Mexico’s state-owned oil company Pemex on Tuesday completed a $2bn bond sale, according to people familiar with the deal, with investors demanding a double-digit yield to lend to the heavily indebted group.
The issuance comes as emerging market governments have raised more than $40bn in international bond markets this year after a global sell-off last year triggered by rising interest rates.
Andrés Manuel López Obrador, Mexico’s nationalist president, has in the past vowed to “rescue” Pemex after what he sees as years of damaging privatisation. His administration has tried to boost the company with billions of dollars of support and tax breaks to help it manage a debt load of more than $100bn.
Some investors had hoped the government would provide more support before the company was compelled to tap the market again. But Pemex on Tuesday priced the sale of bonds maturing in 10 years’ time, according to people with knowledge of the matter. It last issued new debt in 2022.
Emerging market fund managers who have invested in Pemex bonds in the past say they are attractive because they pay a high premium, or spread, over Mexican sovereign bonds, while enjoying strong government backing.
The bond priced with a yield of 10.375 per cent, a person with knowledge of the deal said. The money would be used for general corporate purposes and refinancing, the person added.
Mexico’s 10-year government bonds traded on Tuesday with a yield of 8.7 per cent, implying a premium for investors in the new Pemex bonds of more than 1.6 percentage points.
“It’s a pragmatic arrangement where the government tries to keep the pressure on the company to be self-sufficient,” one Pemex bondholder said of the decision to issue rather than inject capital via the government.
“It’s not a permanent solution and indeed we don’t really expect a permanent solution. It’ll be this piecemeal approach for the foreseeable future.”
The yield on the new bonds reflected expectations that the government would continue to support Pemex, the analyst said. But for a “quasi-sovereign” the spread was large, the analyst added.
In the first quarter of this year Pemex has to make more than $5.5bn worth of debt payments, its chief executive, Octavio Romero, said this month.
Despite generous financial help from the government, Pemex’s production has been falling for years and hit lows of 1.5mn barrels a day in 2022, down from more than 2.1mn b/d in 2016. That has left it unable to capitalise on higher oil prices.
Even as production is declining, Pemex is also building an oil refinery that is running vastly over budget and is likely to cost more than $11bn. López Obrador has come under fire from environmentalists for the project, which is in his home state of Tabasco.
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