Weekly News & Views

Cemex, Pemex, YPF

May 04, 2025

Market Snapshot

The LatAm Aggregate Index widened by 5 bps to 348 bps in the week ending Friday, May 2, 2025, and is now trading 19 bps above its 3-month average of 329 bps. The broader Emerging Market Index remained relatively stable at 219 bps, though this is 28 bps wider than its 3-month average of 191 bps. Meanwhile, the U.S. Aggregate Index widened by 2 bps to 145 bps, reflecting a 23 bps increase from its 3-month average of 122 bps. Notably, the LatAm Sovereign Index posted the largest spread move, widening 40 bps to 351 bps and trading 44 bps above its 3-month average.

Equity markets in the region posted mixed performances. Argentina’s Merval Index declined 5.6%, Brazil’s Ibovespa Index rose 0.3%, and Mexico’s Mexbol Index fell 1.6%. In the U.S., the S&P 500 Index advanced 2.9% for the week.

In commodities, WTI crude oil traded at $58.3 per barrel, down 7.5% on the week, while Brent crude settled at $61.3 per barrel, down 8.3%.

Turning to bond yields, U.S. Treasuries saw an increase across the curve. The 10-year yield rose 7 bps to 4.31%, while the 5-year yield increased 6 bps to 3.92%. In Latin America, the yield on the 10-year Mexican government bond rose 5 bps to 6.41%, the 10-year Brazilian government bond increased 2 bps to 6.74%, and the 10-year Argentine government bond widened 8 bps to 11.03%.

Weekly News

Cemex 1Q25: Credit Strength Persists, but No Catalyst for Spread Compression

On April 29, 2025, we published our report on Cemex 1Q25 results.

Cemex reported weak 1Q25 results. Revenues totaled $3.65 billion, reflecting a 7.4% YoY decline (l-t-l: -1% YoY), missing consensus expectations by 1.2%, primarily due to top-line deterioration in Mexico (down 25.3%) and the US (down 3.5%), partially offset by improvements in EMEA (up 2.3%) and SCAC (up 2.5%). The company generated adjusted EBITDA of $601 million in the quarter, reflecting declines of 11.7% QoQ and 17.7% YoY (l-t-l: -10%), missing consensus expectations by 3.3%. The EBITDA margin contracted to 16.5% in 1Q25 from 17.9% in 4Q24 and from 18.5% in 1Q24. The margin was supported by higher prices and lower energy and freight costs, offset by the impact of lower volumes, higher labor costs, and maintenance work. Cemex reaffirmed its guidance for flat EBITDA in 2025 despite the soft quarter, supported by cost-cutting initiatives targeting $150 million in EBITDA savings and improving trends expected in the second half of the year.

From a credit perspective, the results reflected a 4.1% sequential decline in LTM EBITDA, which was mostly offset by a 3.2% decrease in net debt and a 4.9% reduction in LTM interest paid. Consequently, gross leverage increased modestly by 0.1x to 2.9x, net leverage remained stable at 2.5x, and EBITDA coverage improved by 0.0.x to 4.3x as of March 2025. FFO to debt also showed modest improvement, increasing by 0.1 pp to 17.6% as of March 2025.

Weaker EBITDA and significantly higher expansion capex weighed on cash generation, offsetting the benefit of lower interest paid and taxes, and resulting in a net free cash outflow of $473 million in 1Q25. Including “other net” items, adjusted free cash flow was an outflow of $610 million in the quarter. However, after accounting for the $862 million inflow from asset sales, the company generated $252 million, which led to net debt reduction and relatively stable leverage metrics.

We continue to view Cemex as an attractive and resilient Latam credit, with a focus on profitability and deleveraging, supported by a management team that appears committed to maintaining healthy credit metrics, reducing debt, and improving free cash flow generation. However, we maintain our Market Perform recommendation, as we do not expect clear outperformance given the challenging outlook in the company’s two main markets, Mexico and the US, where volume demand is being affected by post-election dynamics in Mexico and weather-related issues in the US.

Pemex 1Q25: Upgraded to Market Perform, but Structural Risks Persist

On May 1, 2025, we published our report on Pemex 1Q25 results.

Pemex reported mixed 1Q25 results. The company’s top line declined 11.0% QoQ and 19.0% YoY to $19.35 billion, primarily due to ongoing production declines, lower sales volumes, and weaker pricing. However, a significant reduction in costs led to adjusted EBITDA reaching $6.08 billion in the quarter, marking a substantial sequential increase from a recent low of $726 million in 4Q24 and an 11.7% YoY improvement. The adjusted EBITDA margin expanded by 28.1 pp QoQ and 8.7 pp YoY to 31.4%. Despite this improvement in operating profitability, production continues to deteriorate. In 1Q25, Pemex’s oil and condensate production averaged 1,596 kbpd excluding partners, down 3.4% QoQ and 11.3% YoY. Including partners, total production reached 1,621 kbpd, reflecting a 3.4% QoQ and 11.4% YoY decline.

From a credit perspective, the results were marked by a 4.6% QoQ increase in LTM EBITDA and a 3.3% decline in LTM cash interest paid, while gross and net debt decreased by 5.5% and 1.2%, respectively. Free cash flow was an outflow of $471 million in 1Q25, as higher EBITDA was insufficient to cover increased capex and interest paid. However, net cash generation turned positive sequentially, driven mainly by governmental contributions and tax benefits. This underscores Pemex’s vulnerability and continued reliance on government support. As a result, gross leverage increased modestly QoQ to 7.1x from 7.0x, while net leverage improved to 6.4x from 6.6x, and interest coverage rose by 0.1x sequentially to 1.8x as of March 2025. Liquidity remained weak, with short-term debt representing over 300% of the company’s cash and short-term investments.

Pemex’s 10-year bonds offer an attractive carry, with hard-to-ignore spread levels currently at 637 bps. We remain concerned about the deterioration in operating and credit metrics, including ongoing production declines and the absence of a clear financial plan. The company’s debt service capacity continues to depend heavily on governmental support, while oil price trends remain unfavorable. However, Pemex demonstrated some ability to reduce costs and improve profitability, while government support remained strong through contributions and tax benefits, reinforced by a clear political commitment and management’s stated intention to pursue credit-positive actions. Consequently, following the recent spread widening and a number of supportive developments, we no longer see Pemex underperforming relative to Mexican sovereign debt at current levels and upgrade the credit to Market Perform. In our view, current spreads already reflect the extent of government support, but meaningful compression will require tangible credit-positive measures.

YPF and Globant Sign Agreement to Modernize Supply Chain with AI

Buenos Aires, April 30, 2025 – In a strategic move to strengthen operational efficiency and competitiveness, YPF, Argentina’s state-controlled energy giant and the world’s largest shale oil operator outside the United States, signed a Memorandum of Understanding with Globant, a leading Argentine tech firm specializing in digital reinvention through AI and software development.

The agreement focuses on modernizing YPF’s complex supply chain, comprising over 5,000 suppliers and more than 100,000 products and services, by integrating advanced Artificial Intelligence and AI Agent technologies developed by Globant. The collaboration aims to implement an adaptive, expert-supervised model capable of optimizing procurement, automating decision-making, and ensuring full policy compliance.

“Efficiency is core to YPF’s competitiveness, and this partnership is part of our broader effort to become a global player,” said YPF CEO Horacio Marín. “Globant’s capabilities will help us gain real-time visibility and control over our entire value chain.”

Globant CEO Martín Migoya praised the partnership as both a challenge and a national achievement. “It’s a privilege to help modernize a company that’s over 100 years old and central to Argentina’s energy future, especially using AI developed in Argentina.”

EM Spreads take: This initiative marks a credit-positive step in YPF’s long-term transformation plan. While the deal does not alter near-term financials, it underscores management’s commitment to sustainable cost efficiency and digital modernization. Under its “Plan 4x4,” YPF aims to quadruple exports to $30 billion by 2030. We see technology-driven supply chain optimization as a necessary pillar to achieve that target and enhance YPF’s resilience in volatile market conditions.

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