Bond Market News

Pemex may spend about $1bn more than expected to take over Royal Dutch Shell Plc’s Deer Park refinery. The extra spending is more than 2x the price announced in May for $596mn. Pemex has requested about $1.6bn to acquire the refinery including a capitalization from Mexico’s National Infrastructure Fund and a bridge loan from commercial banks. Proceeds will be used to pay off over $1bn of the refinery’s debt that Bloomberg notes was not clear when the deal was first announced – Pemex CEO Octavio Romero said at the time that the refinery’s debt was about $980mn, but it wasn’t clear whether Pemex was planning to pay it off. Also, besides paying off debt, Pemex would also need to pay Shell for assets such as inventories. Bloomberg cites a document that shows Deer Park has made ~$380mn in net losses YTD and the overall costs of the transaction will put pressure on Pemex’s and Mexico’s finances. Only a couple of days back, Pemex was said to receive a cash injection from the Mexican government of up to $3.5bn for paying down obligations and buyback bonds. Earlier this month, the sale of the Deer Park refinery to Pemex was delayed with no news on when the deal would close. It is now reported that the acquisition is likely to close in by year-end while the US Committee on Foreign Investment is still reviewing the sale.

Pemex’s dollar bonds were stable with its 4.25% 2025s at 101.64, yielding 3.68%.

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