Thursday, May 2, 2024

Confident investors have ‘insatiable’ appetite for new bond issue by Pemex

Demand for new bonds issued by Pemex is five times greater than supply, according to a report by the newspaper El Financiero.

The state oil company announced on Tuesday that it had issued US $5 billion in bonds that it will use to refinance existing debt.

Half of the bonds will mature after 11 years and pay annual interest of 5.95%, while the other half will mature after 40 years and pay 6.95%.

Pemex, which has debt of about US $100 billion even after receiving $9.5 billion in support from the federal government via cash injections, tax breaks and debt refinancing, said that part of the funds raised by the bond issue will be used to repurchase USD debt that matures this year and the remainder will go to refinancing.

The company stressed that it is not increasing its overall debt balance and that it remains committed to not doing so for a second consecutive year.

Unnamed sources with knowledge of investors’ intentions told El Financiero that Pemex has already received offers to purchase US $25 billion of its bonds, which will be sold via eight banks on January 28.

Similarly, an emerging market fund manager with Pictet Asset Management said that the appetite for the bonds is “insatiable.”

Guido Chamorro said that the demand was high because investors have faith that the government will always “rescue” the state-run company if it is unable to pay back its creditors.

However, he added that holding Pemex bonds is not completely risk-free because the state oil company “was already the largest corporate issuer in the world and it will now extend its lead.”

Fitch Ratings downgraded Pemex’s credit rating to junk status in June and if another ratings agency did the same, there would be a massive sell-off of bonds by investors who are required to maintain an investment-grade portfolio.

However, analysts at S & P Global Ratings said in November that they saw no reason to downgrade Pemex debt in the near future, indicating that its credit rating would only move if Mexico’s sovereign rating fell.

In addition to massive debt, the state company’s oil output has been in decline for more than a decade.

President López Obrador, who is determined to reduce Mexico’s reliance on gasoline imports by upgrading six existing refineries and building a new one, declared earlier this month that the federal government had “saved Pemex” and put an end to declining oil production.

However, some analysts disputed his claims and agreed that a second ratings agency would likely downgrade Pemex to junk status.

Source: El Financiero (sp), Reuters (en) 

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