Flash Fixed Income Report /
Mexico

Pemex follows sovereign with new two-tranche issue

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    21 January 2020
    Published byTellimer Research

    Pemex tends to follow a sovereign issue from Mexico with its own, and this time is no exception. The company announced that it is coming to the bond market with a new two-tranche issue with size "to be determined". Given that the recent sovereign issue deals in both USD and euros, we believe it could be more than a billion (on the very conservative side) for each tranche, comprising senior unsecured bonds due January 2031 and January 2060 (Baa3/BBB+/BB+). 

    The new bonds will have as guarantors Pemex Exploracion y Produccion, Pemex Transformacion Industrial and Pemex Logistica, and each of their respective successors and assignees. The use of proceeds is expected to redeem, repurchase or refinance Pemex's existing indebtedness, following the concurrent tender offers:

    1. For any and all of its 6.0% notes due 2020 – the US$2.616mn (out of an originally outstanding amount of US$1.0mn) senior unsecured bonds due 5 March 2020 are currently seen trading at cUS$100.574 (ALLQ) to yield (to worst) c1.05% (g-spread: -48 bps; z-spread: -77bps);
    2. For any and all of its 3.5% notes due 2020 – the US$437.022mn (out of an originally issued amount of US$1.465bn) senior unsecured bonds due 23 July 2020 are currently seen trading at cUS$100.788 (ALLQ) to yield (to worst) c1.91% (g-spread: 35bps; z-spread: 13bps).

    The initial price guidance for the new 11-year bond is in the 6.25-6.375% area. For comparison and valuation purposes, Pemex's US$4.421bn, 6.84% senior unsecured bonds due 2030 are currently seen trading at cUS$107.684 (ALLQ) to yield c5.80% (g-spread 403bps; z-spread 409bps). Thus, we believe that the new 2031's will likely price at c6.00-6.10. 

    For the new 40-year bond, the initial price guidance is in the 7.375% area. For comparison and valuation purposes, Pemex's US$8.066bn, 7.69% senior unsecured bonds due 2050 are seen currently trading at cUS$110.157 (ALLQ) to yield c6.88% (g-spread: 463bps; z-spread: 500bps), whereas the company's US$1.0bn, senior unsecured perpetual bond is seen trading at cUS$96.878 (ALLQ) to yield c6.90% (g-spread: 464bps; z-spread: 498bps). Thus, we believe that the new 2060's will likely price at c7.0-7.10%.

    Pricing is expected today.