MEXICO CITY--As Mexico's largest companies and government access financing at increasingly low costs, state oil firm Pemex, once a darling of the bond market, has had to resort to near record-high yields to attract investors.
This disparity, illustrated by recent bond offerings, is not expected to diminish anytime soon and could further damage the company's finances if it continues to turn to the markets for financing, analysts said.
Pemex, formally known as Petroleos Mexicanos, has been under mounting pressure since credit ratings agency Fitch lowered its rating to junk status in June. If Moody's or S&P follows suit with a junk designation, it would trigger forced-selling of Pemex bonds worth billions of dollars.
Facing such pressures, Pemex in September issued 10-year dollar-denominated bonds with a yield to maturity of 6.85% , nearing a record yield of 6.9% in 2016.
While Pemex's yields are rising, other major Mexican companies are benefiting from cheaper financing amid a glut of dollar liquidity worldwide.
Two weeks before the Pemex bond placement, Industrias Peñoles, one of the largest gold producers in Latin America, offered 10-year bonds with a yield to maturity of 4.17% , and the petrochemical giant Alpek issued bonds at 4.29%.
In April, America Movil, the telecommunications empire controlled by the family of billionaire Carlos Slim, launched 10-year bonds at 3.71%.
"The cost of financing (for Pemex) is not aligned with other similar bond issues with the same rating," said Luis Manuel Martinez, S&P's lead analyst covering Pemex. "With this latest issuance, it is clear that the market is asking for a higher risk premium."
Pemex's higher borrowing costs can also been seen in its financial statements. In January to September, the interest it paid on debt increased 22% year-on-year, to $5.228 billion.
During the same period, the state-run oil company's losses totaled nearly $9 billion.
"Pemex usually offers investors a good premium and it pays it to ensure its bond issues are successful," said Roger Horn, senior emerging markets strategist at SMBC Nikko.
"The firm will want to access the market again next year and investors will say, 'I bought bonds last year and they performed well, I'll buy again.'"
According to data from Refinitiv Eikon, the average yield of 10-year bonds sold this year by state oil companies, including Brazil's Petrobras, Colombia's Ecopetrol, Saudi Arabia's Saudi Aramco and Italy's ENI, is 5.53%, about 132 basis points below Pemex's yield of 6.85%.
Pemex has insisted that it will not increase its net debt and that it will strive to lower it.
The company held financial debts of $99.6 billion at the end of the third quarter and has been under intense pressure from credit rating agencies to put its finances onto a more sustainable path.
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