(Bloomberg) – Mexico kicked off a debt offering to support beleaguered state-owned oil company Petroleos Mexicanos.
The offering will consist of dollar-denominated debt maturing August 2030, according to a person familiar with the matter. Initial price talks are around 200 basis points over U.S. Treasuries, added the person, who requested anonymity because the information is private.
The deal will be in the form of pre-capitalized securities, or P-Caps, a type of instrument used in asset-backed finance that will allow Mexico to borrow billions of dollars from debt investors to support Pemex while keeping the obligations off its books.
Mexico is looking 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 over $100 billion.
As part of the plan, Pemex will open some of its key oil and gas fields to joint investment projects with private sector partners in a bid to boost lagging production.
Pemex considers job cuts, restructuring in strategy to save $540 million
P-Caps
Mexico, through an entity named Eagle Funding LuxCo., will sell the so-called P-Caps and use the proceeds of the sale 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.
