AMLO is about to foot a titanic bill for PEMEX, the world’s most indebted oil producer

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Petroleos Mexicanos Chief Executive Officer Octavio Romero told lawmakers Wednesday that the federal government will take over its bond payments, fueling a rally in notes from the beleaguered company. Payments could total $36 billion if the government takes on all the debt coming due by the time Lopez Obrador’s term expires in September 2024, according to data compiled by Bloomberg.

Romero’s comments were light on details, and both the Finance Ministry and the president’s office have declined to offer any specifics about their intentions or even back up the idea of what Romero said at all. While there’s always been an implicit understanding that the government would rescue Pemex if it needed to, Romero’s comments move closer to suggesting that the support is official policy in this administration.

Chief Financial Officer Alberto Velazquez said on a call with investors Thursday that the funds are guaranteed for this year. After that, whether the government will continue to pay Pemex’s debt will depend on the country’s budgets, though he expects the assistance will last for years.

“Due to the governmental structure of the budget, no additional payments can be scheduled during 2022, 2023 and 2024,” he said on the conference call. “However, the support, and coordination with the Treasury, will continue for the next few years.”

The bonds edged off their highs following Velazquez’s comments, but notes due in 2031 still posted their biggest two-day gain since March, climbing to almost 99 cents on the dollar. Both credit default swaps and spreads against equivalent U.S. Treasuries tightened.

Pemex, which has $115 billion of outstanding obligations, is under pressure to bolster its finances after 15 years of production declines and high levels of spending that haven’t done much to bolster its reserves. Lopez Obrador has always been a champion of the state-owned company and has vowed to do what it takes to ensure it’ll be pumping oil for years to come.

“This is more of the same, i.e., more government support for Pemex,” said Edwin Gutierrez, a money manager at Aberdeen Asset Management in London, who holds Pemex bonds. “It’s why we continue to like Pemex at prevailing spreads versus the Mexican sovereign.”

Even so, Gutierrez says he wouldn’t read too much into Romero’s comments for now, adding that the government’s approach will continue to be piecemeal.

“These were just some off-the-cuff remarks he made,” Gutierrez said. The government “will pay what they think they can afford to pay.”

Source: El Financiero

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