2022 Perspectives for the Public Sector

Citi Perspectives for the Public Sector 33 resources to be used for investment purposes and under no circumstances for current expenditures. As future revenues of the assets are only shared with private investors during the lifetime of the securitization and governments usually retain ownership and management of the assets, asset monetization solutions are more politically palatable than the direct sale of state-owned assets or privatization of state- owned enterprises (although governments should also scrutinize their asset portfolio to identify potential asset sales that would not be politically contentious). There are many examples where governments in Latin America have successfully monetized future flows through securitization and other financial structures. Below are some recent examples: • FONADIN FONADIN, Mexico’s National Infrastructure Fund, was created by the Federal Government in 2008 to coordinate infrastructure development and encourage both public and private sector investment. FONADIN administers Mexico’s largest highway network, totaling 4,463km in 51 road sections throughout the country. FONADIN monetized one of its mature highways (Mexico-Puebla) through a securitization process. Part of the future toll revenues (over 20 years) was used as a source of payment for securities issued by a trust. Through this process, FONADIN was able to raise more than $1 billion through two issuances in 2018 and 2019. 6 These transactions enabled FONADIN to modernize and maintain its highways while retaining 100% ownership of the asset. • Escuelas al CIEN The Escuelas al CIEN program is the biggest investment program in educational infrastructure in the history of Mexico. 7 The objective of the program is the construction, rehabilitation and equipping of the country’s educational physical infrastructure. Each federal fiscal year, 0.814% of the total federal income is allocated into the Fondo de Aportaciones Multiples (FAM), which is one of several funds distributed to federal states as Federal Income Participations by the Federal Government. The 32 federal states of Mexico have assigned 25% of future FAM revenues to a special purpose vehicle (SPV) that issued amortizing 20-year Certificados Bursatiles (local issuance, CEBURES) backed by these future flows from Federal States Participations. The structure served to advance future resources to invest in educational infrastructure in Mexico. Through this strategy, the Mexican federal states have raised more than $2.6 billion through multiple issuances. The funds have been invested in more than 700 projects that benefit more than 30,000 schools. A number of Mexican federal states have monetized other assets to raise financing and address their investment needs in a process similar to the Escuelas al CIEN program, with states transferring assets with stable future income to an SPV, which then raises funding backed by the assets’ future flows. 6 Sources: Internal case studies, roadshow presentations, prospectus (https://bmv.com.mx/docs-pub/prospect/MXPUCB- prosp14-27032019-124229-1.pdf) and offering memorandums (https://www.bmv.com.mx/docs-pub/ofertdeu/ofertdeu_931940_1.pdf) (https://www.bmv.com.mx/docs-pub/ofertdeu/ofertdeu_931941_1.pdf) 7 Sources: Internal case studies, Escuelas al Cien (https://www.inifed.gob.mx/escuelasalcien/) prospectus (https://bmv.com.mx/docs- pub/prospect/CIENCB-prosp13-07122015-143623-1.-%20Prospecto%20(sin%20anexos).pdf) and offering memorandums (https:// www.cnbv.gob.mx/SECTORES-SUPERVISADOS/BURS%C3%81TIL/Documentos%20avisos/CIENCB%2015.pdf) With a growing need for financial resources, and a shrinking ability to raise debt finance, it is time for Latin American governments to shift from a debt sustainability/debt management approach to a balance sheet optimization approach.