In its attempt to capitalize on the opening of Mexico’s oil industry, conglomerate Alfa SAB is enlisting a Colombian company that in six years has become one of the biggest producers in that country. Alfa bondholders are applauding the move.
The company’s $500 million of notes due 2024 have returned 4.7 percent since May 20, when Alfa disclosed its stake and began increasing it to become Bogota-based Pacific Rubiales Energy Corp.’s second-largest shareholder. That is more than three times the average gain in emerging markets over that span.
Alfa, which sells products as varied as bacon strips, plastic bottles and car-engine parts, is turning to Pacific Rubiales as it seeks to profit from Mexico’s decision to end its 76-year-old oil monopoly. Founded in 2008 by an ex-Petroleos de Venezuela SA executive, Pacific Rubiales has tapped oil fields in Colombia once overrun by rebels to become that nation’s biggest producer after state-run Ecopetrol SA.
“Who out there can Alfa identify with and partner up with to gain expertise and knowledge of how to extract?” Ray Zucaro, a money manager at SW Asset Management LLC, which oversees $420 million in emerging markets, said by telephone from Newport Beach, California. “The guys at Pacific Rubiales have been pretty damn good.”
Alfa’s press office declined to comment on its stake in Pacific Rubiales and bond performance.
Alfa’s bonds due 2024 yield 4.50 percent, compared with an average 4.37 percent yield for same-rated corporate bonds in Latin America, according to data compiled by Bloomberg.
Boosting shares in Pacific Rubiales “should be viewed as part of our strategy to build a more robust exploration and production business in order to take advantage of potential opportunities in Mexico,” Alfa Chief Financial Officer Ramon Alberto Leal said on a conference call July 15.
Alfa, based in San Pedro Garza Garcia, Mexico, has boosted its ownership of Pacific Rubiales to 14.2 percent from about 10 percent when the company disclosed the stake on May 20, according to data compiled by Bloomberg.
“Alfa is a valued shareholder, and Pacific Rubiales regards Alfa as an excellent potential partner in any joint or other Mexican venture,” Pacific Rubiales General Counsel Peter Volk said in an e-mail.
Ronald Pantin, Pacific Rubiales’s chief executive officer, said on his company’s earnings call yesterday that he “loves” what he sees in Mexico and is ready to work with Alfa.
Pantin, who was head of the services unit at PDVSA, left Venezuela’s state oil producer in 2000 as then-President Hugo Chavez stepped up control of the state company. He and Jose Francisco Arata, who also worked at PDVSA, co-founded Pacific Rubiales along with Miguel De la Campa and Serafino Iacono.
Mexico’s President Enrique Pena Nieto enacted bylaws this week to guide changes in the nation’s energy policies that will allow foreign producers such as Exxon Mobil Corp. and Chevron Corp. to drill for oil in Mexico.
“Alfa can become a player in the Mexican oil business, and what better way than with a private Latin American oil company that is in the business,” Luis Maizel, who manages about $5.5 billion in fixed-income securities as president of LM Capital Group LLC said by phone from San Diego. “It’s a win-win.”
Mexico’s peso was little changed at 13.0706 per dollar at 1:22 p.m. in New York.
Michael Roche, an emerging-market strategist at Seaport Global Holdings LLC, said that gains in Alfa’s bonds are likely to be limited now that the oil laws have been enacted.
“The big event is reality now,” he said in a telephone interview from New York. “The long-running positive story keeps Mexico corporate bond yields fairly tight.”
Alfa, which sold $1 billion of bonds in March to help finance energy investments, is Mexico’s second-largest industrial conglomerate. It also has stakes in U.S. shale wells.
“Pacific Rubiales brings the oil-industry knowledge, the oil-extraction knowledge, and Alfa brings the local knowledge of how to play,” SW Asset’s Zucaro said. “It’s like a royal wedding.”