Pemex Is Too Big to Fail and Investors Are Finally Catching On

True believers in Petroleos Mexicanos are fueling a rally in its bonds, reckoning that government support for the beleaguered state-owned company will ultimately provide a backstop from any troubles, Bloomberg News reported. Investors including MetLife, Pictet and SMBC Nikko Securities say Pemex’s bonds were overly punished last year amid concerns the government isn’t doing enough to address the company’s problems. The challenge of falling production given Pemex’s $108 billion of debt and high taxes is real, but optimists argue its yields shouldn’t be much above sovereign notes. “The ironic thing about Pemex is that the worse the credit profile deteriorates, the more it becomes a sovereign credit,” said Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York who is traveling to Mexico with a group of investors next week to scout opportunities. Read more

Location