Petroleos Mexicanos, the world's most heavily indebted oil company, will get a $3.5 billion cash injection from the government, as President Andres Manuel Lopez Obrador orders a new business plan for the struggling company.
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The state-owned producer will use the funds to pay down obligations and start a new issuance of bonds to reduce the cost to service its debt. According to a statement released by the company on Monday, Pemex will overhaul its five-year business plan as part of the initiative.
Lopez Obrador's latest effort to show support for Pemex, which has a 90-year legacy in the country and for many years provided a huge chunk of the federal budget, comes after more than a decade of declines in output and limited investment in new fields. Analysts are skeptical that the announcement will be enough to revive operations, despite the fact that it appeared to provide short-term support for the company.
It seems to be a continuation of what they have been doing: a direct transfer from the Mexican government, and trying to change the debt from short and medium to the long term, said Alejandra Leon, Latin America upstream director at IHS Markit. The critical part is whether there are changes in the operation that generate enough resources to deal with the debt, and that is still not known. Leon said she couldn't be certain that the transactions announced today will reduce Pemex' debtload, because the details on plans to buy back some notes and issue new bonds were not clear.
Pemex's benchmark bonds rose by 1.2 cent to 96.5 cents on the dollar in 2031, reducing its yield to 6.4%.
The statement states that bonds coming due in 2022 and 2023 won't be included in the liability management transaction because the government has already promised to cover them. In October, Pemex chief executive officer Octavio Romero revealed that pledge. The government has previously announced plans to reduce the company's profit sharing duty to 40% next year.
Lopez Obrador, better known as AMLO, has made Pemex the focus of his strategy to revitalize the Mexican economy by making it self-sufficient in gasoline, and he rolled back the liberal energy reforms of his predecessor to give Pemex a bigger role in the domestic market.
The statement said that holders of Pemex bonds coming in 2024 to 2030 will receive cash and new notes in an exchange offer, while investors with securities maturing after 2044 will be paid cash for their holdings.
In addition to the transaction, Pemex will reformulate its five-year business plan to include detailed actions necessary to strengthen its financial position in the medium and long term, as well as prepare Pemex for the challenges the energy sector will face in the coming years, the statement said.
It will implement financial mechanisms that allow public sector participation in exploration and production projects, improvements in its debt structure, and changes to Pemex's management team. Last week, in Pemex's first C-suite shift in the past three years, the Mexican producer named risk management chief Antonio Lopez Velarde its chief financial officer, replacing Alberto Velazquez Garcia.
AMLO's energy policies have been criticized by investors for allocating more resources to Pemex's unprofitable refining business and reducing crude exports in order to send oil to its refineries instead. In recent years, international credit rating companies such as Fitch Ratings and Moody s Corp. have downgraded Pemex s bonds to junk because they say they have no clear strategy to reverse production declines.
John Padilla, managing director at energy consultancy IPD Latin America, said there is no tangible evidence that the ship has been right, that any of the underlying issues that plague Pemex have been resolved. I think that the financial aspects are one of the least of its worries and that is something that the administration after administration has focused almost exclusively on the financial aspects. None The Fall of a Russian Cyberexecutive Who Went Against the Kremlin