Mexico leaves bonds plans in a lurch
January 15, 2019 |
Last week's meetings disappoint investors and cast doubt on Pemex's goals, sources say
The Mexican government's plans to issue new benchmark bonds appear to be in limbo after investors were disappointed with marketing meetings last week.
"Investors were not happy with what they heard, and spreads were widened by 40bp," said a debt capital markets banker in New York.
"I don't think they are going to want to do something immediately as the tone of the market is not very good right now with all the uncertainty surrounding Brexit," he added.
After Barclays led officials from Mexico's finance ministry and the state-owned oil company Pemex on non-deal marketing meetings last week, an investor in New York said Pemex's management failed to present a clear message to the market.
"The production goals are unrealistic. The company is already overleveraged and increasing capex. That creates a lot of concern," she said.
Bonds bankers said last week that the government and Pemex launch issue new bonds for as much as $1.5bn each in roughly 30 days. But the investor said it is unlikely that Pemex will come to the market soon.
"I don't see them doing a bond right away. They need to figure out what the company's goal is and stabilize their ratings, which are facing a downgrade. Right now, the chance of a bond is in limbo," she said.
Oil production in Mexico is in decline, and President Andrés Manuel López Obrador has not made it clear if his administration will stick with the energy reforms started by his predecessor, Enrique Peña Nieto, she added.
"It's great that they are building a 'new Pemex'," she said, quoting the company's new marketing slogan, "but we need to see proof in the pudding. This is a large issuer with many outstanding bonds, below investment grade and with unstable ratings."
The government, however, can issue a sovereign bond at any time "because US Treasury notes are lower right now, but it's really hard to say," the investor said.