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Pemex New York Roadshow Backfires as Investor Concerns Grow

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Pemex New York Roadshow Backfires as Investor Concerns Grow

  • Benchmark bond yield jumps amid doubts after investor meetings
  • Stone Harbor calls CFO unimpressive, asks for his ouster
A pedestrian passes in front of a closed Pemex gas station amid a fuel shortage in Zapopan, Mexico, on Jan. 7, 2018. Photographer: Cesar Rodriguez/Bloomberg
Photographer: Cesar Rodriguez/Bloomberg

Executives from Petroleos Mexicanos traveled to New York with a message for analysts and investors: Mexico’s giant state-owned oil company is back on track after years of mismanagement. The message didn’t stick.

The yield on the state-owned producer’s $5.4 billion of bonds due in 2027 jumped more than 40 basis points after company managers and a delegation from Mexico’s Ministry of Finance met this week with investors at a hotel, and later analysts in the Barclays building in Manhattan’s Midtown. The trip was meant to reassure the market that the company is restoring refining ability and production capacities after being starved for investments.

Pemex, which holds the title of most-indebted oil company with $83.9 billion of outstanding bonds, failed to deliver a clear message, according to four of the almost 50 institutional investors present at a New York Hotel.

Andres Manuel Lopez Obrador

Photographer: T.J. Kirkpatrick/Bloomberg

Mexican President Andres Manuel Lopez Obrador has pledged to reverse an almost 14-year stretch of oil production declines at Pemex. Yet Pemex Chief Financial Officer Alberto Velazquez hasn’t found a credible way to show how that will be carried out, said Stone Harbor Investment Partners’s Co-Chief Investment Officer Jim Craige, whose firm holds the bonds and met with management this week.

“The CFO had no handle on the company and was not impressive at all,” Craige said. “AMLO’s problem as he tapped him for the job," he said, referring to the president by his popular acronym. "He has to go.”

The representatives for Pemex, faced with $5.4 billion in debt maturities this year, insisted they won’t need to tap the bond market within the next months. They also didn’t say how they will support a $13.7 billion capital expenditure plan in 2019, 22 percent higher than last year.

“We are quite disappointed by the lack of a cohesive strategy and coordinated messaging between Pemex and the sovereign combined with an apparent disconnect with market perception," analysts at Jefferies wrote in a note to clients. “The CFO mentioned that Pemex had no urgent need to tap the market and that they would prefer to wait.”

Pemex’s press department didn’t reply to calls and emails seeking comment.

There was a "lack of clarity in the financing program, lack of clarity on how they reach production goals and lack of clarity on future concession auctions. If this guy is the conduit to the rating agencies, we can expect downgrades," Craige said.

Pemex is entering a particularly difficult period now as a crackdown on fuel theft by the Lopez Obrador administration lead to fuel shortages throughout the country. The closure of Pemex’s fuel pipelines has led gasoline retailers including BP and Repsol to seek alternatives to supply their service stations.

“We believe Pemex managers were not able to present a credible explanation,” analysts at Nomura Holdings Inc. wrote in a report.

— With assistance by Cyntia Aurora Barrera Diaz

(Updates with Jefferies note in seventh paragraph. A previous version corrected the name of the CFO in the fourth paragraph.)