PEMEX Navigates Debt Challenges with Innovative Financing

PEMEX will refinance revolving credit lines with banks so that it can cover its debt maturities in 2024. Refinancing plans involve US$3 billion in revolving credit lines to address the debt maturities in the last year of President Andrés Manuel López Obrador's six-year term, according to Bloomberg.

The financing operation will supplement the US$8.2 billion contribution from the federal government included in the 2024 budget, which still needs approval from the Chamber of Deputies. This would cover the entirety of the maturities totaling US$11.2 billion. The government's objective is for PEMEX to reduce its debt by the same amount as the budgetary contribution after making the amortizations. However, the Mexican government's capital injections into PEMEX are conditional on the company reducing its spending in both 2023 and 2024.

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%. 

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. The financing formula with banks, combined with government capitalization, follows the nearly US$4 billion capital injection that was finalized on July 28 to cover PEMEX's 2023 maturities.

The Budget Proposal suggests a 273.2% increase in the budget of the Ministry of Energy to make equity contributions to PEMEX and CFE, according to the Economic and Budgetary Research Center (CIEP).

PEMEX will have a budget of MX$456.02 billion (US$26.7 billion) in the last year of López Obrador's government, representing a 35.9% real decrease compared to what was approved for 2023. 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.