MEXICO CITY–Mexican state oil company Petróleos Mexicanos on Wednesday sold $7.5 billion in medium and long-term bonds as part of refinancing its short-term debt. In its first foray into international capital markets this year, Pemex sold $1.25 billion in 7-year bonds at a yield of 6.5%, $3.25 billion in 10-year bonds at 6.85%, and $3 billion in 30-year paper at 7.7%.
Pemex said the refinancing operation is the largest in its history, and that overall demand was $38 billion or 5.1 times the amount placed. All of the money will be used to refinance existing debt. Pemex has also launched a tender offer to buy back up to $5 billion in bonds with due dates between 2020 and 2023 using a capital injection from the Mexican government, and is making an exchange offer of new notes to replace other short-term maturities. Pemex, the world’s most indebted oil company with more than $104 billion in debt in the second quarter, is on the brink of losing its investment grade. Fitch Ratings cut Pemex’s debt to speculative in June, and Moody’s Investors Service has the company at its lowest investment grade with a negative outlook. S&P Global Ratings has a negative outlook on Pemex, but rates the company several notches higher at the same level as the sovereign, given the government’s “almost certain likelihood of extraordinary support for Pemex” in the event of financial distress. “The company has a critical role for the Mexican government, both economically and for the execution of the government’s energy policy,” S&P said Tuesday. The administration of President
Andrés Manuel López Obrador
has reiterated its support for Pemex with capital injections and tax breaks. Since taking office in December, Mr. López Obrador has increased investment in Pemex in an effort to turn around a 15-year decline in output that saw the company’s crude oil production fall to 1.67 million barrels a day at present from 3.4 million in 2004. But at the same time, he has put a freeze on new oil block auctions for private companies, saying he’s waiting to see results from contracts already awarded, and he’s pressing ahead with construction of a controversial $8 billion oil refinery. While welcoming the efforts to increase output and oil reserves at Pemex, investors and analysts think the company needs to invest much more to meet its targets. Many were disappointed that the company’s business plan unveiled in July excluded more joint ventures with private companies that would allow it to share the investment burden in developing its reserves. Write to Anthony Harrup at firstname.lastname@example.org
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