Flash Fixed Income Report /
Mexico

Pemex initiates series of tender offers and new issues

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    12 September 2019
    Published by

    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.

    Table 1: Pemex's series of securities

    Acceptance priority levelPrincipal amount outstandingTender consideration*

    6.000% notes due 2020

    1

    US$816,983,000

    US$1,016.07

    3.500% notes due 2020

    2

    US$682,697,000

    US$1,010.89

    5.500% notes due 2021

    3

    US$3,000,000,000

    US$1,037.50

    6.375% notes due 2021

    4

    US$1,250,000,000

    US$1,050.00

    8.625% bonds due 2022

    5

    US$160,245,000

    US$1,115.00

    Floating rate notes due 2022

    6

    US$1,000,000,000

    US$1,036.25

    5.375% notes due 2022

    7

    US$1,500,000,000

    US$1,048.75

    4.875% notes due 2022

    8

    US$2,100,000,000

    US$1,037.50

    3.500% notes due 2023

    9

    US$2,100,000,000

    US$996.25

    4.625% notes due 2023

    10

    US$2,069,302,000

    US$1,026.25

    Source: company statement. *Per US$1,000 principal amount. 

    Regarding Pemex’s return to the bond market with new issues after almost a year (the last issue took place in November 2018), there is a flow of initial information: Pemex is expected to issue a three-tranche series of bonds with an amount yet to be determined. We believe the amount could be between US$1.5-2bn per tranche (if not higher, depending on market conditions and investors’ appetite), rated Baa3/BBB+/BB+, with maturities and initial price guidance as follows:
    1. 7-year due January 2027; 6.75% area
    2. 10-year due January 2030; 7.25% area
    3. 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.