Pemex pries open market with long-awaited bond
Investors lap up bonds despite doubts about oil company’s direction under new government
With a close to US$11bn order book behind it,
PEMEX’s new US$2bn 10-year bond helped to
pry open a Latin American primary market
that had largely been shut in recent months.
4HEûSTATE
OWNEDûOILûlRMûENJOYEDûSTRONGû
DEMANDûFORûITSûlRSTûDOLLARûBONDûINûEIGHTû
months despite doubts about how president-
elect Andres Manuel Lopez Obrador (AMLO)
will manage the state-owned entity.
It was also the type of quasi-sovereign
entity that typically sets the tone for the rest
of the market to follow.
h4HISûISûTHEûlRSTûBIGûREALûLIQUIDûDEALûWEû
HAVEûSEENûRECENTLY ûANDûITûISûANûAFlRMATIONû
that the market is open,” said Roger Horn,
EM desk analyst at SMBC Nikko Securities
America.
“It will bring non-dedicated investors back
into the asset class.”
Even so Pemex, which has been expected
to raise anywhere between US$3bn to
US$4bn this year, arguably paid double-digit
concessions to get investors comfortable
after a tough year for the asset class.
!TûAûlNALûSPREADûOFû4REASURIESûPLUSûBP û
the long 10-year bond was seen coming
about 20bp over its existing 2028s, which
WEREûTRADINGûATûAû'
SPREADûOFûAROUNDûBP
That level is about 10bp over where one
banker put fair value, and about 190bp over
trading levels for the sovereign, which had a
2028 being quoted with a G-spread of 140bp.
That is considerably wider than the
sovereign spread differential on Brazilian state-
CONTROLLEDûOILûlRMû0ETROBRAS ûWHICHûTRADESû
AROUNDûBPûWIDEûTOûGOVERNMENTûPAPER
It remains unclear to what extent AMLO
will reverse energy reforms designed tomake Pemex more independent of the
government.
)NûAûMEETINGûWITHûFOREIGNûOILûMAJORSû
this month, AMLO encouraged them
to pump more oil without indicating
THATûHEûWOULDûOFFERûMOREûlELDSûTOûSTOPû
declining production.
“So far AMLO hasn’t said much to
scare off investors. We will see what
HEûISûLIKEûWHENûHEûISûINûOFlCE vû(ORNû
said.
“This is the kind of deal that people
want to see in the fourth quarter,” said
a banker. “Deals that are big liquid and
not credit intensive.”
HSBC, JP Morgan, Scotiabank and UBS
were leads on the deal. Ratings are
Baa3/BBB+/BBB+.
Paul KilbyFRONT STORY MIDDLE EAST
Saudi Arabia under spotlight
Kingdom’s bonds widen following journalist’s disappearance
SAUDI ARABIA’s bonds were pushed to centre
stage in the secondary market last week, as
the unfolding situation around the
DISAPPEARANCEûOFûJOURNALISTûAMALû+HASHOGGIû
saw the sovereign’s curve embroiled in
volatility.
4URKISHûOFlCIALSûHAVEûSAIDûTHEYûBELIEVEû
+HASHOGGIûWASûMURDEREDûATûTHEû3AUDIû
consulate in Istanbul at the beginning of
October, while Riyadh denies the allegations.
The kingdom’s currency, the riyal, had
SUNKûTOûAûTWO
YEARûLOWûOFûûAGAINSTûTHEû
US dollar by Monday because of concern
THATû+HASHOGGISûDISAPPEARANCEûCOULDûHURTû
foreign investment in Saudi Arabia.
4HEûRIYALûISûPEGGEDûATûûTOûTHEûDOLLARû
ANDûMOVESûOUTSIDEûAûnûRANGEû
are rare.
In the bond market, Saudi Arabia’s paper
HASûWIDENEDûBYûOVERûBPûSINCEû+HASHOGGISû
disappearance on October 2, with the sell-
off accelerating last week.
The widening has eroded the work of a
technical bid for paper from the region,
which formed in the latter part of
September on reports that Gulf sovereigns
and quasi-sovereigns would be included in a
SERIESûOFû0û-ORGANûINDICES
The October 2021s, for example, opened
3EPTEMBERûBIDûATûAû:
SPREADûOFûBP û
according to Tradeweb, and had ratcheted in
TOûAROUNDûPLUSûBPûBYûTHEûENDûOFûTHEû
MONTHû!SûTHEûNOISEûAROUNDû+HASHOGGIû
grew, however, the spread nearly doubled,
with the notes pushed out to plus 98bp.New issues have not been spared, as
corporate paper has been dragged along for
the ride with the sovereign. Saudi
%LECTRICITYSû*ANUARYûSûANDû3ABICSû
October 2023s have both moved around
BPûWIDERûOVERûTHEûCOURSEûOFû/CTOBERSOFTENING IN SENTIMENT
In the primary market, Saudi Arabian
ISSUERSûHAVEûRAISEDû53BNûSINCEûTHEû
SUMMERûlNISHED ûTHANKSûTOûTHEûSOVEREIGN û
Saudi Electricity and Sabic. But the softening
in sentiment has seen investors take a step
back, and issuers are expected to wait for
the storm to blow over.“I don’t expect to see a Saudi related
announcement before the news clears,” said
one banker.
Almarai, the Gulf’s biggest dairy
company, is said to have appointed banks
for a sukuk issue but whether that mandate
or others will brave the market before 2019
arrives remains to be seen.
A Dubai-based banker also expects the
Saudi Arabian primary market to remain on
hold, while the Gulf as a whole appears to be
winding down heading into year-end.
“Saudi Arabia has had an effect on the
wider region. It doesn’t mean others can’t
access, but they will want to see more
stability rather than issue at elevated levels,”
he said.
“I don’t think there’s a huge amount
coming. Anyone who was on the fence
about this year will probably hold off for
now.”
Another factor exacerbating the softer
performance across the region has been the
falling price of oil, which dropped from
NEARLYû53ûAûBARRELûONû/CTOBERûûTOûJUSTû
over US$80 on Friday.
Robert Hogg
Additional reporting by Andrew TorchiaEMERGING MARKETS
China India Indonesia Malaysia Singapore South Korea Egypt Nigeria
Tunisia UAE Brazil Colombia Venezuela “Saudi Arabia has had an effect
on the wider region”