Oil producer Petroleos Mexicanos’s first overseas bond sale this year is pushing Mexican corporate offerings to an 11-month high.
Companies based in Latin America’s second-biggest economy raised $3.1 billion in May, the biggest monthly total since June, according to data compiled by Bloomberg. Latin American companies have issued $9.1 billion of bonds abroad this month, the most since October. Pemex, as the region’s largest oil producer is known, sold $1.25 billion of 30-year bonds to yield 6.56 percent yesterday.
Mexican companies are stepping up debt sales as growing demand for higher-yielding, emerging-market assets drives borrowing costs to a three-month low. The average yield on Mexican corporate dollar bonds fell to 6.10 percent last week, the lowest since Jan. 28, according to JPMorgan Chase & Co.
“People are looking at the world and realizing it could be a good time to lock in relatively low costs,” Anne Milne, an emerging-market corporate credit analyst at Bank of America Corp., said in a telephone interview from New York. “There might be concern that there might be more turbulence down the road.”
Pemex’s bonds yield 90 basis points, or 0.90 percentage point, more than Mexican government notes due in 2040, according to data compiled by Bloomberg. The state-controlled company may sell about $2 billion in the U.S. market and $1 billion in Europe by June, Chief Financial Officer Ignacio Quesada told reporters May 4.
Pemex, based in Mexico City, said in an e-mailed statement that it plans to use the money it raised in yesterday’s sale to fund investments and refinance debt. A company official, who asked not to be named in accordance with company policy, declined to comment further.
Comision Federal de Electricidad, the state-owned utility, sold $1 billion of 10-year bonds to yield 180 basis points more than U.S. Treasuries on May 18, the second-biggest Mexican debt offering abroad this month.
Investor demand for Mexican debt is increasing as the country’s economy expands at the fastest pace in a decade and policy makers keep inflation in check, according to Jerome Booth, who helps manage about $47 billion of emerging-market assets as co-founder and head of research at Ashmore Investment Management.
The economy grew 5.4 percent last year, the most since 2000. Annual inflation was 3.36 percent in April, holding near a five-year low of 3.04 percent reached in March.
“You have an environment where inflation is well under control,” Booth said in a telephone interview from London. “The economy is reasonably stable, well run.”
The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries rose seven basis points to 147, according to JPMorgan.
The peso was little changed at 11.6682 per dollar, putting its gain this year at 5.8 percent.
The cost to protect Mexican debt against non-payment for five years climbed four basis points to 106, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.
While Mexican borrowers boosted offerings this month, sales this year are down from the same period in 2010. Overseas issuance has totaled $8.8 billion this year, compared with $14.2 billion in the first five months of 2010, according to data compiled by Bloomberg.
Pemex is seeking to take advantage of investor demand for its debt after reporting first-quarter profit that almost tripled, said Araceli Espinosa, a debt analyst at Scotia Capital in Mexico City.
Net income rose to 4.21 billion pesos from 1.44 billion pesos in the year-earlier period, the company said in a statement on May 2.
Mexican corporate issuance this year “has been pretty weak,” Espinosa said in a telephone interview. “Given that the first quarter was a very good report for Pemex, they want to take advantage of those good numbers to continue picking up cheap money. That doesn’t mean it’s a sign that there are going to be a lot of sales.”
Demand for Mexican corporate debt is building as investors bet the yield premium the securities offer will narrow, according to Ashmore’s Booth.
The extra yield investors demand to own Mexican corporate debt instead of U.S. Treasuries shrank 78 basis points in the past year to 298, according to JPMorgan.
“People are not buying Mexican corporates just because they want to sit on the coupon but because they expect spreads to narrow further,” Ashmore’s Booth said. “That is part of the attraction.”
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