individuals in brokerage houses increased 268%, to 888,321, due to the boom in investment platforms. But the road is still long for them to become an important player.
Hope dies last
The crisis derived from COVID-19 also hit the stock markets and company valuations, but the scenario is already beginning to change. Greater economic growth is reflected in the movements of the Stock Market, “and the fact that we can have better prospects improves valuations, which means that companies can receive more pesos for each share they place, and this can make the interest of the companies grows ”, says Rich, of Ve por Más. Several analysts and specialists agree with him. De la Cruz, from the IDIC, indicates that a growth of more than 4% in 2022 and 2023, together with an environment of greater certainty and trust between public and private activity, will be favorable for the market.
Perochena of BIVA is also optimistic. According to the manager, since BIVA began operations, an accompaniment has been carried out with different companies (to date more than 250) so that they prepare their way to reach the Stock Market, with a front-line maxim: “The stock market is not for large companies, it is for them to become big ”.
