MEXICO TEMPORARILY HALTS DEBT-EQUITY SWAPS
Mexico has temporarily suspended its
debt-equity swap program in a move that some bankers see as an
attempt to increase pressure on reluctant foreign banks to
participate in a new 7.7 billion dlr loan for the country.
    The scheme, which gives foreign firms access to cheap pesos
to finance investment in Mexico, is likely to resume soon after
the loan package is signed on March 20.
    But the move is a further indication of the strains that
have developed between Mexico and the banks because of the
difficulty of syndicating the huge loan, bankers said.
    Bankers said that Mexico suspended the swap program on
February 25.
    Adolfo Hegewisch, Mexico's Undersecretary for Commerce,
confirmed that the swap program had been halted, but he told a
Euromoney conference on debt-equity swaps that Mexico had been
forced to act because it had been inundated with applications.
    Between January 1 and February 15, 132 firms had applied to
do a debt-equity conversion, compared with 100 between May and
December 1986. "We were not accustomed to receive so much
work," said Hegewisch, who is responsible for foreign
investment in Mexico.
    Bankers said applications totalling two billion dlrs had
piled up at the finance ministry, which has said it wants to
limit the amount of swaps to 100 mln dlrs a month.
    But some bankers, who declined to be identified, said the
halt also suited Mexico as it would keep up pressure on the
banks during the final campaign to persuade all 400 creditors
worldwide to participate in the loan.
    Over 97 pct of the loan has been subscribed, but dozens of
smaller banks are still baulking. Assistant U.S. Treasury
Secretary David Mulford said yesterday that the reluctance of
these banks had nearly jeopardized the deal at one stage.
    "The Mexicans basically said, We're not going to subsidize
foreigners until we have a deal," one banker said.
    Other bankers, however, said Mexico's motives were not so
sinister and that the suspension was mainly due to the absence
of top ministry officials in New York for the debt talks.
    "They want to focus on the deal, and they wanted the banks
to focus on the deal," one source said.
    Apart from the present disruption, bankers and company
officials said the Mexican debt-equity scheme has been a huge
success.    
    Frank Fountain, Assistant Treasurer at Chrysler Corp, said
a 100 mln dlr swap it made in December had gone so smoothly
that Chrysler has plans for more.
    Chrysler, working through Manufacturters Hanover Trust Co,
bought Mexican public-sector debt with a face value of 110 mln
dlrs, mainly from European banks. The cost was about 65 mln
dlrs in cash and paper.
    It then presented the paper to Mexico's central bank and
received the equivalent of 100 mln dlrs worth of pesos which it
invested in its local subsidiary to produce cars for export to
North America.
    Susan Segal, senior vice president of Manufacturers
Hanover, said the swaps not only reduce Mexico's debt burden
but help to recapitalize local industries that may have been
squeezed out of the local capital markets.
    Fountain said that even a large well-established firm such
as Chrysler had found it difficult to arrange long-term peso
financing on reasonable terms in Mexico.
    Industrial companies have done most of the swaps to date,
and Hegewisch said that many of the applications now pending
are for investments in the electronic and chemical industries,
with Japanese and Korean firms showing particular interest.
    But the interest is spreading. Segal said Manufacturers
Hanover has been authorized to convert part of its own
portfolio of loans into equity investment in Mexican hotels.
    She said the sums involved are considerable, but gave no
details. The bank is also looking into joint ventures with
manufacturing and trading companies, Segal added.
    And, as part of the agreement with the banks that will be
signed next week, Mexican residents will be allowed to
participate in the scheme, hitherto reserved for foreign firms,
in the hope that some of the 30 billion dlrs estimated to be
held abroad will be repatriated.
 Reuter
