Pemex pays slight concession after orders pile up on new 2029 bond

Pemex pays slight concession after orders pile up on new 2029 bond

Bonds Capital Markets Energy Mexico

Pemex was quick out of the blocks on Tuesday, launching initial price talk (IPT) on a long 10-year bond sale after global markets enjoyed a strong opening through the morning.

The Mexican oil company released IPT at 365bp over US Treasuries and orders soared above $11bn throughout the day's trading, according to market sources.

For some weeks now, investors had been anticipating Pemex's return to the dollar market, especially given the recent jump in oil prices.

On Tuesday, prices spiked after the American Petroleum Institute reported the biggest build in more than a year for crude oil inventories. West Texas Intermediate was up 0.07% to $71.83 per barrel on Tuesday afternoon while the Brent crude benchmark shot up 0.64% to $81.3 per barrel.

As orders built, lead bookrunners tightened Pemex's new 2029 bond to 340bp over Treasuries, +/- 5bp.

With President-elect Andrés Manuel López Obrador's (AMLO) inauguration less than two months away, investors have also suspected that Pemex would look to raise any extra external debt for 2018 before the December 1 handover.

"AMLO's position on Pemex is still unclear," one investor said. "So it is better to take advantage of the conditions now rather than guess what will happen in December."

As previously reported by LatinFinance, bond investors have questioned how AMLO plans to boost investment into the state-controlled energy company without increasing government debt.

In August, market sources suggested Pemex may raise between $3bn and $3.5bn, but a recent sell-off in equities and the lack of new bond issuances out of Latin America may have dampened the company's appetite on Tuesday.

Leads launched a $2bn January 2029 bond on the tight end of guidance, or 335bp over Treasuries, before pricing the paper with a 6.5% coupon to yield 6.508%, or a reoffer price of 99.954.

The company's 2028 bond was trading roughly 5bp tighter on Wednesday at 315bp over Treasuries, placing Pemex's new issue concession on the January 2029s between 10bp and 12.5bp, sources estimated.

"Given the recent conditions, this is a good trade for Pemex," said a DCM banker not involved in the transaction.

JPMorgan, HSBC, Scotiabank and UBS coordinated Tuesday's trade for Pemex.

Last week, Swedish-listed Millicom paid almost 40bp in NIC on an eight-year, $500m bond sale.

With several LatAm names on the road, Baa3/BBB+/BBB+ rated Pemex and Millicom's new sales may have opened up some level of price discovery for those credits meeting with investors.

Brazilians JBS and Invepar announced roadshows recently, while Mexican manufacturer Controladora Mabe is tying up a new issuance with a liability management exercise. On the energy side, Colombian AI Candelaria, Guatemala's Investment Energy Resources and Chilean Empresa Electrica Cochrane are also sounding out the market ahead of prospective cross-border transactions.

This year, Pemex has raised cross-border debt in euros, Swiss francs and dollars.


Image: Deer Shell Park refinery (Pemex JV). Roy Luck/ Flickr