(Bloomberg) — Mexico on Monday completed a $12 billion debt offering that will support state-owned Petroleos Mexicanos, the world’s most indebted oil major.
Also on Monday, Pemex reported net income of 59.52 billion pesos ($3.2 billion) for the second quarter, its first profit in more than a year. Earnings were boosted by currency moves as the peso strengthened amid a rally in risk assets, and also benefited from a decrease in the cost of sales.
The debt offering, which priced on Monday, consists of dollar-denominated debt maturing August 2030, according to a person familiar with the matter. The deal priced at 170 basis points over Treasuries, down from initial price talk of 200 basis points, added the person, who requested anonymity because the information is private.
The issuance is in the form of pre-capitalized securities, or P-Caps, a type of instrument used in asset-backed finance that will allow Mexico to support Pemex, while keeping the obligations off its books. It is larger than originally planned. Mexico sought to raise as much as $10 billion with the transaction, according to earlier reports — part of a plan by President Claudia Sheinbaum’s administration to shore up the struggling state oil producer, which has a debt load of almost $100 billion, according to the company’s results released Monday.
P-Caps
Mexico, through an entity named Eagle Funding LuxCo., will sell the so-called P-Caps and use the proceeds to buy a portfolio of U.S. government debt including Treasuries, according to a filing last week. Pemex will then take that portfolio and use it as collateral for loans through the repurchase market, using the proceeds as it sees fit, according to an offering memorandum seen by Bloomberg.
If Pemex isn’t able to pay back the loans, the banks will seize the collateral and end up whole. In that scenario, the investors in P-Caps would lose their collateral, and end up with sovereign debt from Mexico, according to a presentation seen by Bloomberg.
Fitch Ratings placed Pemex on Ratings Watch Positive on July 22, saying that if successful, the transaction will improve the Mexican government’s track record of support for the company. The reassessment may result in a multiple notch upgrade for the driller into the BB category, Fitch said.
