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CASE STUDY: Pemex marks huge return to Euro market with dual-tranche bond

In March 2016 Petróleos Mexicanos (Pemex) marked its first euro-denominated note sale in more than 11 months with a €2.25bn dual-tranche offering, taking advantage of positive sentiment around oil and FX markets to hit the market at just the right time.

Aug 16, 2016 // 3:28PM

Background

Pemex sought to raise new debt to fund new investments and existing capital expenditure projects for 2016 and refinance existing debt.

In early March the company spotted an opportunity to announce the issuance as the market grew receptive to top tier Latin American names, and saw a general improvement in the FX and overall credit landscape.

Pemex announced the €2.25bn transaction on 9 March 2016.

Transaction breakdown

Pemex sold a €2.25bn dual-tranche bond (€1.35bn in 3-year notes; €900mn in 7-year notes) one day prior to the March 2016 European Central Bank meeting, when the ECB announced it would cut rates and expand its quantitative easing programme.

Global markets also opened on a fairly positive note, with WTI up close to 5% on the day of the bond’s launch and strong performance in European and US equities.

After releasing initial price thoughts of MS + 415bp for the 3-year tranche and MS + 515bp for the 7-year tranche, the book grew to over €4bn with a slightly stronger preference for the 3-year notes.

The strong demand allowed the bookrunners to tighten price guidance on both tranches by 20bp. The final orderbook reached just under €6bn, representing an oversubscription rate of 2.67X, with the 3-year tranche seeing approximately €3.6bn in orders and the 7-year tranche accumulating about €2.3bn in demand.

Both tranches saw strong participation from European asset management firms in particular. The 3-year tranche saw 90.2% of demand come from Europe, while 8.2% of the notes were placed with accounts in the US, and the remainder with accounts in Asia. The 2023 notes saw 75.8% of orders placed with European accounts, 23.1% with accounts based in the US, and just over 1% with accounts in Asia.

Asset managers picked up just over 53% of the 3-year notes, followed by fund managers which bought up 28%, private banks 10.4%, insurance companies 8.3%, while pension funds picked up just 0.2%. About 36.7% of the 7-year notes were placed with fund managers, 29.7% with asset managers, 19.4% with insurance companies, and 14.2% with private banks.

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