Pemex Arrives Late to Feast

Mexico’s Pemex, needing to borrow some $3.5bn this year, has tapped the debt markets as expected. However, increasingly challenging market conditions meant a $1bn size at a slightly larger concession than the high-quality issuers that got out earlier in January. The BBB/Baa1 2020 bond priced at 98.788 with a 6.000% coupon to yield 6.162%, or UST plus 250bp, the tight end of 250bp-255bp guidance. Demand reached $3bn, according to bankers on the sale, and the bond was trading around flat to reoffer Thursday afternoon, according to traders. Bankers away from the deal and investors spot the new issue premium at 20bp-25bp, and see it at 90bp-100bp wide of the sovereign, while bankers on it spot the concession at 15bp-20bp. “The bonds came out a bit cheap, which surprised me,” says Eduardo Suarez, corporate analyst at RBC Capital Markets. He notes that Pemex’s operational performance is improving, but would only be reflected gradually in financial results. A participating EM investor agrees it was “reasonably cheap,” noting the yield was not as tight as some high-grade issues earlier this month, likely due to a general widening in markets. Mexico priced a 2020 January 11 to yield 5.250%, or UST plus 142.4bp, a new issue premium below 10bp. “We had the wind at our backs as the market opened, but the equity markets turned during the day. Taking that into account, I think it did well,” says a banker managing the sale. “The issuer did all the right things, but the market may have turned on them a bit,” adds a DCM banker away from the deal. He notes a general preoccupation with earnings numbers, the Greek debt scare, Obama’s bank attack and other news that sapped risk appetite. Some 266 accounts participated in Pemex, according to a banker on the deal, with about 45% coming from the US, 35% from Europe and 20% from LatAm, Asia, and other regions. Barclays, Citi, and Credit Suisse managed the sale. Pemex is also currently roadshowing a 5 and 10-year local bond issue expected at