NEW YORK, Feb 2 (IFR) - Another sell-off in bonds issued by Latin American state-owned oil companies on Tuesday was giving investors pause about the region’s quasi-sovereign names despite enticingly wide spreads.
A backup in US crude prices to below US$30 and a broader risk-off tone on Tuesday had oil companies such as Petrobras, Ecopetrol and Pemex giving back recent gains and investors cashing in.
“There is a lack of conviction to put money to work given what is happening with oil,” said a US based trader. “We are seeing views expressed through sovereigns and very little follow through in quasi-sovereign names.”
Petrobras 2024s were about a point lower at 71.-71.50 while Ecopetrol 2025s were down 75 cents at 74.25-75.50.
Trading at yield at around 11.60%, Petrobras benchmark 2024s were on Tuesday some 470bp wide to where the Brazil 2025s are being quoted, according to Thomson Reuters data.
It was a similar story for Colombia where yields on Ecopetrol’s 2025s were close to 300bp wide to sovereign debt following Moody’s decision in January to cut the credit to Baa3, above junk.
“We are still looking if there are opportunities among quasi sovereigns, which have widened significantly,” said an investor.
“It comes down to your view about the implied sovereign support for these companies. And if you rank things on a scale, Pemex is on top for implied sovereign support.”
A US$5bn three-tranche bond issued from Mexico’s Pemex was also off recent highs on Tuesday, but still above reoffer, with the new 2026s being bid at 100.50.
Still, the rout in oil is costing oil companies dearly as Pemex itself experienced just last week when it sold its new 2026s at a yield of 6.90%, close to 300bp over the sovereign.
“I think the Pemex deal has hurt the new issue market (in Latin America) significantly,” said one investor. “If Pemex is paying such a premium it will be difficult for other issuers to justify coming to market.”
Such levels certainly turned heads among investors who helped pushed demand up to the US$18bn mark on the Pemex deal.
But the continued swings in the price of crude have accounts seeking safety in sovereigns rather than taking on the standalone risk of the governments’ commodity producers.
“There are no winners in this environment,” said a second trader. “And standalone conditions are worse.” (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)