Saturday, 20 October 2018

Top 250 2005 - The Mexican trailblazer

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Petroleos Mexicanos (Pemex), Mexico's state-owned oil and gas company, has swiftly transformed itself into the savviest Latin American issuer. It all but wrapped up its US$8.5bn 2005 financing programme in the first five months of the year with a series of well timed and aggressively priced international and local bonds and a jumbo loan. James Crombie reports.

Earlier this decade, Pemex was well known for flooding the market with too many small deals. In contrast with its parent, the Mexican government, it looked unsophisticated. But over the last two years, it has moved into a league of its own.

"The [Pemex financing] team has been through a lot of markets and that gives them a unique advantage to measure market access and measure appropriate pricing and timing," said John Hartzell, co-head of Latin American debt markets at Citigroup. "Their market acumen provides the team with a unique ability to assess different structures as well."

In particular, the firm had a reputation for driving a hard bargain and squeezing the last basis point out of the market.

"Pemex broke the rules, it anticipated and was more innovative than any issuer in Latin America," said Gerardo Mato, head of LatAm global investment banking financing at HSBC. "In some deals they had a more clear view of what they wanted to do than the bankers."

Pemex kicked off the summer with a well timed curve-extending deal to fund a make-whole call. The blowout US$1.5bn two-tranche issue of 10 and 30-year bonds was billed as the last scheduled 2005 dollar deal and drew over US$4.5bn in orders. Pemex Finance plans to redeem notes due 2008, 2010, 2012 and 2013 as part of its curve tidy up programme.

It was simultaneously in the market with an amendment and restatement of a US$1.25bn revolver at aggressive terms. It was pushing for 30bp drawn on a 3.5-year portion, down from 55bp originally, and 45bp on a five-year, down from 75bp. The maturity is being extended by roughly a year.

Not long before, Pemex pulled off a successful local issue. A four-year and seven-month Ps5.012bn (US$454m) tranche tap came tight to guidance and a Ps4.98bn reopening of a seven-year and seven-month issue was priced at the tight end of the talk. The cost of funding was lower than the dollar curve said a banker on the deal. On the five-year tranche, Pemex saved around 33bp versus its dollar curve and 190bp versus the dollar curve on the eight-year.

Pemex plans to wrap up 2005 financing needs with a peso-denominated issue worth US$1bn in June. "By the end of the year we might make some pre-funding of next year's financing needs . . . So with the June peso transaction, we're done," the issuer's managing director of finance and treasury Octavio Ornelas said. Ornelas has his eye on international markets for 2006 prefunding, but said that would depend on how the markets look later this year.


Just before its local spree, Pemex launched the longest-ever euro deal from EM at its lowest coupon in the currency. The €1bn 20-year apparently hit a sweet spot for investors, who were heard placing close to €4bn in orders. The issuer said it set Pemex up for 15 and 30-year deals, though probably not this year. “It was perfect timing, [and] very well executed,” said Ornelas.

Pemex got very attractive pricing for long-dated paper versus dollars. On a dollar mid-swaps to euro mid-swaps comparison it was 25bp–30bp through, and on a pure asset swap basis it was 10bp–12bp through, said a banker not on the deal. “It's the first transaction I’ve priced more than 20bp inside the dollar curve,” said Ornelas. Also key for Pemex, it was just 25bp above the sovereign, according to Ornelas, whose stated aim is to cut the differential. “We are getting closer,” said the official.

It also marked a new record for duration from EM in euros. Pemex started the race with an €850m 12-year in July 2004 at 195bp over mid-swaps. The sovereign did one better with a €750m 15-year in November.

Before the 2025, BINA-Istra, the Croatian motorway concession, held the EM record, with a €200m 19-year done in early 2003. And Mexico held the LatAm record for tenor with a 15-year issued in November.

Separately, Pemex closed a US$4.25bn jumbo loan following demand of more than US$5bn. Forty-one banks subscribed to the deal with takes ranging between US$20m and US$250m.

The Pemex legacy lights the way for LatAm borrowers. "They opened the door for a lot of issuers on a lot of fronts," said HSBC's Mato.

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