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Analysis

Exchange Rate and Cost of Financing

Wed, 01/25/2012 - 11:36

The cost of financing reached MX$91.6 billion (US$7.01 billion) in 2011, rising by MX$78.9 billion (US$6.04 billion) compared with 2010. This variation is due mainly to the negative correlation between the Mexican peso to American dollar exchange rate and Pemex’s interest payments on dollar denominated debt instruments.

The depreciation of the Mexican peso relative to the American dollar, going from 12.36 MX$/US$ at the end of 2010 to 13.99 MX$/US$ at the end of 2011, had a direct negative impact of MX$58.8 billion (US$4.5 billion). When combined with a positive exchange rate eect in 2010 of MX$20.2 billion (US$1.55 billion), the year-on-year negative impact of the exchange rate on financing costs reaches the abovementioned MX$78.9 billion (US$6.04 billion).

When breaking down the impact of the exchange rate variation in 2011 (see the diagram below), it becomes apparent that the negative impact of the depreciation of the Mexican peso only took eect in the second semester of 2012. After a gain of MX$10.3 billion (US$790 million) in the first quarter and a marginal impact in the second quarter, losses of MX$49.2 billion (US$3.76 billion) and MX$19.3 billion (US$1.48 billion) were recorded in the third and fourth quarters.

After the payment of operating expenditures, debt, interest, investments, taxes and duties, Pemex closed the year with a cash position of MX$117 billion (US$8.95 billion). The company believes that this cash position is sucient to optimize the execution of its financial plan for 2012 in response to the market conditions in the international financial arena. Pemex’s cash position at the end of 2011 represented a 12.3% decrease compared with the previous year. Over the course of 2011, Pemex’s consolidated debt increased by 17.8% to reach MX$782.8 billion (US$59.89 billion).

financial implication