SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

Mexican state oil company Petroleos Mexicanos (Pemex) is expected to receive state support in the form of a $1.3-$1.6bn infusion and a tax break of ~$3.68bn, according to a Reuters source. The source said that the tax reduction will be applied on a monthly basis and be separate from the already reduced profit sharing rate from 58% to 54% for this year. Also, the first of several capital injections is scheduled within two weeks and will be used to pay down debt, adding that it is unlikely that Pemex will issue bonds in the international markets in 2021. Pemex is the world’s most indebted oil company with over $110bn in debt as of end September 2020.

In related news, some asset managers like Pimco and Emso believe that Pemex’s bonds are mispriced on the default risk front. The sovereign-to-quasi sovereign spread between Pemex’s benchmark bonds and the Mexican government bonds is seen as the biggest of its kind in the world, as per Bloomberg. Pimco and Emso see this as an opportunity despite highlighting the risks. Pimco’s head of emerging markets, Pramol Dhawan said, “This particular administration and this particular president has been a longstanding supporter and a champion of the nationalization of the oil and gas industry in Mexico…I find it quite hard to envisage a scenario where the government will spite itself and let Pemex go”. Bloomberg notes that Pimco is the second biggest holder of Pemex’s debt. Patrick Esteruelas, Emso’s head of strategy said, “The AMLO government views Pemex as a central pillar of its goal to achieve energy self-sufficiency…We see Mexico sovereign risk and Pemex risk as effectively the same”.

Pemex’s USD 5.95% 2031s issued last month were flat at 99.742, yielding 5.98%

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