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Pemex Debt Sale Falls Short on Weak Demand, Adding to Debt Woes

·3 min read

(Bloomberg) -- Petroleos Mexicanos raised less money than expected to refinance some of its outstanding debt to suppliers this week, even after it offered buyers a discount, according to people familiar with the matter.

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The company, known as Pemex, sold $1.5 billion in bonds due 2029, said the people, compared with the $2 billion it had planned to raise according to a press release on Tuesday. The debt was sold at a discount of about 97.6 cents on the dollar to yield 9.25%, above the 8.75% coupon.

The weak demand represents an embarrassment for debt-burdened Pemex, which has struggled to pay its suppliers in recent years amid high taxes and lackluster production as the refining arm drains resources. The flop raises questions about why Pemex is failing to generate enough cash to pay short-term debt amid high oil prices, said Aaron Gifford, an emerging-market sovereign-debt analyst at T. Rowe Price Group in Baltimore.

“This transaction left a bad taste in investors’ mouths,” Gifford said. “What is going to prevent Pemex from doing this again in six months?”

Under the bond sale, Pemex swapped commercial debt with suppliers for new notes, which Citigroup Global Markets Inc. then sought to place in the secondary market.

The head of Pemex and Mexico’s Finance Ministry will provide information about the state oil company’s bonds on Monday, said President Andres Manuel Lopez Obrador at a press briefing on Thursday. In the meantime, its debt due in 2050 is falling, dropping more than 3 cents this week to trade at 76.2 cents on the dollar.

Debt Burden

Lopez Obrador has sought to return Pemex to its former glory by ending competitive oil auctions and eliminating fuel regulations that had aimed to open up the market to competitors. That meant the company must now produce the bulk of Mexico’s oil and gasoline without partners to share the financial burden.

Pemex has the highest debt burden of any major oil company, at $108.1 billion. On top of that, it owed suppliers 72.6 billion pesos ($3.7 billion) at the end of the first quarter.

A Pemex representative didn’t respond to a request for comment, while Citigroup declined to comment.

The company received $5.4 billion more in revenue than it had budgeted for in the first five months of the year from its oil sales abroad amid the global price rally. The government has said that it will no longer cover Pemex’s amortization payments, which it had absorbed last year.

“The transaction has left some investors with a number of unanswered questions and there have been several articles discussing the transaction that highlight the issues Pemex has with its suppliers,” said David Herzberg, an analyst at Stifel Nicolaus & Co Inc. in New York. “I don’t think that is new per se, but it puts the issue back in front of investors.”

(Updates with comments from Citigroup Global Markets, details throughout)

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