(UPDATES order books, guidance)
By Paul Kilby
NEW YORK, Jan 28 (IFR) - Mexican oil giant Pemex squeezed pricing on a three-part benchmark dollar bond at least 25bp Thursday after order books for the first LatAm corporate deal of the year hit US$18bn.
The deal has been a hit among investors who liked cheap initial price thoughts of high 5% area on the three-year, 6.625%-6.75% on the five-year and 7.375% area on the 10-year.
Those levels were a good 70bp-100bp over the curve, where Pemex’s existing 3.125% 2019s, 5.50% 2021s and 4.50% 2026s were being spotted at 4.95%, 5.85% and 6.31%, respectively.
That appears to have been enough to draw a considerable crowd to a credit that has been tainted by the recent tumult in the oil sector.
The bulging order book allowed leads to tighten pricing at least 25bp at official guidance of 5.5% on the three-year, 6.375% on the five-year and 7% area (+/-10bp) on the 10-year.
Even if the 10-year lands at 6.90%, pricing is likely to be seen as attractive, especially relative to the sovereign, whose new 4.125% 2026s were trading at a mid-market yield of around 4%.
The oil company picked an opportune time to tap the market.
Not only did crude prices rebound on Thursday, but the deal followed headlines on Wednesday that the government might inject capital into the state-owned entity.
Like oil names throughout the region, Pemex has watched its credit quality deteriorate as US crude dropped as low as US$26.55 a barrel earlier this month.
It rebounded to roughly US$33 on Thursday.
Pemex, whose rating was cut a notch to Baa1 by Moody’s in December, will have to adjust to higher funding costs this year as investors push back on oil and gas names.
It is thought that Pemex stuck to the shorter end of the curve on Thursday in an effort keep costs down at a time when secondary levels have widened.
“Historically, they have done quite a bit of their financing at the long end, but the curve is steep,” said a syndicate manager away from the deal.
“In a stressed environment it makes sense to tap the shorter part of the curve to minimize the cost of funding.”
Pemex is heard targeting a US$2.5bn-US$3bn size, but with a strong order book it may wish to garner as much as it can early in the year while the future looks cloudy for oil credits.
“As a result of deteriorating cash flows and credit investors increasingly avoiding the struggling energy sector, Latin American national oil companies will face high refinancing risk,” Nymia Almeida, a senior credit officer at Moody‘s, wrote earlier this month.
Almeida named Pemex as one of the region’s oil companies needing to tackle significant debt maturities in 2016 and 2017.
The new deal, expected to be rated Baa1/BBB+/BBB+, is set to price later on Thursday through joint bookrunners BBVA, Bank of America Merrill Lynch, JP Morgan and Santander. (Reporting by Paul Kilby; Editing by Marc Carnegie)