AWARDS: Corporate Issuer, Quasi-Sovereign Bond & Financing Innovation of the Year

Mexico’s state-owned oil company hit the bond market several times during the awards period, proving itself once again to be the largest and most-dynamic bond issuer in Latin America. 

Pemex tapped the cross-border and local markets, pioneering new platforms for Mexican borrowers. Although other issuers brought impressive transactions, Pemex’s ability to innovate and its popularity with banks and investors, despite falling oil prices, earned it Corporate Issuer of the Year. 

In January 2015, as investors gaped at the rapid drop in oil prices, Pemex stepped assertively into the market to sell the largest-ever bond from a Mexican corporate. The company raised $6 billion across three tranches. The transaction’s size, complexity and timing merit it LatinFinance’s Quasi-Sovereign Bond of the Year. 

The transaction fit into Pemex’s plan to foster liquidity in its debt instruments and to diversify its investor base.

“Over the past three years we have been focusing on the most relevant markets, dollars, pesos and euros,” says Rodolfo Campos, managing director of finance and treasury, and interim chief financial officer at Pemex. “We try to be very consistent with big sizes to enhance liquidity”

Despite its size, the issue was three times oversubscribed, allowing BBVA, Citi, HSBC and Morgan Stanley to tighten pricing on the five, 10 and 30-year tranches on offer. Pemex walked away with a 3.515% $1.5 billion 2020 bond, a 4.521% $1.5 billion 2026 tranche and a 5.675% $3 billion 2046 instrument. 

US investors and fund managers drove the bulk of the demand across the three tranches, with strong participation also from European buyers and bank investors. 

In the Quasi-Sovereign Bond of the Year category, Petrobras’ 100-year bond was another strong contender. After publishing its long-delayed audited financial results in April, complete with a write-down for the Lava Jato corruption scandal, the Brazilian government-controlled oil company took the bond market by surprise, issuing a rare “century” transaction. 

At the time of sale, the deal was applauded by bankers. It marked the return, in intrepid style, of one of Latin America’s biggest debt issuers. But as Lava Jato continued to erode confidence in the country and investor confidence in Petrobras faltered, the transaction performed poorly in the secondary market. While Petrobras’ execution of the bond was impressive, its secondary performance counted against it in this category. 

Pemex’s impressive market activity continued after its $6 billion January issue. Shortly after, the Mexican issuer returned to the market to pave the way for Latin American corporate borrowers in a new format: Euroclearable notes. 

In early February, Pemex and bookrunners Banamex, Bank of America-Merrill Lynch, BBVA Bancomer, HSBC, Morgan Stanley and Scotia priced another triple-tranche bond. This 24.3 billion peso ($1.6 billion) instrument marked the first time a Mexican corporate had used the Euroclear clearinghouse. The format makes it easier for international investors to participate in locally registered transactions. 

The deal came after extensive preparatory work. Incorporating international clearinghouses, “was our idea but very supported by the federal government because they had to change some local tax regulations”, says Campos. With the government modifying its capital gains tax for foreigners holding corporate debt, Pemex then used Euroclear, and later Clearstream, to get a larger group of international investors to buy its local peso notes. 

Buyers outside Mexico took 9 billion pesos of the February bond sale, and other Mexican issuers saw the merits of the format. In June, power company Comisión Federal de Electricidad used Euroclear to add 9 billion pesos to its 2025 notes. A month later, Opsimex, a subsidiary of América Movíl, used the platform, as well as Clearstream, to sell a 15 billion peso instrument. 

For successfully pioneering the Euroclear platforms, Pemex wins LatinFinance’s Financing Innovation of the Year award. 

Besides the two issuances, Pemex has tapped the local markets with smaller deals and sold two instruments backed by the US Exim bank. 

This year, Pemex will likely face strong headwinds with oil prices continuing their decline. Already, the effects are being felt: Moody´s downgraded the company to Baa1 in November, citing lower oil prices and production and high taxes. 

Campos says Pemex expects to turn increasingly to non-traditional markets this year for funding, as liquidity restraints increase in traditional arenas. The company is also looking at other, novel capital raising options — such as Mexico’s developing Fibra E structure, he says. LF

WINNER: Pemex