Petroleos Mexicanos returned to capital markets Thursday for its first debt sale since January as the embattled oil producer seeks to tap improved demand from investors.
Pemex sold $1.5 billion in five-year bonds with a 6.95% yield, up from the $1 billion originally offered with a guidance price in the mid-to-high 7% range. The sale went off without a hitch, despite the company boasting the heaviest debt burden among oil majors and dealing with one of the worst Covid-19 outbreaks of any company in the world.
The pandemic has forced Pemex to pare back investment plans, suspending contracts with service providers and delaying payments to them. Yet the state-owned company still needed to tap investors for funds.
“They have refinancing needs, so absent more government support they do need to raise money,” said Shamaila Khan, head of emerging-market debt at AllianceBernstein in New York.
For once, the market is in Pemex’s favor. Spreads between the company’s 2027 bonds and the Mexican sovereign — which blew out to over 870 basis points in April — have since come down to just 463 basis points. That’s still well above the roughly 200 basis-point-spread at the start of the year, but signals a return of investors to the credit.
The sale “went well,” Khan said. “It was a pretty small issue size and pricing is attractive for the credit.”
For Klaus Spielkamp, the head of fixed income sales at Bulltick in Miami, the demand for the company’s latest debt sale is encouraging, though he still recommends caution.
“The default risk is very low,” Spielkamp said, adding that he tells clients that the government will likely honor Pemex debt, but to expect volatility. “This is not an investment they will buy and sleep comfortably until maturity.”