Pemex will receive an injection of US $ 3.5 billion and will issue new bonds

Petróleos Mexicanos, the world’s most indebted oil company, will receive a US $ 3.5 billion injection of capital from the government to pay off growing debt and help reverse the long-term falls in oil production.

The Mexican state company will receive the funds as part of a liability management operation that includes the issuance of new dollar-denominated bonds and the purchase of outstanding securities, according to a Pemex statement published Monday.

The latest effort by the president, Andrés Manuel López Obrador, to show his support for the oil company, which has a 90-year legacy in the country and for many years provided a large part of the federal budget, comes after more than a decade of drops in production and limited investment in new fields.

While the announcement appeared to provide some short-term support for the troubled company, analysts are skeptical that it is enough to revive operations.

“It seems continuity of what they have been doing: a direct transfer from the Mexican Government, and trying to change the debt from the short and medium, to the long term“, said Alejandra Leon, director of upstream for Latin America of IHS Markit. “The critical part of whether there are changes in the operation that generate sufficient resources to deal with the debt remains on hold”.

Leon said he cannot be sure that the transactions announced today will ultimately reduce Pemex’s debt burden, as details about plans to buy back some notes and issue new bonds were not yet clear.

Still, investors seemed encouraged, while benchmark bonds from Pemex maturing in 2031 rose 1.2 cents to 96.5 cents on the dollar, reducing their yield to 6.4%.

The liability management transaction will not include bonds maturing in 2022 and 2023, as the government has already committed to hedging them, according to the statement. The CEO of Pemex, Octavio Romero, previously revealed that engagement in October. In 2022, the government also previously announced plans to reduce the company’s profit sharing tax to 40%.

Lopez Obrador and the Minister of Finance, Rogelio Ramírez de la OThey promised to do whatever it takes to prop up the oil giant, while the president even said its bonds are equivalent to sovereign debt.

López Obrador, widely known as AMLO, has made Pemex the focus of its strategy to reactivate the Mexican economy by making it self-sufficient in gasoline, reversing the liberalizing energy reforms of its predecessor to give Pemex a more important role in the domestic market.

Bond exchange

The bondholders of Pemex Maturing 2024-2030 will receive cash and new notes in an exchange offer, while investors with securities that mature after 2044 will be paid in cash for their holdings, the statement said.

In addition to the transaction, Pemex It 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 to prepare the oil company for the challenges the energy sector will face in the coming years, the statement said.

Likewise, it will implement financial mechanisms that will allow public sector co-investment in exploration and production projects, improvements in its debt structure and changes in the Pemex management team.

Last week, in Pemex’s first C-suite shift in the last three years, the Mexican producer appointed the director of risk management, Antonio López Velarde, its chief financial officer, replacing Alberto Velazquez Garcia.

The energy policies of AMLO They have been criticized by investors for allocating more resources to Pemex’s unprofitable refining business and reducing crude exports to send oil to its refineries.

In recent years, international credit rating companies such as Fitch Ratings and Moody’s Corp. they have downgraded Pemex bonds to a speculative degree, in part because they say it does not have a clear strategy to reverse production declines.