Pemex Taps Euro Market for Cash as Financial Struggles Grow

  • Oil producer sells 3-, 7-year debt in first euro sale in year
  • Bondholder Landesbank Berlin says premium is `attractive'

Petroleos Mexicanos sold its first euro-denominated bonds in 11 months as the state-controlled oil company struggles to shore up its finances amid the collapse in crude prices and the end of its 76-year monopoly.

Pemex, as the crude producer is known, sold 1.35 billion euros ($1.48 billion) in three-year notes to yield 395 basis points more than the mid-swap rate, and 900 million euros in seven-year bonds at 495 basis points above, according to a person familiar with the sale, who isn’t authorized to speak publicly and asked not to be identified.

Mexico has been focusing on ways to turn Pemex around after a record $32 billion loss in 2015 and 11 straight years of production declines. The company last sold euro debt in April, which included an offering of notes due in 2022 at 165 basis points above midswaps. The rate on those securities has risen almost 3 percentage points since trading started to 4.74 percent.

“The bonds are attractive against the already-existing issues because Pemex has to pay a premium as an incentive to fund the company at a time when there is constantly a negative news flow,” said Lutz Roehmeyer, director of fund management at Landesbank Berlin Investment GmbH, which is participating in today’s sale and already holds Pemex debt.

The company last week pledged to meet the government’s demand that it trim its 2016 spending by 100 billion pesos ($5.6 billion) by increasing efficiency and focusing on its most profitable projects. The Finance Ministry is preparing a support plan for Pemex and studying all potential options, including a capital transfer or reducing the company’s tax burden, chief economist Luis Madrazo said in an interview on Tuesday.

Credit Agricole SA, Deutsche Bank AG, HSBC Holdings Plc, and Societe Generale SA are organizing today’s sale, the person said.

“Pemex is a frequent issuer so there won’t be any scarcity value,” said Roehmeyer, adding that the three-year notes are more “attractive” than the seven-year bonds.

Pemex’s sale comes after America Movil SAB sold 1.5 billion euros in debt on Monday. Monterrey, Mexico-based Cemex SAB also announced Wednesday that it planned to sell bonds denominated in dollars to pay down existing debt.

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