The Great Oil Collapse of 2015 Makes Pemex a Steal in Bond Market Isabella Cota and Brendan Case - Bloomberg
go to original December 24, 2015

Two new oil deposits were found in Mexico. The discovery will increase the country's reserves by 40,000 barrels a day. (CCTV)

As a bond investor, you'd be hard-pressed to find a better time to invest in Petroleos Mexicanos than right now. At least, that's the view of LM Capital Group and Vaquero Global Investment.

While Pemex's falling oil production and rising indebtedness has pushed up its borrowing costs to the highest since the financial crisis, there's virtually no risk that investors won't get their money back because the company is owned by Mexico's government. And with Pemex providing would-be buyers more compensation relative to the sovereign than at any time in at least nine years, it's an opportunity that investors shouldn't pass up, according to Wilbur Matthews, Vaquero's chief executive officer.

"This is a total breakdown of the historical relationship," said Matthews, whose firm holds Pemex bonds and is looking to buy more. "You play that spread trade. You buy Pemex and you sell Mexico."

The theory for Matthews and those who agree with him goes like this: If things ever got really bad for Pemex, the government would step in to rescue the company because it's so important to the country, providing about a third of federal revenue. Skeptics say the bonds don't include an explicit guarantee of government support, which has helped drive up the cost to protect Pemex's debt against losses to a six-year high as the rout in oil deepens.

The company's notes due in 2035 yielded 2.76 percentage points more than similar-maturity government debt on Dec. 14, the most since Pemex's bonds were issued in 2006. The price of oil fell 32 percent this year, trading at $34 dollars per barrel last week, the lowest in six years. As recently as July 2014, the commodity was trading at more than $100 a barrel.

Read the rest at Chicago Tribune

Related: Mexico Brings First Case Against BP For Ongoing Oil Spill Damage (HNGN)

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