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In 2004, when Compartamos, the Mexican microfinance lender, was still a medium-sized organisation, it went to the local corporate debt market to raise 200m pesos.

The company, which at the time had about 300,000 clients, thought it had got around its A- credit rating by securing a guarantee for 34 per cent of the debt issue with the International Finance Corporation, part of the World Bank. That raised Compartamos’ rating for the deal to AA-, sufficient to bring institutional investors on board, the company thought.

Yet even with the IFC backing and following an elaborate road show, Compartamos failed to reach its target – though it came close. “It was hailed as a good deal at the time,” recalls Patricio Diez de Bonilla, Compartamos’ treasurer. “But for those of us involved, we were left with the feeling that we didn’t get what we wanted.”

The experience of Compartamos in its earlier days – it is now officially a bank, with 1.7m clients – is typical of medium-sized companies in Mexico, almost all of which struggle to acquire debt needed to finance the next phase of their growth.

But there are worse cases. One chief executive of a Mexican textile company, with annual sales of about 500m pesos ($40.2m) and a staff of 1,000, says his current efforts to raise financing have failed entirely.

The businessman, who asked to remain anonymous, says his company’s bank decided last year not to renew a short-term credit line, forcing the company to offer price cuts of between 18 per cent and 22 per cent to clients in return for their immediate payment.

“It’s really tough being a medium-sized company,” he says. “You are too big to take advantage of the benefits of belonging to the informal sector, but too small for the banks and the government to take any notice of your problems.”

According to Alvaro Rodríguez, a founding partner at Ignia, a venture capital investment company, one of those problems is that Mexico’s banking sector only lends the equivalent of about 20 per cent of the country’s gross domestic product to the private sector – a small proportion of what banks lend in Chile or Brazil, for example. “The fuel of any economy is credit, and here there is none,” he says.

Guillermo Ortiz, former governor of Mexico’s central bank, believes the main problem with banks is not so much a lack of credit as it is a slow and bureaucratic approach to processing and approving loans, which is caused by the fact that 80 per cent of the banking sector is in foreign hands.

“Many decisions of foreign banks have to pass through credit committees, which have to obtain authorisation from headquarters, so there end up being many layers,” he told the Financial Times this month.

In many countries, medium-sized companies – in Mexico, these are ones with annual sales typically ranging from $30m to $300m – can turn to the corporate debt market for financing. But in Mexico, the market is reserved almost exclusively for top-tier companies, and there is almost no market for the smaller fry.

Besides, says Arturo Saval, a founding partner at Nexxus Capital, the country’s largest private equity fund, many businesses would find it hard to get the necessary credit ratings because they are not sufficiently institutionalised.

“Many medium-sized businesses here are run with a focus on tax optimisation, which is totally legal, but it doesn’t let the financial numbers reflect the strength of the business,” he says. “And that makes it hard for them to take the next step.”

In Brazil, Latin America’s largest economy, many mid-sized companies have opted to expand by listing on the stock market. But in Mexico, the stock market has long been dominated by a handful of very large companies, and the few smaller ones that have listed have a notoriously illiquid stock.

Mr Saval says some of the blame for that disparity – as of the end of last year, there were only 127 companies listed on Mexico’s exchange, compared with 377 in the case of Brazil – has to do with the mind-set of families who own medium-sized companies. “Owners in Mexico have a real problem letting go of their 51 per cent,” he says.

The upshot is not only that few companies ever list, but also that few mergers and acquisitions take place among them – one of the traditional ways that medium-sized companies grow.

For all the difficulties, however, things appear to be changing. One of the great hopes for financing in the future – both for Mexico’s corporate debt market and for future initial public offerings – is the coming of age of the country’s private pension funds, known as “afores”.

Since their foundation in 1997, the afores have gone from zero to about $110bn under management today – roughly equivalent to 11 per cent of Mexico’s GDP.

Until recently, the afores could only invest in government bonds and a very limited amount in stock market indices. But that is now changing. As Oscar Franco, president of Amafore, the association that represents the funds, told the Financial Times recently: “Afores are destined to become a huge component of supplying credit to the private sector.”

Indeed, Vanessa Rubio of Consar, the government regulator that sets investment rules for the afores, says that whereas a few years ago almost all afore funds went into government papers, only 60 per cent is now invested in the public sector, with the rest invested in a wide range of instruments, including corporate debt and individual stocks.

One of the more recent changes has been the ability of afores to invest in so-called CKDs. A CKD is a hybrid of debt and capital that, when established, is registered on the stock market and acts as a fund to enable unlisted companies to carry out specific projects. Since their creation late last year, afores have invested about 23bn pesos in CKDs, equivalent to 92 per cent of the total.

That investment, alongside a new flexibility to invest in individual stocks as well as initial public offerings, has created more attractive conditions for funds such as Nexxus to buy into medium-sized Mexican companies, overhaul their management and accounting structures and prepare them for a listing.

Luis Téllez, president of the Mexican stock market, is cautiously upbeat that the combination of growing afores, more flexible investing rules and companies such as Nexxus is gradually creating a culture of medium-sized listings, with at least three so far this year after a long drought.

“I would be lying if I said that there has been an inflection point,” he says. “But there have been three listings of mid-sized companies already this year, and we are using those examples to knock at the door of family businesses and say, ‘Look, here is an interesting possibility.’”

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