Structured finance in Mexico: understanding the local opportunity
Article 3 minute read

Structured finance in Mexico: understanding the local opportunity

12 March 2018

As Mexico’s growing economy prompts banks to widen their support to business, some large financial institutions or companies with complex financing needs might still struggle to match with conventional financial products.

Political uncertainty in Mexico could well begin to hamper economic growth as well, making it even harder to secure finance through traditional borrowing routes.

Structured finance is the obvious alternative, a financial instrument often involving several transactions offered to a unique borrower, which provides comfort to the lender when major capital injection into a business or organisation is required.

Mexico offers a slightly different approach to structured finance, compared to other countries, so engaging with a reputable business services provider such as TMF Group in Mexico City (TMF Mexico) provides valuable support for seeking the best solution.

Sociedad Financiera de Objeto Múltiple (SOFOM) is a special type of Mexican financial entity which can grant loans, leasing operations, and factoring, plus act as a trustee in certain transactions. The only limitation is that SOFOMs are not allowed to raise funds from the public as a bank can do.

Due to financial reform in Mexico, regulation and supervision of SOFOMs has increased. Several SOFOMs have been cancelled as a result, and SOFOMs must maintain up-to-date information about the products offered, giving information about their borrowers to at least one credit bureau.

Also, SOFOMs are strongly regulated for Anti-Money Laundering purposes; they must comply with specific internal structures, systems, certifications, training, and procedures for any transaction.

Investors may find some issues in the structuring process, but the benefits to set a SOFOM on many structures are much better than any other SPV.

Specialist insight

TMF Mexico has expertise and experience in many SOFOMs, and our deepening insight and knowledge are proving increasingly popular across the local marketplace.

Recent reform has lifted the restrictions on foreign investment in the capital stock of SOFOMs. Previously, foreign investment participation in financial institutions that provided rental financing, factoring and direct credit was limited. Today, a SOFOM may be formed entirely by foreign investment, so long as it is registered with the National Registry of Foreign Investment (Registro Nacional de Inversión Extranjera) and the required annual and quarterly reports are presented just like any other entity with foreign capital.

If you’re a foreign investor looking to offer credits in Mexico, TMF Group is well-placed to help you identify the best approach to structured finance, including the suitability of vehicle.

Commitment

TMF Mexico’s back-office support for businesses includes a full range of accounting and tax, corporate secretarial, governance, and HR and payroll services. Our commitment to structured finance support can help make sure our client’s structured finance vehicles are set up, maintained, and managed in a timely, compliant, and pro-active manner.

We can also provide a registered office, and the complete range of financial reporting services, including regulatory reporting and supervision of external SPV audits.

We help to make sure that all structured finance complies with Prevention of Money Laundering and Terrorism, including client identification policy and know-your-client (KYC) policy requirements; reporting relevant and unusual transactions, as well as internal transactions of concern; information confidentiality and retention of documents compliance.

We also offer Trustee and other services, including acting as data trustee, collateral agent, with collateral agreements in many countries.

Business reporting

TMF Mexico is experienced in use of the eXtensible Business Reporting Language (XBRL), which provides a common, electronic format for business reporting. Filing client statements to the Mexican Stock Exchange, whose trading system is fully electronic, enables timely reporting, accuracy, and consistency. With Mexico joining Chile, Peru, Panama, Columbia, and Uruguay in collecting and republishing data in XBRL format based on the IFRS taxonomy, there is very significant comparability across the continent. This supports cross-continent analysis and is ideal for multi-national companies operating across South America.

Mexico has come a long way in modernising and reforming its financial regulatory environment in recent years. Since 2006, TMF Mexico has been providing support to businesses, with local expertise and access to a global knowledge network of TMF Group offices in more than 80 countries. As one of the leading providers of business services, TMF Mexico offers a professional, pro-active, and agile approach to helping clients maximise business opportunity. Contact us for more information.

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Written by

Alfonso Chida

Structured Finance Manager, TMF Mexico

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