The possibility that the Mexican government will leave the state company alone has increased in recent weeks. Bloomberg He said in the first days of the year that the Treasury wants the state company to absorb its debt without the government aid that was promised by the president before the high oil prices. Within the text, the American media says that “the situation could change” And that’s what investors expect. “It is not surprising to me that the government has not yet announced more support for Pemex, the Mexican government tends to be more reactive than proactive. Pemex is probably the biggest financial problem for the Mexican government. In any circumstance, the government will always be there to support Pemex because if it doesn’t, that would be more painful for public finances,” says Aaron Gifford, an analyst at T. Rowe Price, one of the state’s main bondholders.
The Mexican government decided to stop paying Pemex’s debt amortizations when the international price of oil registered a rebound effect after the height of the pandemic. The Mexican mix reached a price of more than 119 dollars in the first quarter of last year and then the Ministry of Finance decided that the state company could face that financial cost alone as of the second half of 2022. But now, almost a year later After these high prices were registered, the scenario is different and the price of the mixture has been below 70 dollars in recent weeks.
The price of the mix, says Víctor Gómez Ayala, a financial analyst, could be enough for the company to meet its main costs, but only if the federal government decides to give its support and cover the amortizations. The financial strength of the state company has been based on the constant support of the federal government beyond good financial management –Pemex has decided to prioritize activities such as refining, that generate big losses – and the market and bondholders already anticipate that the government supports the company. No one sees a Pemex default as a real possibility.
“This labyrinth of dependency that the administration has gotten into with Pemex is going to be difficult to abandon as long as the strategy continues to focus on the support of the federal government behind Pemex. The market already takes into account that the last person responsible (for the debt) is the federal government”, says Gómez Ayala.
Pemex accumulates a debt of 105,035 million dollars. The highest amount was reached in 2020 when it added 113,227 million in liabilities.
The expenditure budget does not contemplate new capital injections for the company and the haste to finish construction and start up the Dos Bocas refinery – whose last date has been set for next july – reduce the possibilities available to the federal administration to support the company. But this does not mean that it will not do it, say the analysts, but rather that now the question centers on what will be the strategy to take.
“I don’t think the actions that the federal government has used in the past are there: continuing to lower the tax burden would be very costly because it is also a long-term decision that is difficult to reverse, a capitalization also seems difficult because it was not foreseen in the Expenses budget. Rather, we could think of another market operation in which the government has to issue debt to refinance those maturities”, explains Gómez Ayala.
The Ministry of Finance says in its annual financing plan that the strategy will focus on refinancing amortizations and trying to optimize the maturity profile of the debt. Pemex says in another document that it will use various instruments for its refinancing, such as bank loans, debt capital instruments, direct financing or guarantees from export credit agencies.
But analysts rule out or see very unlikely that the state company will go to the markets to contract more debt or refinance the existing one. The reason: the rate of the bonds placed by Pemex would be very high –above 10%– and, although it is a good offer for bondholders, in the long term it is a high financial cost for the oil company and therefore, for the federal government.
Recently, the Ministry of Finance placed bonds for 4,000 million dollars at five and 12 years with a rate of 5.4% and 6.35%. This percentage would be impossible to reach for now for the state oil company. Thus, analysts anticipate that the Mexican government will most likely be the one to go to the market to cover the company’s amortizations.
“The government could give Pemex a new capital injection, although it is unlikely, or they could pay the debt with an issuance of their own titles. There are many government options to support Pemex, they are not there now but they will surely show them later”, says Gifford.