AFORE Investments in PEMEX and CFE Surge

In 2023, Retirement Fund Administrators (AFORE) witnessed a significant increase in investments in PEMEX and CFE, reports El Economista. Despite this surge, investments still constitute a minuscule fraction of the overall AFORE portfolio.

By the end of 2023, AFOREs had invested MX$123.978 billion (US$7.199 billion) in PEMEX and CFE, marking a 17.24% increase from the previous year. However, these investments accounted for a mere 2.07% of the entire AFORE-managed resources, totaling MX$5.975 billion.

The conservative approach of AFOREs toward PEMEX and CFE investments is attributed to the poor credit ratings of these state-owned entities. With Moody’s and Fitch Ratings classifying PEMEX with speculative-grade credit ratings, the risk of debt default is evident. Despite this, both agencies acknowledge federal government support as a cushion for PEMEX’s debt. CFE maintains an investment-grade rating, albeit with varying proximity to speculative grades across agencies.

Investors’ continued demand for debt from PEMEX and CFE reflects confidence in the federal government’s commitment to meeting obligations in case of financial strain, however.

AFOREs catering to an older demographic, prioritizing lower-risk profiles, show minimal interest in these investments. As reported by El Economista,  access to securities from PEMEX and CFE is highly restricted for these less risky AFOREs. Over half of investments remain concentrated in Mexican government debt, predominantly in Federal Treasury Certificates (CETES) and federal government development bonds (Udibonos). This underscores a risk-averse investment strategy favored by AFOREs, aligning with the preferences of their older client base.

Lorenzo Meyer Falcón, Independent Advisor to PEMEX's Board of Directors, discussed the notion of making PEMEX's debt public, as a “PEMEXproa.” Nonetheless, this poses another struggle to public finances. The downgrading of PEMEX debt bonds to "junk" status benefits international investors, but if it becomes sovereign debt, the burden shifts to public finances. 

Moody's and Fitch Ratings downgraded PEMEX due to risk management, ESG strategies, and its debt, which is mainly sustained by federal support. In an interview with Energía a Debate, energy expert Mario di Costanzo urged a strategic reassessment, particularly in refining, a business deemed unsuccessful by Moody's, contributing to PEMEX's financial woes.