The Mexican economy relies heavily on PEMEX’s operations and after palpable years of uncertainty and crisis, the Ministry of Finance and Public Credit (SHCP) will intervene to protect its financial status.
PEMEX “has a strategic importance for the country, not only because of its function to provide goods and services, but also because of its relative importance for regional economic activity and job creation in the southeast of the country; in this region, oil activity represents over half of total production and employs more than 1.3 million people,” reads the SHCP’s press release.
PEMEX is a profitable public asset and the largest taxpayer in the country. It reported an EBITDA margin of 34 percent in 3Q2021. The stability of PEMEX is of vital importance to the Federal Government, argues SHCP. But its high tax burden, described by SHCP as ‘much higher than that of any oil company in the world,’ high level of financial debt, high flow requirements to cover financial costs and a lack of resources to comply with capital investments to maintain the required production levels have severely damaged the company.
SHCP’s strategy to help PEMEX will “reduce the Company’s tax burden, specifically the Shared Utility Right (DUC) to reduce it from 52 percent to 40 percent, in contrast to other oil companies with lower tax burdens. Reduce the Company’s debt through equity contributions from the Federal Government, using surplus liquidity. Reduce the risk of refinancing the Company with the use and enhancement of Capital contributions from the Federal Government for liability management operations.”
PEMEX announced a repurchase and liability management operation focused on its short and middle yield curve, seeking to reduce the risks of refinancing and its debt. PEMEX will offer bondholders the ability to exchange bonds maturing between 2024 and 2030 for a combination of a 10-year bond and cash, while offering the buyback of bonds maturing between 2044 and 2060. The Mexican Federal Government will make a patrimonial contribution of US$3.5 billion.
In October, PEMEX also improved its transparency practices, as it received a score of 100 out of 100 by the Global Compliance Index in Transparency Portals in its ‘PEMEX+Transparente’ platform according to the Mexican Stock Exchange (BMV). PEMEX’s e-BDI Institutional Database houses data from the entire oil value chain, following PEMEX’s commitment to transparency with its investors and the Mexican population, as reported by MBN.