With over 20-years of experience, Unifin has become a leading Multi-Purpose Financial Society in Mexico (SOFOM) and was the first to securitize its portfolio, and moreover, their success has gained them the recognition by the Mexican Stock Exchange and the National Banking and Securities Commission. KITE Invest spoke with the Chairman of Unifin, Mr Rodrigo Lebois Mateos, to see just how they made their vision into a success story.
KITE Invest: By 2050 Mexico could be the world’s fifth largest economy, and therefore, Mexico needs to show its true potential more than ever. An example of this potential is demonstrated by the grades the country received this year from the three major rating agencies. Within the global economic context, and taking into account the current economic and political situation of the country, what is your opinion on Mexico’s growth for next year?
Rodrigo Lebois Mateos: The truth is that I believe that Mexico has great potential. Of course some countries in Latin America are suffering on a general level, especially Brazil, where we are seeing a slowdown, causing some investors to be less active. Nevertheless in Mexico, thanks to the reforms that President Peña Nieto established last year, we are open to receiving more investment, especially in sectors such as infrastructure and energy. This will cause the country to grow, but not as we would like, because we are now living with the current oil prices, which has affected us a lot when we were just about ready to have a major economic take-off.
For Unifin it is a very special situation, which has to do of course with some of the growth in Mexico, but more importantly it deals with the low penetration of the leasing business. If we compare Mexico with Chile or Colombia, Mexico has a 20% lower portfolio or assets given in leasing. In Chile and Colombia leasing assets total about USD$15 billion, Mexico 12 billion. Actually the Mexican market levels should be 60-70 billion USD, so natural growth is very important. Unifin has grown the past 14 years 400 times; last year we grew 40% and this year we are set to grow by 50%.
KITE: Informality and productivity are two residing issues in the Mexican economy. How can the situation be resolved? It’s getting better?
RLM: The people perceive that informality in Mexico comes from not paying taxes. However, according to a study by OCD last year, it was explained that informality in Mexico is given by the difficulty in dismissing employees. Labour law is so bureaucratic and goes against the employer; small businesses prefer to hire employees informally, to get away from having to fire them if the case arises. This, unlike in developed countries like the United States where labour law is much more even, has an obviously significant impact us. On the other hand, the Ministry of Finance is making efforts to promote formality, because today an important part of the Mexican economy is generated by small and medium enterprises, thus representing the percentage of GDP and the number of employees that are in them.
In terms of productivity, of course we are productive in our own way. We are a people that are measured by issues of global productivity, and certainly that is closely linked to education. In Mexico we also have Peña Nieto’s educational reform legislation, which will greatly benefit us, especially in the evaluation of teachers, meaning that our people will receive a better education. The medium-term productivity will increase.
The automotive sector is a clear example of this, with the superb workmanship that it has, and it is one of the largest investment sectors right now.
KITE: What are the most important trends in emerging markets, particularly in Latin America?
RLM: In Latin America is that we rely heavily on raw materials. We are big producers of commodities, both oil and minerals, and this causes the global slowdown in key regions such as Europe and China, affecting us significantly. Additionally, Latin America suffers greatly from its political instability.
Corruption especially has made countries that were on track to fall, such as Brazil. We have a long way to go in this sense. We have many of the same features to that of Third World countries that still we have to address. However, the market and financial situation of Mexico allows us the strength that investments can be done in a productive way.
KITE: The year 2014 has presented some volatility driven by lower oil prices and uncertainty over the Federal Reserve System. According to our information, Unifin Financial, a multiple purpose finance company dedicated to operational leasing, car loans and other credits, is planning a mixed global public offering, amounting to $350 million. This undoubtedly will be a before and after in the history of Unifin. Could you comment on the implications and expectations surrounding Unifin’s IPO?
RLM: It is a proud moment for Unifin; a company that has 23 years in the stock market, but for us it is not new. We have been in the debt market since 2002, we issued nearly $2 billion in national debt market, and in June of last year we issued $400 million USD in the global market.
Also we have not had to make many changes in corporate governance issues. We do this in order to consolidate the company’s aggressive growth that we anticipate in the coming years. Today we do not need the capital to meet the growth we seek this year; however, we believe that market timing is optimal to issue such debt, which is more or less about $250 billion USD. Last year’s profitability on equity was 40% with the capital increase. We plan to be increase our level by 20 times, which we can still be very profitable in relation to the financial sector, and returns remain very good compared with the rest of the Mexican banking sector.
KITE: Private markets in Mexico have interesting investment opportunities for this fiscal year. There is a high need for private capital and credit in Mexico and new instruments will go public by 2015. What role do you think institutional investors will have, such as Afores, investment funds, and insurance companies in the short to medium term for the Mexican stock market?
RLM: Afores remains an important pillar of emissions of both debt and equity, as well as insurance companies, and depending on its risk policy of investing its reserves are in some cases in the sector of capital, although are usually located in debt. We feel very comfortable with the fact that the Afores remains a mainstay in all instruments of both debt and capital that leave the market.
KITE: In 2006 Unifin under the slogan of « financial solutions made to measure » became the first Multi-Purpose Financial Company (SOFOM in Spanish) to securitize its portfolio, gaining recognition by the Mexican Stock Exchange Banking and Securities Commission. Explain briefly how has the experience in Unfin’s more than 22-year history been?
RLM: Unifin started in 1993, as a leasing company that was mainly dedicated to the automotive sector. The company went through very difficult times, for example during the crisis of 1994, during which interest rates rose from 8% to 130%, credit lines completely closed 100%, the bank internationalized, and major foreign banks left. We were lucky that thanks to our relations with the automotive sector we could ensure the growth of the company during the 1990s (by General Motors and Ford Credit), which allowed us to go on living and doing business.
The start of funding issues began in 2002, where we issued our first debt of 20 million pesos. Since then 25 billion pesos of debt has been issued so far, but the key moment for Unifin occurred in 2006, where questions about leveraging the company to get capital took place. We got through it and we were the first company to securitize part of leasing. What we were able to achieve after six years is why the rating values gave us a vote of quality.
We are dedicated to making a model focused on retail, and for us our triple A client can be a doctor, and thanks to the many years of experience that allowed us achieve the level of investor and servicer, we were able to be given the vote quality as good originators.
Last year we had to make a capital injection of 200 million pesos to solidify the company and now with the IPO it will be more than enough.
KITE: Unifin Leasing, Unifin Credit, Unifin Factoring and Unifin Insurance are the company’s four business units. Could you describe these units and make an assessment of what is the greatest asset for the company or what you think has a higher growth projection?
RLM: Definitely the leasing unit is the source of 90% of our revenues, and factoring was the result of our own customers who needed capital support.
The issue of auto loans arose by the necessity of some of our suppliers when financial institutions closed after the crisis of 2009. The volume of this business is quite small, although trading volume is high because they are small operations, but we think and we are confident that the business of leasing is definitely the most important.
On the subject of insurance, it is also important because we insure all of our assets; we operate as an insurance broker. Through this company we seek to not only secure our assets but also give an alternative to the client to ensure all of its assets at a better rate. We are now in the process of entering a very strong moment in terms of supporting our customers with better solutions that mid-sized businesses need; we give them better alternatives.
KITE: In recent decades Britain has contributed with between 1% and 3% of the total foreign direct investment entering Mexico. Because of the advantages gained by reforms in the energy sector, fiscal, educational and telecommunications sectors, they will position Mexico as one of the most attractive destinations for foreign investment, to which a significant increase is expected. What is your assessment of the role the UK will play in the future attraction of capital into Mexico in the coming years?
RLM: I am convinced that Britain will be a very important factor in the energy sector. There are very reputable companies worldwide that will help a lot to make these investments profitable, with the certainty that Mexico will give all the necessary guarantees just as investors care for their investments.
Also of course you have to take into account the financial sector. It is a sector that has always been influenced externally, and therefore, all financial business has to go through London.
KITE: Given that London is considered as a global financial centre and the Bank of International Settlements’ data shows that British financial centres account for about 20% of international loans and deposits. Taking this into consideration, what message would you like to send to all British investors about Mexico and Unifin?
RLM: We are in the perfect time to invest in Mexico. The investments we are going to give will have a maturity period, and when they come to Mexico in a couple of years will see a totally different Mexico. Legal certainty and ease of doing business in the country is something that has radically improved in the last 10 years, and it will be very easy to open businesses in Mexico.
All these investments will require for its suppliers, some type of team and partner, and we will be happy to support them to create business between the two countries.