Mexico’s Pemex receives $4 Billion from the finance ministry as capital injection

The company is set to report its second-quarter earnings on Friday while an official statement or comment regarding the funding is yet to be made by the Pemex press office

Pemex (Petroleos Mexicanos), Mexico’s state oil giant received 70 billion pesos which is equivalent to $4.2 billion from the Finance Ministry as the company struggles to pay the increasing debts. According to Bloomberg reports, the payment was done in the form of capital injection by the finance ministry. 

Pemex Chief Executive Officer Octavio Romero on Wednesday announced that the government would recapitalize the firm debt as it would be a more logical option since the state oil company going directly to the market might be more expensive. Authorities were reluctant to share further details but  Deputy Finance Minister Gabriel Yorio and President Andres Manuel Lopez Obrador recapitulated the government’s support for Pemex. 

The company is set to report its second-quarter earnings on Friday while an official statement or comment regarding the funding is yet to be made by the Pemex press office and the Finance Ministry.  This won’t be the first time government would be helping out Pemex. The oil company received a $3.5 billion cash injection and in 2019, it received a funding of $5 billion. 

The support under the governance of Lopez Obrador has totaled nearly $49 billion in tax breaks, capitalisations, and much other assistance. Pemex is the world’s most indebted oil company with $104 billion in financial debt. Moody’s Investors Service Inc. puts the oil giant in a negative outlook for a possible downgrade last week, owing to enlarging credit risks. Fitch Ratings Inc downgraded the company further into the junk territory.   

          
Soaring Bonds

Pemex bonds soared on Wednesday receiving gains in the markets as government initiated support to ease the oil company’s huge debt crisis. According to the reports, debt due in 2033 increased by 4.4 cents and this marks the largest gain since the bonds were issued. The notes maturing in 2048 also rose 3.7 cents reaching 62.9 cents on the dollar. 

President Andres Manuel Lopez stated that Pemex is connected to the nation and that the government will always help Pemex. Pemex Chief Executive Officer Octavio Romero has similar opinions and stated that the government would issue new debt and carry out refinancing on behalf of the company, providing relief for investors. Deputy Finance Minister Gabriel Yorio at a finance conference on Thursday mentioned that the government will continue to extend its support to the oil company and is not planning to make any legal changes. 

The minister also hailed the previous liability management operations executed by the company and the government. “We can handle this like we have been,” said Yorio. Mexico has several tools to support Pemex like implementing joint-liability management and profit-sharing. “The capitalizations are used to lower the burden or the pressure on liquidity that an upcoming maturity can generate,” added Gabriel Yorio.

Experts at the Bank of America and JP Morgan restated their recommendations on the debt as they expect support from the government. The production of Pemex has declined for the last two decades. The bonds have also fallen in the past weeks as accidents increase and investors weigh the risk of credit rating downgrades. 

After Thursday’s rally money managers continue to seek approximately 5.5 percentage points in additional yield to invest in Pemex’s 2028 bonds compared to the similar Mexican government notes, as per the data compiled by Bloomberg. 
This significant premium over the sovereign bonds shows persistent uncertainty regarding the sustainability of prevailing energy policies in the long term, as stated by Rodolfo Ramos, Banco Bradesco BBI strategist. In a report, Ramos expressed concerns that the current policies may not be viable in the future.