Pemex gets $5bn injection, sets three-part bond deal

Pemex gets $5bn injection, sets three-part bond deal

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Energy Regulation Politics Mexico US

Mexico's Pemex could price a three-part bond deal this week, raising money to pay off debt, including short-term loans, LatinFinance has confirmed, dovetailing with the government's $5bn capital injection into the state-owned oil company.

Pemex is taking note of investor sentiment as it prepares to sell the new seven-, 10- and 30-year notes as soon as Thursday, depending on market conditions, said a banker working on the deal.

"This is a big liability management exercise to provide the company with more flexibility to pursue its business plan as unveiled in July," the banker said.

Pemex said on Wednesday that it will use the proceeds from the new notes to buy back bonds that come due between 2020 and 2023. The new notes are part of its $102m medium-term notes program, the company added.

In a press release on Wednesday, Pemex said it will receive $5bn from the federal government to buy back bonds that mature between 2022 and 2048. In the 2020 budget, which the finance ministry presented to Congress on Sunday, the government outlined MXN86bn ($4.4bn) in capital contributions and tax breaks for Pemex.

Moody's assigned the new notes a Baa3 rating, adding that the government's capital injection meets most of the remaining support expected for this year. S&P Global gave the notes a BBB+ rating and said the bond buyback was an "opportunistic refinancing and not a distressed restructuring."

The finance ministry said it will fund the $5bn investment with "financial assets held at the Treasury" and added that the capital contribution will not have any effect on the government's net debt levels or borrowing requirements.

Pemex has hired Citi, Goldman Sachs, HSBC and JPMorgan as the joint bookrunners for the new notes, along with Bank of America, Crédit Agricole and Mizuho as the passive joint bookrunners. The same banks are the dealer managers on the buybacks.

The new notes will come with guarantees from the subsidiaries Pemex Exploración y Producción, Pemex Transformación Industrial and Pemex Logística, Pemex said.

Pemex got a five-year, $8bn syndicated loan from 23 lenders in June, leading President Andrés Manuel López Obrador to say foreign and domestic lenders had not lost confidence in the company. The finance ministry later said that it could take as much as MXN120bn from a MXN300bn budget surplus fund to cover shortfalls at Pemex, rather than cut spending.

Pemex has approximately $20bn in debt that matures in the next four years, but it is working to lower operating costs to make more money available for exploration and production.