Pemex announced today that it has commenced ten separate offers to purchase for cash any and all of its outstanding securities (see Table 1), as part of its liability management strategy. The tender offers will expire on 18 September and the settlement date is expected to be 23 September.
|Acceptance priority level||Principal amount outstanding||Tender consideration*|
6.000% notes due 2020
3.500% notes due 2020
5.500% notes due 2021
6.375% notes due 2021
8.625% bonds due 2022
Floating rate notes due 2022
5.375% notes due 2022
4.875% notes due 2022
3.500% notes due 2023
4.625% notes due 2023
- 7-year due January 2027; 6.75% area
- 10-year due January 2030; 7.25% area
- 30-year due January 2050; 8.00% area
The new bonds will be guaranteed by Pemex Exploración y Producción, Pemex Transformación Industrial and Pemex Logística, and each of their respective successors and assignees.
We continue to believe that Pemex is at risk of a downgrade, particularly given our view that the US$5.0bn capital injection by the Mexican government is insufficient to replenish reserves – let alone increase production or even reach the c1.9 million barrels per day production target that the 2020 Federal Budget envisages by the end of next year.
We reiterate our Hold recommendation mainly for technical reasons as we believe that investors continue to see Pemex as a quasi-sovereign because of the government’s support. On a fundamental level, we believe the company is insolvent as a standalone entity and we expect a steep spread widening if and when the Moody’s downgrade crystallises (our horizon being between 9-12 months) and the forced selling of Pemex bonds that was priced in a few months ago dissipates.