NEW YORK, Dec 8 (IFR) - A blowout bond deal from state-owned Mexican oil company Petroleos Mexicanos (Pemex) this week has stoked hopes of a strong start to 2017 for Latin American issuance.
Investors poured over US$30bn of orders into the company's US$5.5bn three-part bond which priced on Tuesday, the first from a borrower in the region since November 10.
Mexican stocks and bonds widened in the aftermath of Donald Trump's election victory on November 8 amid concerns about the impact of his policies on the country.
Bankers told Reuters this week that governments and companies in Latin America could halve their global bond sales next year, partly in response to Trump's victory.
But Pemex bonds got a boost Monday after it announced a deep-water oil field partnership with BHP Billiton in the Gulf of Mexico, and the new deal found strong interest.
Its success sets the stage for borrowers who were forced to delay bond sales in the week following the election, said Shamaila Khan, a portfolio manager at AllianceBernstein.
"Pemex showed that if you have good credit and you're well priced, there is demand," she said.
"There were some deals in November and December that could have come to market but got delayed, so I would expect those to come in January."
Indeed, the Republic of Ecuador took advantage of the better sentiment on Thursday to price a US$750m bond that attracted US$2.4bn of orders.
However, some market participants are still expressing concern over the potential effect of a Trump presidency on Latin American businesses, particularly in Mexico.
"The fears are about Trump's stance going forward," said a banker away from the Pemex deal. "Is Nafta going to be ripped up? Is he going to build the wall?"
JP Morgan analysts wrote this week that protectionist policies proposed by Trump could restrict growth, particularly in more open emerging markets such as Mexico.
"Until more clarity about the scope of Trump's trade policy intentions emerges, uncertainty will likely hit business and consumer confidence and undermine growth dynamics in many EM countries," they wrote.
The Pemex bonds were trading 20bp-40bp tighter than reoffer across the curve on Thursday.
"The response was overwhelming," said a banker on the deal.
"We saw the IG market was open, the OPEC meeting gave a nice boost to oil, and the auctions went well. Everything lined up," the banker said.
"The fact that they can come in and pre-fund gives them a head start. January is going to be busy."
The announcement of the BHP Billiton partnership was especially helpful for the deal, market participants said.
Pemex's 6.875% 2026 bonds were trading up to 26bp tighter over Treasuries on Monday, according to MarketAxess, on the back of the announcement.
Pemex said in November that it intended to rely partly on private sector alliances and partnerships to turn around its upstream and downstream businesses and improve its financial profile.
CreditSights analysts said they believed the company was on the "right path" with its strategy, although they expressed concern over its fiscal burden.
Mexico awarded seven other blocks in the Gulf to other oil companies including Total, Chevron and ExxonMobil in Monday's deep-water oil field auctions.
Bankers said the success of the auctions benefited Pemex by association.
"It shows a vote of confidence from large global producers in the deep-sea oil fields in Mexico," said a second banker away from the deal.
Pemex's deal offered around 75bp-100bp of new issue concession at initial pricing thoughts of 6%-low 6% and Libor equivalent for the long five-year fixed and floating tranches and 7%-low 7% for the long 10-year.
But pricing was pulled in to launch levels of 5.5% for the US$1.5bn five-year fixed, 3mL+365bp for US$1bn five-year FRN, and 6.625% for the US$3bn 10-year.
That implied a new issue concession of around 30bp for each tranche.
The leads only lost around US$2bn of orders after pricing was tightened, said the banker on the deal. The floater received particularly strong demand, he said.
Active bookrunners on Pemex's deal were Bank of America Merrill Lynch, Citigroup, JP Morgan, Mizuho and Morgan Stanley. (Reporting by Will Caiger-Smith; Editing by Marc Carnegie)