PEMEX to Pay Debt on Its Own

Mexico’s oil and gas industry has watched PEMEX’s US$8 billion debt due in 2023 closely, as the NOC placed US$2 billion with a sizeable 10.275% return rate due to the risk that the company’s debt represents. According to sources consulted by Reuters, PEMEX plans to pay its debt due for 1Q23 on its own, with no government help and without resorting to the emission of more debt in the market. According to the sources, federal help will only be granted if prices fall considerably below budgeted oil prices.

PEMEX’s bonds were evaluated as speculative by different credit rating firms. Their return rate significantly increased compared to the ones emitted in September 2022 with a 7% return rate. S&P, Fitch Ratings and Moody’s agreed that PEMEX may need government support to back up its considerable debt.

As oil prices skyrocketed last year, the NOC benefited from extraordinary profits reaching US$9.63 billion during the first three quarters of 2022. After years of receiving financial government aid to free up some liquidity for exploration and production investments, the company started paying its own debt when oil prices increased. However, as oil prices stabilized and lowered by the end of 2022, PEMEX announced that it was in talks with the government to receive support once again. Although the government said it would fully support the state company, it did not clarify how. Following these statements, the NOC resorted to releasing more debt into the market.

Reuters reported that the government would grant support to PEMEX but only if it was necessary and oil prices tumbled. Meanwhile, the NOC plans to pay its upcoming amortizations out of its pocket. “For now, the plan is to use PEMEX's cash and not carry out any more debt refinancing operations in the markets, provided oil prices remain high,” said the source.

The Ministry of Finance contemplated a dip in oil prices in its 2023 Economic Package and announced that it contracted an oil hedge to shield the budget. Deputy Minister of Finance Gabriel Yorio confirmed Mexico protects the Mexican mix should it fall below the US$68.7/b mark, normally covering a range of 200-300MMb. Oil prices closed 2022 at US$69.82/b. The consulted sources also confirmed that the company expects to receive tax exemptions and more federal support but does not plan to place more bonds.

Furthermore, Reuters reported that PEMEX has received around $45 billion in capitalizations, direct transfers, tax exemptions and other contributions during this administration. The NOC also accumulated more debt over previous years as it attempted to pay off the existing debt. Moreover, in January, the company paid about eight coupons for various due bonds and settled US$1.1 billion for the remainder of a bond issued in 2013. Additionally, at least 13 coupons are due in February and another six in March of this year.