Mexico on Monday closed a $12 billion debt issue that will finance state-owned Petroleos Mexicanos, the world's most highly indebted oil major.
Pemex also reported on Monday net income of 59.52 billion pesos ($3.2 billion) in the second quarter, its first more than a year. Profit was boosted by currency swings as the peso appreciated during a risk asset rally, and also by lower cost of sales.
The sale of debt, priced on Monday, consists of dollar-denominated debt due August 2030, a person familiar with the deal said. The sale was priced at 170 basis points over Treasuries, less than initial price talk of 200 basis points, the person said, who requested anonymity as the information is confidential.
The problem is as pre-capitalized securities, or P-Caps, an asset-backed financing vehicle that will allow Mexico to finance Pemex but not have the obligation on its books. It is larger than initially expected. Mexico hoped to raise up to $10 billion in the sale, according to prior reports - part of President Claudia Sheinbaum's government's strategy to prop up the struggling state oil producer, which has debt of almost $100 billion, based on the company's results released Monday.
P-Caps
Mexico, through a vehicle known as Eagle Funding LuxCo., will issue so-called P-Caps and invest the proceeds in a portfolio of U.S. government securities like Treasuries, as per a filing last week. Pemex will use that portfolio to provide collateral for loans in the repurchase market, then use the proceeds as it sees fit, as per an offering memorandum seen by Bloomberg.
If Pemex cannot repay the loans, the banks will seize the collateral and be made whole. In that event, holders of P-Caps would lose their collateral, and be left with sovereign debt issued by Mexico, a presentation prepared for Bloomberg reported.
Fitch Ratings placed Pemex on Ratings Watch Positive on July 22, noting that if the issue proves successful, the Mexican government's track record of supporting the company would be improved. Re-evaluation could result in several-notch upgrade of the driller to the BB group, Fitch further said.