Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

Petroleos Mexicanos operates as an oil and gas exploration and production services. The Company offers pipeline carriage, petrochemical distributor and shipping centers, logistics, and fuel commercialization services. Petroleos Mexicanos serves customers in Mexico.

<ul>
<li>We believe that PEMEX’s reclassification, stronger linkage to the sovereign, and its payment program to stabilize balances with suppliers and contractors will support further spread compression.</li>
<li>The spread pickup is more appealing at the belly and long end than at the shorter-dated notes, as most PEMEX bonds maturing before 2029 trade at or near par.</li>
<li>3Q24 results continued to highlight PEMEX’s vulnerability and its significant reliance on government support.</li>
</ul>


We believe that PEMEX’s reclassification, stronger linkage to the sovereign, and its payment program to stabilize balances with suppliers and contractors will support further spread compression.
The spread pickup is more appealing at the belly and long end than at the shorter-dated notes, as most PEMEX bonds maturing before 2029 trade at or near par.
3Q24 results continued to highlight PEMEX’s vulnerability and its significant reliance on government support.


PEMEX 3Q24: Government Support Continues to Strengthen

Cemex SAB de CV is a building products company. The Company produces, distributes, and markets cement, ready-mix concrete, aggregates, and related building materials. Cemex operates throughout the Americas, Europe, Africa, the Middle East, and Asia.

<ul>
<li>We downgraded Cemex to Market Perform and do not anticipate that the notes will outperform in the near term.</li>
<li>We continue to view Cemex as an attractive emerging market credit story supported by favorable market conditions, credit-positive strategic priorities, and a commitment to strengthening its credit profile.</li>
<li>We believe the risk/reward profile is skewed to the downside. This view is based on current spread levels, weak earnings results, and elevated near-term political and headline risks.</li>
</ul>


We downgraded Cemex to Market Perform and do not anticipate that the notes will outperform in the near term.
We continue to view Cemex as an attractive emerging market credit story supported by favorable market conditions, credit-positive strategic priorities, and a commitment to strengthening its credit profile.
We believe the risk/reward profile is skewed to the downside. This view is based on current spread levels, weak earnings results, and elevated near-term political and headline risks.


Cemex 3Q24: Long-Term Outlook Clouded by Near-Term Risks

<ul>
<li>We are initiating coverage on PEMEX with an Outperform recommendation.</li>
<li>We think the potential reclassification to a public company will lead to an improved credit profile, resulting in spread compression due to the increased linkage with the sovereign.</li>
<li>We prefer the PEMEX (B3/BBB/B+) 5.950% 2031, PEMEX 6.625% 2038, and PEMEX 7.690% 2050 bonds, as they are trading wide to the overall PEMEX curve.</li>
</ul>


We are initiating coverage on PEMEX with an Outperform recommendation.
We think the potential reclassification to a public company will lead to an improved credit profile, resulting in spread compression due to the increased linkage with the sovereign.
We prefer the PEMEX (B3/BBB/B+) 5.950% 2031, PEMEX 6.625% 2038, and PEMEX 7.690% 2050 bonds, as they are trading wide to the overall PEMEX curve.


Initiating Coverage on Pemex: Set to Outperform on Reclassification Potential

Minerva S.A. provides meat products. The Company focuses on production and sale of fresh meat and its derivatives. Minerva serves clients worldwide.

<ul>
<li>We are initiating coverage on Minerva with an Underperform recommendation.</li>
<li>We are cautious about the credit impact of the Marfrig acquisition.</li>
<li>We believe a better entry point into the name may emerge in the future based on our expectation of a weakening credit profile. </li>
</ul>


We are initiating coverage on Minerva with an Underperform recommendation.
We are cautious about the credit impact of the Marfrig acquisition.
We believe a better entry point into the name may emerge in the future based on our expectation of a weakening credit profile. 


Minerva: Balancing an Interesting Credit Story with Acquisition Risks

<ul>
<li>The transaction is valued at approximately 6.8x 2023 EBITDA, or $396/ton, which we consider a good price given that Cemex currently trades at 5.5x LTM EBITDA, or $208/ ton.</li>
<li>We view Cemex’s divestments of its Dominican Republic assets as a positive credit event that aligns with its strategic priorities.</li>
<li>With this divestment, the company should focus on growing its key markets through bolt-on acquisition while maintaining its commitment to a healthy balance sheet.</li>
</ul>


The transaction is valued at approximately 6.8x 2023 EBITDA, or $396/ton, which we consider a good price given that Cemex currently trades at 5.5x LTM EBITDA, or $208/ ton.
We view Cemex’s divestments of its Dominican Republic assets as a positive credit event that aligns with its strategic priorities.
With this divestment, the company should focus on growing its key markets through bolt-on acquisition while maintaining its commitment to a healthy balance sheet.


News: Cemex to Divest Its Dominican Republic Operations for $950 Million

EM Spreads

PEMEX 3Q24: Government Support Continues to Strengthen

PEMEX's reclassification and payment program will help spread compression, but vulnerability and reliance on government support remain key concerns.

Leandro Gubler

Cemex 3Q24: Long-Term Outlook Clouded by Near-Term Risks

Cemex downgraded to Market Perform due to downside risk and weak earnings results, but still seen as an attractive emerging market credit story.

Leandro Gubler

Initiating Coverage on Pemex: Set to Outperform on Reclassification Potential

Initiating coverage on PEMEX with an Outperform recommendation, citing potential reclassification as a public company and compelling bond...

Leandro Gubler

Minerva: Balancing an Interesting Credit Story with Acquisition Risks

Initiating coverage on Minerva with Underperform rating due to concerns about credit impact of Marfrig acquisition and expectation of weakening...

Leandro Gubler

News: Cemex to Divest Its Dominican Republic Operations for $950 Million

Cemex's divestment of Dominican Republic assets at a good price aligns with strategic priorities, allowing focus on growth and maintaining a...

Leandro Gubler

PEMEX 3Q24: Government Support Continues to Strengthen

​PEMEX's reclassification and payment program will help spread compression, but vulnerability and reliance on government support remain key concerns.

Leandro Gubler

Cemex 3Q24: Long-Term Outlook Clouded by Near-Term Risks

​Cemex downgraded to Market Perform due to downside risk and weak earnings results, but still seen as an attractive emerging market credit story.

Leandro Gubler

Initiating Coverage on Pemex: Set to Outperform on Reclassification Potential

​Initiating coverage on PEMEX with an Outperform recommendation, citing potential reclassification as a public company and compelling bond...

Leandro Gubler

Minerva: Balancing an Interesting Credit Story with Acquisition Risks

​Initiating coverage on Minerva with Underperform rating due to concerns about credit impact of Marfrig acquisition and expectation of weakening...

Leandro Gubler

News: Cemex to Divest Its Dominican Republic Operations for $950 Million

​Cemex's divestment of Dominican Republic assets at a good price aligns with strategic priorities, allowing focus on growth and maintaining a...

Leandro Gubler

PEMEX's reclassification and payment program will help spread compression, but vulnerability and reliance on government support remain key concerns.

Cemex downgraded to Market Perform due to downside risk and weak earnings results, but still seen as an attractive emerging market credit story.

Initiating coverage on PEMEX with an Outperform recommendation, citing potential reclassification as a public company and compelling bond...

Initiating coverage on Minerva with Underperform rating due to concerns about credit impact of Marfrig acquisition and expectation of weakening...

Cemex's divestment of Dominican Republic assets at a good price aligns with strategic priorities, allowing focus on growth and maintaining a...