Government debt issuance to support Pemex will be $12 billion.
The Mexican government issued a $12 billion bond on Monday through the investment vehicle Eagle Funding LuxCo to support Petróleos Mexicanos ( Pemex), according to a report in the London Stock Exchange's International Finance magazine.
This placement, which was announced by the Ministry of Finance and Public Credit (SHCP) last week, contemplated an issue of $10 billion, but ultimately ended up being $12 billion.
According to agencies, the instrument will be managed by JP Morgan, Bank of America and Citibank .
Bloomberg reported that the debt, which matures in August 2030, will pay 170 basis points over Treasury bonds and the transaction will be carried out through the issuance of pre-capitalized notes.
According to the information provided, Pre-Capped Trust Securities (P-Caps) are sophisticated instruments used primarily by insurance companies.
"It's a form of contingent credit that provides companies with debt financing, which remains off the company's balance sheet until it is needed," said one expert, who requested anonymity.
He explained how P-Caps work. The issuer creates a trust that accesses the public debt market. The debt is held off the company's balance sheet and is not part of its financial leverage.
He explained that the proceeds from the securities issued by the trust are used to purchase U.S. Treasury bonds.
For its part, the company has the put option to issue unsecured senior debt to the trust at any time and assume ownership of the Treasury securities.
He added that when the company exercises this option, the debt is counted toward financial leverage.
" P-Caps provide financial flexibility, as they are available regardless of market conditions or issuer-specific events," the expert explained.
The interviewee emphasized that, in the current context of restrictive credit, companies are offered immediate access to highly liquid assets that can be easily converted into cash.
"The transaction is a repurchase agreement. You have bonds, I have money. You lend them to me as collateral for payment, I give you money, and on a date agreed upon at the time of the transaction, I return your bonds and you give me my money with interest," the expert explained.
Pemex presented its first-quarter results to the Mexican Stock Exchange (BMV) on Monday, highlighting the bond issuance, the precapitalized notes issuance announced a few days ago by the Ministry of Finance, and other instruments that will be revealed in the coming weeks.
They emphasized that, with these transactions, Pemex hopes to strengthen its liquidity, optimize its maturity profile, and reduce the financial cost of its debt, which would be a favorable situation for the company.
"The rating agencies have recognized this transaction as positive," said Juan Carlos Carpio, Corporate Finance Director of Petróleos Mexicanos, during the company's earnings call. "The financial initiatives underway, such as the precapitalized notes transaction, support our goal of achieving net zero debt by 2025."
On July 22, the SHCP reported that it would take action to strengthen Pemex's financial position , without providing further details.
That same day, Fitch Ratings placed Pemex's long-term foreign and local currency ratings on positive watch, as well as the company's $80 billion in international bonds.
He reported that the “announced P-Cap transaction has a positive credit impact and demonstrates the federal government's willingness and ability to provide substantial support to Pemex.”
He added that upon completion of the transaction, Fitch would review Pemex's rating and upgrade it due to the government's history of improvised support for the oil company.
Pemex is the world's most indebted oil company, with liabilities totaling more than $100 billion, including $6.7 billion in maturities this year and nearly $19 billion in 2026.
In addition, it faces a series of debts with service providers totaling more than $20 billion.
( With information from agencies )
Eleconomista
