U.S. FIRMS ADVISED TO FINANCE AT HOME

CAROL EMERT

WASHINGTON (FNS) -- Companies in the United States planning to open a store or plant in Mexico probably shouldn't seek financing south of the American border, according to experts.

Instead, companies would do far better to arrange financing for their Mexican subsidiaries in the United States, according to a number of executives, including those from an international accounting firm, a consulting firm and several banks.

Interest rates are much lower on dollar loans than on pesos, and borrowing dollars in the United States costs less than borrowing in Mexico, executives said.

Another reason to seek financing at home is that the U.S.-based parent company, which in most cases has an established relationship with a bank, virtually always will be able to borrow on better terms than a new subsidiary could, the experts said.

Companies based in the United States also should avoid taking out loans in pesos, several analysts said, because the interest rate is about 15% for a firm with a strong credit history, compared with about 12% for a dollar loan in Mexico and 6% for a dollar loan in the United States. Interest rates on pesos can run as high as 25% for a less creditworthy company.

Another strong reason for U.S. firms to handle financing at home is that this practice eliminates the need for costly money transfer fees from Mexico.

One alternative to borrowing through the U.S.-based parent is a structured finance program available through Citibank, the only foreign bank operating in Mexico. Although Citibank's Mexico division generally offers interest rates and fees comparable to those of Mexican-owned banks, this special program allows subsidiaries to borrow dollars at the same rate they would in the United States, "plus a small premium," said Arnold Ziegel, managing director with Citicorp Securities.

The program offers loans based on a particular income stream, such as accounts receivable. "If there is a high probability these payments will continue for a long time . . . you could conceivably advance [loans] against that stream to raise a fair amount of money," Ziegel said. This would be an option for subsidiaries that cannot or do not want to borrow money through their parent, said Ziegel, who acknowledged it is simpler to borrow from the parent company.

Mexican subsidiaries also need to have a peso checking account, either with Citibank or with a Mexican bank, to cover day-to-day expenses, wages and money transfers, several tax experts said. If the subsidiary has far-flung offices, it probably would not be able to use Citibank, which has branches in Mexico City, Guadalajara and Monterrey, said Hal Rabbino, manager of client services in the Mexican office of Resource Evaluation Inc., a Harrison, N.Y., consulting firm.

Some U.S. firms use local Mexican banks for their peso needs. Banamex, Mexico's largest bank, has the most locations, Rabbino said. Mexican banks also have more experience in the Mexican market than Citibank, and more ties with local companies that the subsidiary might be doing business with, noted Jose Cuevas, business development manager of Banca Ser Fin, Mexico's third-largest bank.