Petroleos Mexicano’s chief Octavio Romero told lawmakers Wednesday that AMLO, as the president is known, has instructed the company that it isn’t allowed to issue any more bonds and therefore the government would take over its amortization payments.
While Romero’s remarks left some doubts on the details — and the Finance Ministry, seemingly caught off guard, wasn’t immediately able to provide confirmation — happy bondholders sent the oil producer’s overseas notes to a one-month high. The extra support is even more surprising since it comes at a time when Pemex revenue should be rising as global oil prices soar.
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“The president has given us instruction that we can no longer issue bonds,” Romero said. “Due to that, Pemex won’t be the one in charge of debt amortizations, but it will be the federal government. This is a huge support that will be given to this great company, because it will prevent it from going further into debt.”
Pemex, the world’s most indebted major oil producer with $115 billion of outstanding obligations, is under pressure to bolster its finances after about a decade and a half of production declines and high levels of spending that haven’t done much to bolster its reserves. While there’s always been an implicit understanding that the federal government would rescue Pemex if it needed to, Romero’s comments move closer to suggesting that the support is official policy in AMLO’s administration.
Pemex dollar bonds due in 2050 jumped 1.4 cents to about 95 cents on the dollar in the aftermath of Romero’s comments. Euro-denominated notes due in 2029 gained 1 cent, the most since March, pushing the yield down 17 basis points to 4.96%.
The comments come at a time when Pemex should be benefiting from an oil rally. Front-month Brent futures have already topped $86 a barrel this week, and are up almost 9% so far this month.
The president’s press office didn’t immediately respond to a request seeking comment. President Lopez Obrador will speak at his daily press conference at 7 a.m. local time.
Romero “just sent the message that if Pemex can’t pay, Hacienda will,” said Luis Maizel, a portfolio manager at LM Capital Group in San Diego, referring to the Finance Ministry by its Spanish name. “He basically went from an implicit guarantee to a more explicit one.”
The government had previously announced it would pay Pemex’s amortizations in 2021, but it hasn’t been clear if the assistance will extend into the following years. In March, Romero said Mexico’s government will absorb Pemex’s debt amortization payments “starting this year” in the amount of $6.4 billion.
The government has also cut the company’s profit-sharing obligation to 40% of earnings next year, from 54% this year, as part of efforts to shore up the producer.
John Padilla, managing director at energy consultancy IPD Latin America, said he was skeptical that the move announced today would be enough to significantly improve Pemex’s operations and reverse long-term declines. It doesn’t fix those fundamental issues, Padilla said.
Lopez Obrador has promised to revitalize Pemex and the country’s flagging energy sector by boosting investment in production onshore and in shallow waters and building a new refinery in his home state of Tabasco. He’s sought to dial back the opening of Mexico’s energy industry to international competition, and strengthen Pemex’s dominance in the oil and fuel market.
“At the end of the day, it’s debt of the country,” Romero told legislators. “You can divide the debt of the Finance Ministry and of Pemex, but in the final balance for the nation, the two are added together.”
Source: El Financiero