After costly issuance, Mexico’s Pemex shuns markets and prepares cash to pay debt: sources

By Ana Isabel Martinez

MEXICO CITY, Feb 15 (Reuters) – After the market imposed a sky-high rate on bonds issued by Pemex in January, the Mexican oil company is set to meet repayments of its 2023 financial debt with its own cash , said two sources with knowledge of the matter and would only turn to the government if crude oil prices crash.

The state-owned giant has benefited from government support throughout 2021 and into the first quarter of 2022 to cover these debt payments – mainly related to bonds – so that it can have funds to invest in the exploration and extraction and supporting the production of hydrocarbons. .

But with international crude oil prices rising after the Russian invasion and the war in Ukraine, the finance ministry pushed the ball back into Pemex’s court so it could attend to its liabilities, arguing that its coffers had higher revenues and unusual earnings, which soared to $9,633 million in the first nine months of 2022.

However, after a drop in oil prices and with needs between $5,500 and $6,000 million just for the first quarter of 2023, Pemex chief executive Octavio Romero warned in December that they were discussing with the Treasury to further assistance from the Government. But so far there has been no transfer of funds.

“For now, the plan is to use Pemex’s own cash and no longer carry out debt refinancing operations in the markets, counting on the good performance of oil prices,” the statement said. one of the sources on condition of anonymity.

“President Andrés Manuel López Obrador has always said that if necessary, if Pemex demands it, they will have increased support,” he said, adding later that since the interruption of government aid to amortizations, the company took charge of the payments of its financial liabilities in their entirety, including those of January.

“If oil prices fall a lot, well below what was budgeted, then maybe we need to look at direct injections to pay down the debt,” he said. Benchmark Brent prices have stabilized this year amid fears of economic contraction and after rising 10% last year.

Neither Pemex nor the Treasury responded to Reuters requests for comment.

HELP, SOON OR LATE

Risk rating agencies and experts predict that the state giant, the country’s main taxpayer and with a financial debt of 105 billion dollars, will sooner or later receive government support in case of difficulty.

Recently, S&P Global Ratings said it is “virtually certain” that the government is “providing extraordinary, timely and sufficient support” to the state-owned company in times of difficulty. And Moody’s predicted that over the next 12 to 24 months it could need funds if the price of crude oil drops and it has liquidity problems.

Overwhelmed by coupon and bond payments in the first quarter, the state-owned company placed $2 billion, 10-year 10.375% notes in late January to pay its March-June debt commitments, a very high price if compared with the yield of 5.3% for sovereign paper of similar maturities on those days and 5.6% on Tuesday. (91087BAT7=)

Pemex said it had to pay some $8,000 million in financial debt commitments in 2023 and $8,700 million in 2024. Its total liabilities reached $193,000 million at the end of September 2022.

The oil company is convinced that crude oil prices will be favorable to maintain the basic investments planned for the year and at the same time have liquidity for its liabilities, without issuing more expensive debt, the sources commented.

Its total revenue in the first nine months of last year was 78% higher than the same period of 2021, at nearly $92 billion.

OIL VOLATILITY

The government has estimated a 2023 price for Pemex’s export oil basket at $68.7 per barrel (dpb). The 2022 average was 89.35 dpb and climbed to 106 dpb in June.

But then it fell and closed December at an average of 69.82 dpb and so far in 2023 it has hovered between a low of 61.66 dpb in early January and a high of 71.10 dpb.

Writedowns are only part of the government assistance the company has received in recent years. The company estimates the contribution between capitalizations, direct transfers, tax exemptions and other contributions at $45 billion, according to a presentation seen by Reuters.

Financial debt has soared to around $113 trillion under the current administration and the executive and company have struggled to reduce it, but its expansion dates back years, when the giant even took on debt for pay taxes and was considered “petty cash”. governments in turn.

Another source from the company, who confirmed that for now no further operations are planned in the markets, said that Pemex should also not benefit from additional tax exemptions and that any help will come from the government.

In January, Treasury Undersecretary Gabriel Yorio said Pemex’s debt headroom was being analyzed, but said the firm is taking advantage of high crude oil prices and would continue. to rely on a government-approved tax cut, but avoided talking about injections.

The company paid about eight different bond coupons in January, as well as $1.145 million for the remainder of one issued in 2013. In February, it has to pay 13 coupons and in March about six more, according to data from Refinitiv Eikon.

Pemex did not respond to repeated requests for information on the specific amounts paid and unpaid.

(Reporting by Ana Isabel Martínez, with additional reporting by Rodrigo Campos in New York. Editing by Adriana Barrera.)