NEW YORK, Dec 8 (IFR) - A blowout bond deal from state-owned
Mexican oil company Petroleos Mexicanos (Pemex) this week has
stoked hopes of a strong start to 2017 for Latin American
Investors poured over US$30bn of orders into the company's
US$5.5bn three-part bond which priced on Tuesday, the first from
a borrower in the region since November 10.
Mexican stocks and bonds widened in the aftermath of Donald
Trump's election victory on November 8 amid concerns about the
impact of his policies on the country.
Bankers told Reuters this week that governments and
companies in Latin America could halve their global bond sales
next year, partly in response to Trump's victory.
But Pemex bonds got a boost Monday after it announced a
deep-water oil field partnership with BHP Billiton in the Gulf
of Mexico, and the new deal found strong interest.
Its success sets the stage for borrowers who were forced to
delay bond sales in the week following the election, said
Shamaila Khan, a portfolio manager at AllianceBernstein.
"Pemex showed that if you have good credit and you're well
priced, there is demand," she said.
"There were some deals in November and December that could
have come to market but got delayed, so I would expect those to
come in January."
Indeed, the Republic of Ecuador took advantage of the better
sentiment on Thursday to price a US$750m bond that attracted
US$2.4bn of orders.
However, some market participants are still expressing
concern over the potential effect of a Trump presidency on Latin
American businesses, particularly in Mexico.
"The fears are about Trump's stance going forward," said a
banker away from the Pemex deal. "Is Nafta going to be ripped
up? Is he going to build the wall?"
JP Morgan analysts wrote this week that protectionist
policies proposed by Trump could restrict growth, particularly
in more open emerging markets such as Mexico.
"Until more clarity about the scope of Trump's trade policy
intentions emerges, uncertainty will likely hit business and
consumer confidence and undermine growth dynamics in many EM
countries," they wrote.
The Pemex bonds were trading 20bp-40bp tighter than reoffer
across the curve on Thursday.
"The response was overwhelming," said a banker on the deal.
"We saw the IG market was open, the OPEC meeting gave a nice
boost to oil, and the auctions went well. Everything lined up,"
the banker said.
"The fact that they can come in and pre-fund gives them a
head start. January is going to be busy."
The announcement of the BHP Billiton partnership was
especially helpful for the deal, market participants said.
Pemex's 6.875% 2026 bonds were trading up to 26bp tighter
over Treasuries on Monday, according to MarketAxess, on the back
of the announcement.
Pemex said in November that it intended to rely partly on
private sector alliances and partnerships to turn around its
upstream and downstream businesses and improve its financial
CreditSights analysts said they believed the company was on
the "right path" with its strategy, although they expressed
concern over its fiscal burden.
Mexico awarded seven other blocks in the Gulf to other oil
companies including Total, Chevron and ExxonMobil in Monday's
deep-water oil field auctions.
Bankers said the success of the auctions benefited Pemex by
"It shows a vote of confidence from large global producers
in the deep-sea oil fields in Mexico," said a second banker away
from the deal.
Pemex's deal offered around 75bp-100bp of new issue
concession at initial pricing thoughts of 6%-low 6% and Libor
equivalent for the long five-year fixed and floating tranches
and 7%-low 7% for the long 10-year.
But pricing was pulled in to launch levels of 5.5% for the
US$1.5bn five-year fixed, 3mL+365bp for US$1bn five-year FRN,
and 6.625% for the US$3bn 10-year.
That implied a new issue concession of around 30bp for each
The leads only lost around US$2bn of orders after pricing
was tightened, said the banker on the deal. The floater received
particularly strong demand, he said.
Active bookrunners on Pemex's deal were Bank of America
Merrill Lynch, Citigroup, JP Morgan, Mizuho and Morgan Stanley.
(Reporting by Will Caiger-Smith; Editing by Marc Carnegie)