Equity capital markets in Mexico: regulatory overview
A Q&A guide to equity capital markets law in Mexico.
The Q&A gives an overview of main equity markets/exchanges, regulators and legislation, listing requirements, offering structures, advisers, prospectus/offer document, marketing, bookbuilding, underwriting, timetables, stabilisation, tax, continuing obligations and de-listing.
To compare answers across multiple jurisdictions visit the Equity Capital Markets Country Q&A tool
This Q&A is part of the multi-jurisdictional guide to capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/capitalmarkets-mjg.
Main equity markets/exchanges
Main equity markets/exchanges
The only securities exchange currently in Mexico is the Mexican Stock Exchange (Bolsa Mexicana de Valores (www.bmv.com.mx).
Foreign companies can be listed in the Mexican Stock Exchange together with local companies. In addition to the local exchange, the Mexican Stock Exchange manages the International Trading System (Sistema Internacional de Cotizaciones), which is an electronic conduit to trade shares listed in other stock exchanges. Many non-Mexican companies are listed in the Mexican Stock Exchange, such as:
Banco Bilbao Vizcaya Argentaria (BBVA).
Banco Santander (SAN).
Market activity and deals
In 2013, the Mexican Stock Exchange reached a new record of Initial Public Offerings (IPOs) for the last ten years, with 19 IPOs, 13 of which were shares offerings and six were FIBRAS (Fideicomiso de Inversión en Bienes Raíces) (similar to US Real Estate Trust Funds).
The most important IPOs in the Mexican Stock Exchange in 2013 were:
Grupo Financiero Banorte, S.A.B. de C.V. for MXN$31,987 million.
Grupo Lala, S.A.B. de C.V. for MXN$14,055 million.
Grupo Financiero Inbursa, S.A.B. de C.V. for MXN$12,549 million.
Grupo Sanborns, S.A.B. de C.V. for MXN$12,088 million.
Infraestructura Energética Nova, S.A.B. de C.V. for MXN$7,416 million.
Concentradora Fibra Danhos, S.A. de C.V. or "Fibra Danhos" for MXN$5,980 million.
Concentradora Fibra Hotelera, S.A. de C.V. or "Fibra Hotel" for MXN$4,877.7 million.
The National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) (CNBV) is the main regulator of the Mexican Stock Exchange.
The main legal framework is:
Securities Market Law (Ley del Mercado de Valores).
General regulations applicable to issuers of securities and other participants of Exchange Markets (Disposiciones de carácter general aplicables a las emisoras y a otros participantes del Mercado de Valores), issued by the CNBV (CNBV Regulations).
Mexican Stock Exchange Internal Regulations (Reglamento Interior de la Bolsa Mexicana de Valores) (Mexican Stock Exchange Regulations).
General regulations applicable to Broker-Dealers (Disposiciones de carácter general aplicables a las Casas de Bolsa), issued by the CNBV.
A registration statement issued by the CNBV is required for any securities to be publicly offered in Mexico. To trade in the Mexican Stock Exchange, the following must be registered with the National Registry of Securities (Registro Nacional de Valores) (RNV):
The relevant securities.
Any other information documents, such as the prospectus, legal opinion, financial statements and stock certificate.
The CNBV controls the RNV, which contains a database with relevant information concerning listed securities. All issuers must file information documents with the CNBV and the Mexican Stock Exchange. Filings are made electronically through the CNBV and the Mexican Stock Exchange's proprietary systems and only the final filing of authorised documents is made in printed form.
Companies listed on the Mexican Stock Exchange can be:
Incorporated as a limited liability corporation (Sociedad Anónima Bursátil) (SAB). This is the most common form for listed companies.
Incorporated as a more flexible limited liability corporation created to support new business and ventures (Sociedad Anónima Promotora de Inversión Bursátil) (SAPIB). SAPIBs are used to support new businesses and to raise capital for new ventures and have more flexible listing requirements (see below). SAPIBs must be converted into SABs within two years of listing their shares.
All public companies must adopt minimum corporate governance requirements set out in the Securities Market Law, the CNBV Regulations and the Mexican Stock Exchange Regulations, as well as complying with the commercial practices of financial markets.
Minimum size requirements
The following size limits apply:
SABs: at least 200 shareholders.
SAPIBs: at least 20 shareholders.
Trading record and accounts
There is no minimum trading record. Profits must be reported for:
SABs: the previous three financial years.
SAPIBs: the previous two financial years.
The working capital requirements are:
SABs: UDI 20 million. (The Mexican Unidad de Inversion (UDI) is a unit of funds that reflects the value of Mexican pesos without considering the impact of inflation.)
SAPIBs: UDI 15 million.
Minimum shares in public hands
The general public must hold:
SABs: at least 15% of the capital shares.
SAPIBs: at least 12% of the capital shares. In addition:
at least 50% of the capital shares must be distributed among investors who acquired no more than 5% of the listed securities;
no investor can acquire more than 40% of the listed securities.
Secondary listings have the same requirements as IPOs.
Minimum size requirements
There is no minimum statutory size required specifically for secondary listings. In any case, at least 12% of the company's capital stock must be placed among the general public.
Trading record and accounts
There are no specific trading records or accounts.
Minimum shares in public hands
At least 12% of the company's capital stock must be placed among the general public.
The main ways to structure an IPO are:
Through a direct offering of the company's shares in the primary market, documented in share certificates.
Through a Mexican trust issuing participation certificates (certificados de participacion ordinaria), where the shares of the company are transferred to the trust.
The main ways of structuring a subsequent equity offering are through:
The company issuing new shares (primary offering).
A shareholder selling shares previously acquired (secondary offering).
Mixed offerings that include primary and secondary offerings at the same time.
Subsequent offerings may be implemented through direct offerings of the company's shares or through a Mexican trust issuing participation certificates (see Question 5).
Single stock rights issues
Several kinds of stock of a single issuer may be transferred to a trust with the purpose of issuing participations of such trust in the Mexican Stock Exchange. This may include new and old securities, avoiding the need to perform an initial and secondary public offering. Issues of rights over stock will require an independent appraisal that may be costly.
Rights issues allow the construction of baskets containing different kinds of securities (that is, shares of different issuers). As a disadvantage, securities' baskets may be harder to valuate and rate than a specific security.
Procedure for a primary listing
A company applying for a primary listing of its shares must file:
A registration statement.
Opinions (such as the independent counsel's legal opinion and the independent auditor's opinion).
Agreements (such as placement agreement, shareholders' agreement, if any, and other relevant agreements).
These documents must be filed (along with other relevant documents), simultaneously with the CNBV and the Mexican Stock Exchange.
The CNBV will then review and comment on these documents, and finally approve the documents. The Securities Market Law allows marketing of the securities after the relevant documents are filed. This allows the company to sell the relevant securities through the Mexican Stock Exchange.
Procedure for a foreign company
Foreign companies follow the same procedures as Mexican companies. A foreign company is likely to seek a listing for shares rather than a listing of depositary receipts.
Advisers: equity offering
The main advisers of an equity offering (including an IPO) in the Mexican Stock Exchange are the following:
Placement agent. Placement agents are Mexican broker-dealers. They structure the deal, have contact with potential investors, build the book and communicate with regulators. The placement agents market the securities and are liable for most of the prospectus content.
Independent legal adviser. The independent legal adviser issues the legal opinion that states the issuer company is in:
a position to issue the securities.
The independent legal adviser usually reviews the offering documents and signs the prospectus to assume liability for the relevant legal information.
Independent accountant. The independent accountant reviews the company's financial statements and issues an accountant's opinion of the company's audited financial statements. The independent accountant signs the prospectus and is liable in connection with the financial information contained in the prospectus.
Rating agencies. Sometimes rating agencies will rate the securities, although this is not required for equity instruments. The rating agencies give comments on the preliminary forms of prospectus and other offering documents. They are not liable for the content of the prospectus.
Other advisers. Depending on the complexity of the deal, the parties may hire additional advisers. For example, it is very common for the placement agents to have their own legal adviser, who does not sign the prospectus.
The main documents produced in an equity offering include:
A registration request.
Copies of powers-of-attorney of all documents' signatories.
Corporate resolutions approving the public offering.
A form of share certificate.
Independency letters (statements issued by the independent legal advisers and the independent auditors confirming that they comply with the legal independency requisites so as not to have a conflict of interest with the issuer).
A legal opinion.
A placement agreement.
In addition, for IPOs the following documents must be provided:
Articles of incorporation.
Bye-laws of the issuer company.
Audited financial statements.
Equity prospectus/main offering document
A prospectus (as well as other documents) is required for all public equity offerings in the Mexican Stock Exchange (see Question 9). Prospectuses must be published on the website of the Mexican Stock Exchange and printed in hard-copy and be available for investors at the issuer's offices.
Only material information (information required to take an informed investment decision) must be disclosed in a prospectus. Generally, a prospectus must contain the following information:
General information regarding the securities.
An executive summary of the transaction.
The risk factors for the investors as a consequence of their investment in the relevant securities.
The main use of the funds to be obtained from the public offering.
The structure of the company before and after the public offering.
The distribution plan (securities marketing plan).
Dilution risks (the risk of investors of being diluted with respect to their percentage of participation in the issuer's equity).
Detailed information about the issuer company, such as:
a description of its businesses;
existing legal actions against the business;
its corporate structure and main shareholders.
Financial information concerning the issuer company and its group, as well as any other entity that contributed 10% or more to the issuer company's income or total sales in the previous year.
A description of the company's management structure and politics.
A description of the company's main assets and liabilities.
A description of the responsible parties and individuals that must provide information to the CNBV and the Mexican Stock Exchange.
The generally accepted accounting standards in Mexico are the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. All financial statements must be audited by an independent auditor in accordance with the International Standards on Auditing issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. These standards are also applicable to financial statements of issuer companies where subsidiaries perform activities subject to the supervision of Mexican regulators.
The financial statements of non-Mexican issuer companies that are submitted to Mexican regulators must be prepared according to one of the following standards:
IFRS issued by the International Accounting Standards Board.
US Generally Accepted Accounting Principles (GAAP), including a complementary note explaining the differences between these principles and the IFRS.
Accounting standards applicable in the country of the issuer company, including a complementary note explaining the differences between these standards and the IFRS.
The issuer prepares the prospectus and other offering documents, with the advice of the placement agent and other advisers (see Question 9). The following are liable for the contents provided within the scope of their professional expertise:
The placement agent.
Certain officers of the issuer, such as the managing director, the chief financial officer and/or any other officer signing the prospectus.
The independent accountant.
The independent legal adviser.
Other advisers may be liable, for example, for studies concerning a specific kind of assets or valuations of the company's assets.
The prospectus must contain all the "relevant information" of the issuer. The Securities Market Law and the CNBV Regulations define relevant information as all information required for investors to know the current and correct financial, economic or legal situation of the issuing company. The publication of a prospectus that either contains misleading information or does not contain all the relevant information of the issuing company is considered to be a distribution of misleading information, which can result in civil and criminal liability including:
Prison of one to ten years.
Prohibition from working in the financial industry.
Fine of between 100 to 5,000 times the amount of the minimum wage in Mexico City (MXN$67.29).
Civil liability includes payment of compensatory damages and loss of future earnings.
Marketing equity offerings
No offering or marketing of securities is allowed before filing the preliminary prospectus and the rest of the offering documents. Once these are filed with the CNBV and the Mexican Securities Exchange, the placement agent can:
Start contacting potential investors.
Reach clients through conference calls.
Start the road show to market the securities (usually presentations by the issuer's senior management).
When the CNBV registers the relevant securities in the RNV, trading of securities in the Mexican Securities Exchange is allowed.
Potential liability risks range from criminal liability for disclosing privileged and confidential information, to administrative sanctions for breaching confidentiality. A way to avoid liability is not to disclose any deal-specific information. However, for such information to be mentioned in a relevant report, it must already be in the public domain.
Bookbuilding is the most popular marketing strategy for IPOs in Mexico. When placement agents market securities among institutional investors and financial intermediaries in the primary market, they usually use the bookbuilding system. Retail offers are managed directly by placement agents with their clients, usually through electronic auction systems.
Underwriting: equity offering
Underwriting agreements are typically structured either as:
Best efforts (mejores esfuerzos) that is, where the placement agent agrees to use best efforts to secure investors.
A firm commitment (en firme) where the placement agent is responsible for unsold shares.
It is uncommon to see firm commitment underwriting agreements in Mexico. Greenshoe options (where underwriters receive the right to sell additional shares at the offering price, if demand for the securities exceeds the original amount offered) must be explicitly agreed or the placement agent will not be entitled to offer additional shares.
Stabilisation activities are permitted by the Securities Market Law and do not require a specific agreement (see Question 19). However, they can only be performed with funds obtained from securities sold after exercising a Greenshoe option. The common practice is to authorise main placement agents to enter into sub-placement or placement participation agreements with other broker-dealers. The fee varies depending on the complexity of the deal, but is usually between 1% and 2.5% of the total offering amount.
Timetable: equity offerings
A timetable for a typical equity offering is as follows:
The parties meet for a first meeting where they discuss general terms of the deal (week one).
The placement agents meet with the CNBV and the Mexican Stock Exchange to explain the deal (week three).
Several versions of documents are prepared before a first filing version is agreed with the CNBV and the Mexican Stock Exchange (week three).
The placement agents start the road show and receive questions from prospective investors that will be included in or clarified by the second version of the offering documents (between weeks three and eight).
Depending on the complexity of the deal, the CNBV and the Mexican Stock Exchange take three to five weeks to comment on the offering documents (week eight).
The parties include in the offering documents acceptable comments from the CNBV and the Mexican Stock Exchange, as well as comments and questions from investors, and make a new filing (weeks nine to ten).
The CNBV and the Mexican Stock Exchange authorise the final version of the documents, and after filing final versions, the relevant securities are registered at the RNV (week 12).
Securities are traded in the Mexican Stock Exchange (week 12).
The CNBV takes more time to analyse documents from first time issuers (such as in the case of IPOs), because they have no background concerning the companies' financial information or market behaviour. Subsequent offerings usually take less time than IPOs.
Tax: equity issues
In general terms, public companies have the following obligations:
Reporting obligations. Public companies must provide annual reports. This information updates the prospectus and includes the company's annual audited financial statements. The annual reports also provide information about the company's:
board members that are holders of 1% or more of the company's capital shares;
investors that hold 5% or more of the company's capital shares;
ten principal stockholders.
Companies must also provide quarterly reports. This information is filed pursuant to certain forms provided by the CNBV. These reports include the company's pro forma quarterly financial statements.
Information obligations. Public companies have an obligation to inform investors, within specific timeframes, about (Mexican Stock Exchange Regulations):
any shareholders' meetings;
any notices addressed to their shareholders.
Disclosure obligations. Public companies must reveal to the general public any information that may affect the price or value of the shares (relevant events). Relevant events can include transactions such as those with related entities or individuals, the marketing of new products, the takeover of new businesses or the divestiture of assets. To determine if a specific event is relevant to investors, the company must consider if the event:
is equivalent in value to 5% or more of the company's assets, liabilities or consolidated capital;
amounts to 3% or more of the previous year's total sales.
If it is not possible to determine, the company must consider if the event constitutes relevant information for investors to make an investment decision, so as to understand the real situation of the company or what may affect the value of the shares.
Shareholder voting restrictions. Voting restrictions in Mexican Public Companies (Sociedad Anónima Bursátil) are included in each specific Company's bye-laws, therefore they should be analysed on a case-by-case basis.
The continuing obligations apply to listed foreign companies and issuers of depositary receipts. If the relevant company has listed securities in other financial markets, it must disclose to investors of the Mexican Stock Exchange the information disclosed to investors in those markets (see Question 21).
The penalties for breaching the continuing obligations range from suspension or cancellation of listed securities to personal liability of individuals appointed to provide the information. If any relevant information is not disclosed, individuals aware of the information may face criminal liability, on the basis that existing information in the market could be considered false or misleading because of this omission.
Market abuse and insider dealing
Restrictions on market abuse/insider dealing
Any information in whole or in part that is not public and has, or may have, an impact on the value of specific listed stocks is deemed as "privileged information".
Any person or persons that have access to privileged information as a result of their position in the issuer, or as an advisor to the issuer, is bound to maintain confidentiality over that privileged information until that information becomes public. The following actions are deemed to constitute insider trading/dealing (abuso de información privilegiada) under the Mexican Securities Law:
Performing or instructing operations, directly or through another person, on any type of listed securities, where the price of those securities may be influenced by that privileged information.
Transmitting privileged information to any other persons, unless those other persons are entitled to that privileged information as a result of their position with the issuer, or with an advisor of the issuer.
Issuing recommendations on listed securities that may be influenced by that privileged information.
Penalties for market abuse/insider dealing
There are several criminal and civil penalties applicable to those individuals who perform insider trading/dealing. The main penalties are as follows:
Sharing privileged information to people that have no right to know about it, or carrying out investment recommendations based on that privileged information, can be sanctioned with between two to six years' imprisonment.
Persons that carry out operations on securities using privileged information, either directly or through a third party, who as a consequence of those operations either obtain a profit or avoid a loss, may be sanctioned as follows:
between two to six years' imprisonment when the amount of the profit obtained, or the loss avoided, is up to MXN$6,729,000 at the moment of the transaction;
between four to 12 years' imprisonment when the amount of the profit obtained, or the loss avoided, exceeds MXN$6,729,000 at the moment of the transaction;
a fine of the amount resulting from multiplying either one or two times the amount of the benefit obtained, plus a rate that is obtained from applying to that benefit a rate equal to the arithmetic average of the revenues generated by the ten investment companies in debt instruments with higher profitability during the six months before the operation date (where there is no benefit obtained, a fine of between 10% to 50% of the amount of the transaction is applied).
A public company can be de-listed either voluntarily or by order of the CNBV.
For voluntary de-listing, 95% of the company's shareholders convened at a shareholders' meeting must vote to de-list the company. The company must then launch a tender offer to purchase the shares. The company may avoid launching a tender offer if the price for the stock is lower than UDI 300,000 (see Question 3, Trading record and accounts). (The Mexican Central Bank periodically publishes the value of UDIs.)
Tender offers require prior authorisation from the CNBV. The minimum time frame for a tender offer is 20 business days. The allocation of shares will be distributed among all shareholders that sold their shares until the end of the tender offer. The tender offer must be addressed to all shareholders, regardless of whether such shares have limited voting rights.
The CNBV can request de-listing of a specific security if:
It does not comply with the Mexican Stock Exchange listing requirements.
The company has breached its obligations under the Securities Regulations.
If the Banking and Securities Commission orders the de-listing of a specific security, the company must launch a tender offer within the next 180 days addressed to all shareholders that are not members of the controlling group. The company must create a trust and transfer funds to that trust for the purpose of acquiring the shares of the shareholders that did not agree to the tender offer.
Only a few companies de-listed their shares from the Mexican Stock Exchange during 2013. One of the main companies that de-listed from the Mexican Stock Exchange during the previous year was Grupo Nutrissa, S.A.B. de C.V.
There is currently a proposal to create a sub-market in the Mexican Stock Exchange for smaller growing companies to raise capital for new ventures and businesses. The Mexican Stock Exchange is trying to implement a model similar to the Alternative Investment Market (AIM) of the London Stock Exchange. This project is still under internal discussion.
National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) (CNBV)
Description. The CNBV website is maintained by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) and contains official and up-to-date information.
Mexican Stock Exchange (Bolsa Mexicana de Valores)
Description. The Mexican Stock Exchange website is maintained by the Mexican Stock Exchange (Bolsa Mexicana de Valores) and contains official and up-to-date information.
Hans P Goebel C
Nader, Hayaux y Goebel, S.C
Qualified. Mexico, 1995
Areas of practice. Banking and finance; capital markets; mergers and acquisitions; private equity.
- Represented Axis in the issuance of hybrid securities (CKDs) for total capital commitments of MXN$6,500 million.
- Represented Bulltick Casa de Bolsa as placement agent in the IPO of Proteak Uno, which was the first SAPIB to publicly issue equity.
Diego Sánchez Villarreal
Nader, Hayaux y Goebel, S.C
Qualified. Mexico, 2008
Areas of practice. Banking and finance; capital markets; real estate finance; mergers and acquisitions; energy law; private equity.
- Represented Grupo Danhos, S.A. de C.V. in its US$456 million IPO (fideicomiso de inversión en bienes raíces) (FIBRA)).
- Represented Axis in the issuance of hybrid securities (CKDs) for total capital commitments of MXN$6,500 million.