Americas Issuer: Pemex
By raising US$16bn in the euro, US dollar, and Mexican peso markets through some of its largest deals ever, and successfully completing a nail-biting consent solicitation on US$40bn-plus of bonds, Pemex made its mark in 2014 to become IFR’s Americas Issuer of the Year.
The Mexican state-owned oil company is no stranger to the capital markets. 2014 was a transformational year for Pemex, which saw historical energy reforms end its 75-year old monopoly and forced it to rethink how it will raise capital in the years to come.
“The new conditions Pemex will face as the result of the energy reform has forced us to pursue new financing schemes and structures,” said Rodolfo Campos, the company’s treasurer.
This presented opportunities and challenges. Energy reforms – which redefined the company as a state-productive enterprise as opposed to a decentralised public institution – even threatened to sabotage the company’s access to the market.
With the indentures on US$41.6bn of bonds allowing for an event of default if Pemex lost its monopoly status, management in June carried out one of the largest consent solicitations ever executed.
Success was far from guaranteed, however, and required convincing investors that the loss of Pemex’s monopoly status was in fact credit-positive.
“At the end of the day this was mission critical,” said Paul Spivak, head of investment-grade debt syndicate at Morgan Stanley, which acted as lead on the trade along with Deutsche Bank and Bank of America Merrill Lynch.
Banks were set the task to approach investors holding bonds denominated in US dollars, euros, sterling, Australian dollars and Swiss francs, and had to get majority consents from all 35 series.
“Some securities were broadly held and other just held by one or two guys,” said Carlos Mendoza, co-head of Latin America DCM at Deutsche Bank. “To make them come along wasn’t easy.”
All this came in a year when Pemex deepened its presence in core markets and restored its standing in others, as it sought to diversify funding sources but only in markets that allowed it to raise at least US$1bn a year.
In late November 2013, Pemex returned to the eurozone for the first time since 2009 with a €1.3bn seven-year bond issue priced at mid-swaps plus 175bp – piercing its US dollar curve in the process.
The show of force in a euro market where 390 investors participated in the upsized trade helped to take some pressure off Pemex’s dollar curve, and encouraged it to extend its euro curve in April with a €1bn 12-year that generated €6bn in demand.
While the borrower had yet to follow the sovereign into Single A territory – that came in June after the mega consent solicitation – it nonetheless drew 400 or so accounts keen to participate in Mexico’s reform story.
A Reg S-only format also ensured that the borrower was truly capturing European buyers without any spillover from the US investors that typically invest in the company.
Financing in local pesos also took on greater importance in 2014. This is a market where Pemex raised around US$5bn over the awards period both through bonds – one being the largest-ever corporate transaction in the domestic market – and a debut loan syndication that provided US$2bn-plus in 10-year money.
“[The domestic market is often] more efficient in terms of cost and in terms of diversification,” said Campos. “For rainy days we can access different sources of financing.”
In November 2013, the company set up a market-making programme much like the sovereign does with its own Treasury curve, in an effort to create more liquidity and predictability for investors that play a local curve increasingly populated by foreigners.
A policy of reopening benchmark peso bond issues to bolster liquidity and seek inclusion in a variety of global indices went hand-in-hand with that strategy.
“We raised the equivalent of US$4bn over that period in the local market, giving foreign investors access to our local market through global depositary notes,” said Campos.
Still, the US dollar market continued to play an important role for Pemex, which issued in January its largest-ever dollar bond offering – a US$4bn multi-tranche deal that took advantage of a strong bid for duration ahead of expected spikes in US Treasury yields.
The final order book of close to US$30bn was the biggest ever for Pemex.
“The large demand in our books as well as the rate levels have enabled us to price our issuances in 2014 at very competitive levels,” said Campos.