Investors rush to new Pemex U.S. dollar bond deal

NEW YORK (IFR) - Investors flocked to a new US$5.5bn bond from Mexican state-owned oil company Petroleos Mexicanos (Pemex) Tuesday, the first dollar deal from a Latin American borrower since November 10.

Pemex logo is seen at the headquarters of state-owned oil giant in Mexico City, Mexico October 13, 2016. REUTERS/Carlos Jasso

Mexican stocks and bonds have struggled since Donald Trump’s victory in the US presidential elections on November 8, amid concerns around the impact of his policies on the country.

But Pemex’s bonds rallied on Monday after it announced a partnership with BHP Billiton, and it managed to attract over US$30bn of orders for Tuesday’s deal.

“Of the issuers that could have come before the end of the year, Pemex is the one,” said a banker away from the deal.

The deal offered around 75bp-100bp of new issue concession at initial pricing thoughts of 6%-low 6% and Libor equivalent for the long five-year fixed and floating tranches and 7%-low 7% for the long 10-year.

But pricing was pulled in to launch levels of 5.5% for the US$1.5bn five-year fixed, L+365bp for US$1bn five-year FRN, and 6.625% for the US$3bn 10-year.

That implied a new issue concession of around 30bp for each tranche.

Active bookrunners on Pemex’s deal are Bank of America Merrill Lynch, Citigroup, JP Morgan, Mizuho and Morgan Stanley.


Pemex’s 6.875% 2026 bonds were trading up to 26bp tighter over Treasuries on Monday, according to MarketAxess.

“It was opportunistic,” said another banker away from the deal. “Oil was trending in the right direction and the announcement yesterday obviously helps.”

Pemex said in November that it intended to rely partly on private sector alliances and partnerships to turn around its upstream and downstream businesses and improve its financial profile.

CreditSights analysts said they believed the company was on the “right path”, although they expressed concern over its financial burden.

Mexico awarded seven other blocks in the Gulf to other oil companies including Total, Chevron and Exxon Mobil in an auction on Monday. Bankers said that benefited Pemex by association.

“It shows a vote of confidence from large global producers in the deep-sea oilfields in Mexico,” said the first banker.

However, some market participants still expressed concern over the potential effect of Donald Trump’s presidency on Mexican businesses.

“The fears are about Trump’s stance going forward - is Nafta going to be ripped up, is he going to build the wall,” said the second banker away from the deal.

Governments and companies in Latin America could have their global bond sales next year, partly in response to Trump’s victory, bankers told Reuters last week.