Pemex Yields Sink Below Petrobras as Borrowing Plans Curbed: Mexico Credit

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  • Posted on April 27, 2011


    A Petroleos Mexicanos offshore platform produces oil from the Ku-Maloob-Zaap field in the Gulf of Mexico 65 miles northeast of Ciudad del Carmen, Mexico. Photographer: Susana Gonzalez/Bloomberg

    Plans by Petroleos Mexicanos to sell the least debt in three years are helping push the oil producer’s 10-year borrowing costs below Petroleo Brasileiro SA (PETR4)’s for the first time since January.

    Yields on dollar bonds due in 2020 from Pemex, as the Mexican state-owned company is known, dropped under rates for similar-maturity notes of Rio de Janeiro-based Petrobras in the past month and were as much as 13 basis points, or 0.13 percentage point, less on April 5. The Pemex securities have returned 1.8 percent this year, compared with a 1.4 percent advance in the Brazilian state- run oil company’s bonds.

    Pemex plans to sell as much as $3 billion of notes in overseas markets this year, the least since 2008, while Petrobras borrowed a record $6.1 billion in January. Petrobras “foresees the need to obtain new debt to finance investment,” the Brazilian company’s press department said in an e-mailed statement. Mexico City-based Pemex has less need to borrow after opening production projects to private investment for the first time since the government seized the oil industry in 1938.

    “There has to be more of a scarcity value for Pemex, because there are fewer bonds out there,” Jack Deino, who oversees $1.75 billion of emerging-market debt, including Pemex and Petrobras notes, at Invesco Advisers Inc., said in a telephone interview in New York.

    Energy Bond Yields

    Global energy company bonds are up 2.2 percent this year, according to Bank of America Merrill Lynch. Similar- maturity bonds from BP Plc have returned 2.6 percent this year and from Exxon Mobil Corp. have returned 2.2 percent.

    The yield on Pemex dollar bonds due in 2020 fell four basis points yesterday to 5.08 percent, or 10 points below Petrobras notes due the same year. As recently as February, Pemex’s borrowing costs exceeded Petrobras’s by 20 basis points.

    Petrobras plans to spend $224 billion in the five-year period through 2014, the company said in the e-mailed statement. Pemex will invest about $27 billion a year during the next decade, or 67 percent less annually than the Brazilian company, according to company presentations this year.

    Petrobras’s intense investment strategy requires more debt, said said Eduardo Suarez, an analyst at RBC Capital Markets in Toronto.

    Slow Convergence

    Its yields are rising “in part because of the more aggressive plans to issue bonds from the company and also because there has been more government intervention,” Suarez said in a telephone interview. “In a certain way, these companies are converging slowly.”

    Petrobras declined to comment on the performance of its bonds in the e-mailed statement.

    Pemex said in an e-mailed statement that it plans to sell as much as $3 billion abroad this year and declined to comment on the performance of its bonds.

    Pemex’s bonds yield 70 basis points more than similar- maturity Mexico government debt, down from 80 basis points on March 16, according to data compiled by Bloomberg.

    The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries was unchanged yesterday at 137 basis points, according to JPMorgan.

    Credit-Default Swaps

    The cost to protect Mexican debt against non-payment for five years fell one basis point to 99, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

    Yields on the interbank rate futures contract, known as TIIE, due in September fell four basis points to 5.01 percent yesterday, indicating that traders expect a rate increase that month. In the past five years, the gap between the 28-day TIIE and the overnight rate has averaged 36 basis points.

    The peso rose 0.2 percent to 11.5779 per U.S. dollar.

    Pemex’s output fell at the steepest rate since World War II in 2008 because of declines at its Cantarell field, the third-largest in the world when it was discovered in 1976. In the past seven years, crude production from the company’s largest oil deposit has fallen 74 percent to 558,041 barrels a day in 2010 from 2.14 million in February 2001.

    Lula, Libra Reserves

    Petrobras is developing the offshore Lula field, formerly known as Tupi, and may take a minimum stake of 30 percent in the government’s Libra field, the Americas’ biggest oil discoveries since Cantarell. Lula and Libra, which may hold as much as 6.5 billion barrels and 15 billion barrels, respectively, are in a deep-water region known as the pre-salt along Brazil’s coast.

    Investors may begin demanding a yield premium to hold Pemex bonds instead of Petrobras debt because the Mexican oil producer has bigger challenges, said Denis Girault, who helps manage $1 billion of emerging-market debt at Union Bancaire Privee in Zurich.

    ‘Digging, Digging’

    With Petrobras, “you’re digging, digging, digging, but you know what you’re going to find on the other side of the tunnel,” Girault said. “Although maybe it’s a challenge to go very deep, at some point, it will be done, and at some point the reserves will be there. The other one is more of a challenge of finding new reserves in a limited geographic location.”

    Invesco’s Deino said he expects Pemex’s debt level to remain stable while that of Petrobras rises. Petrobras has total debt of $46 billion and Pemex has $53.4 billion. Pemex doesn’t have the “ambitious capital expenditure needs” of Petrobras and isn’t going to leverage to the same degree, he said.

    “From a supply perspective, a technical perspective, I don’t rule out seeing another $6 billion in supply from Petrobras in the second half of the year,” Deino said. “It may be as much as $10 billion or $12 billion a year for the next few years from now.”

    To contact the reporters on this story: Carlos M. Rodriguez in Mexico City at carlosmr@bloomberg.net; Jonathan Roeder at jroeder@bloomberg.net

    To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net.

    Bloomberg/AC



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