Government to Support PEMEX in Billions of Debt Payments
President López Obrador announced that Mexico’s government will support PEMEX in paying off its billions of debt for 1Q23. In the past week, it was announced that PEMEX was on the lookout for options to fund its 1Q23 amortizations.
PEMEX was planning to issue US$2 billion in bonds to pay its US$6 billion due debt for the year’s first quarter. PEMEX has to pay US$10 billion from its US$105 billion debt in 2023 alone.
Subsequently, the value of PEMEX’s bonds fell due to investor speculation amid growing pressure for the NOC to liquefy assets, as bonds that expire in 2041 performed poorly. According to experts, the state-owned company’s lack of government backup was a cause of concern; the government had hinted at support but not made formal announcements on plans to help the NOC.
Nevertheless, López Obrador eventually discussed fully supporting PEMEX to meet its financial obligations. The finance ministry also announced that it could transfer the NOC’s debt to the sovereign debt. The latter option was said to lower credit rates since the responsibility would become part of the federal debt.
However, this decision could further strain Mexico’s public budget. According to the Mexican Oil Fund (FMP), PEMEX’s contribution to its shared utility right (DUC) fell by 34 percent in December 2022, dropping from MX$54.5 billion (US$2.85 billion) to MX$35.9 billion (US$1.88 billion), the second lowest contribution of the year.
What is more, according to IMCO, PEMEX received federal support of MX$809.8 billion (US$42.45 billion) for capital contributions, tax incentives and other assistance from January to September 2022. “The figure received up until September 2022 is 140 percent higher than the MX$45 billion (US$2.36 billion) originally estimated for all of 2022 in the Federation Expenditure Budget (PEF) for that fiscal year,” reads the report. Additionally, the DUC rate paid by the oil company dropped from 65 to 40 percent between 2019 and 2022.
In 2022, Moody’s Investors Service downgraded PEMEX’s credit rating based on its economic prospects due to a negative debt record and economic outlook. According to experts, Moody’s downgrade for PEMEX shows that the oil company will need to depend further on the government to gain much-needed liquidity.
The NOC is in urgent need of liquidity as its production has continued to decline and its new refining strategy costs significant amounts of money: during 3Q22, PEMEX lost money from its refining business. Although refining increased in 2022, its average of 814,524/d for the first 11 months has remained 32% below the target. What is more, the NOC increased its production of fuel oil, considered to be a polluting and unprofitable asset.