PEMEX Faces Liquidity Concerns as Debt Looms

According to Fitch Ratings, PEMEX represents the greatest concern in terms of liquidity and debt among Latin American oil companies, despite receiving billions of dollars from the Mexican government. 

PEMEX, the most indebted state energy company in the world, has US$25 billion in short-term debt and US$4 billion in bonds that are still due in 2023, Fitch stated in a report published yesterday. As most issuers refinance debt with shorter maturities between 2024 and 2026, there is a risk of creating significant competition for the NOC.

Among its competitors in the region – including Argentina's YPF, Brazil's Petrobras and Colombia's Ecopetrol – PEMEX also has the highest total debt/reserves ratio, with US$14.70/boe, as mentioned by Fitch. Meanwhile, the state-owned company's extraction costs increased to US$26.15/b in 2022 from US$19.14/b the previous year. In 2020, PEMEX became the world's largest "fallen angel": an issuer whose credit rating falls from investment grade to junk.

In July, Carlos Cortez, Finance Director, PEMEX, informed investors that despite government support, management is evaluating whether to return to the markets this year or the next. Earlier this year, the Mexican oil company issued US$2 billion in 10-year debt bonds at a rate of 10.375%, nearly double the yield of a Mexican sovereign bond of the same term, which was trading at 5.64% at the time and much higher than the yield the company offered in a bond in October 2020, when the yield was around 7%. Additionally, in an environment of still-restrictive conditions with high market interest rates, it is expected that the financing PEMEX secures in the coming months will be at a very high cost. 

In the recently published reports about monetary policy decisions on August 10, one of the members of Banxico’s governing board highlighted the impact that PEMEX's financial situation can have on Mexico's public finances and, therefore, on decisions regarding the central bank's interest rate. "One factor is PEMEX's financial situation due to its potential impact on public finances, financial stability and the exchange rate," reads the document released this Thursday.

Up to this point, Banxico has kept this rate at 11.25%, a high level to combat rising prices. The central bank's strategy seems to be yielding results: during the first 15 days of August, inflation reached its lowest level since March 2021, standing at 4.67% on an annual basis.