(Bloomberg) – Mexico has begun a process to refinance the debt of state-owned Petroleos Mexicanos, after the country received a transfer of around $ 12 billion from the International Monetary Fund.
President Andres Manuel Lopez Obrador said on Monday that the refinancing had started and reaffirmed that he wanted to use the newly issued IMF reserves to pay off the debt, but could not provide more details. His spokesman Jesus Ramirez confirmed to Bloomberg News that Pemex’s debt was being refinanced.
The government is examining whether the $ 12 billion in IMF reserves could be fully or partially used to repay Pemex debt, according to a person with knowledge of the matter who was not authorized to speak publicly on the matter.
AMLO, as the president calls it, has prioritized helping Pemex, seeking to lower the company’s borrowing costs and free up cash to invest in exploration and production after a decade and a half. decrease in production. The company currently has $ 115 billion in debt.
“I can’t say much, but a process of debt refinancing has started,” the president said at his daily morning press conference. “But let me just say that Pemex is not being left adrift. It is a business of the nation, of the Mexican people.
Lopez Obrador has been pledging for weeks to repay debt with IMF Special Drawing Rights, or SDRs, which are allocated to member countries based on their share in the Fund. The country’s central bank says Mexico can only use these funds, which were issued last month as part of efforts to help countries amid the pandemic, only if it buys them from the bank, which has received the transfer from the IMF as international reserves.
“The most expensive debt is Pemex, that’s the way you could cut your financing costs the most,” said Claudia Ceja, strategist at BBVA in Mexico City. “We need to see first if they can use it for the debt payment by law, then there would likely be a trade-in, government buy-back, or go-between.”
Ceja says the most likely target would be the medium and long end of the Pemex curve, as there is always a high demand for the short end. Pemex’s 2025 and 2047 bonds return around 8%, the highest of any government or quasi-government bond, according to data compiled by Bloomberg.
Industry experts are skeptical about whether the funding will be sufficient to advance Pemex’s debt. “I don’t think this is a game-changer, it allows Pemex to continue to operate, to continue to survive,” said Alejandra Leon, upstream director of Latin America at IHS Markit, speaking on the phone. “You’re just keeping the boat afloat. ”
Support from state-owned energy companies Pemex and the Federal Electricity Commission has been a central part of Lopez Obrador’s platform. He is seeking Mexico to produce enough oil to meet domestic demand and has called for constitutional reform to prioritize the national electricity company over private companies.
“The interest rates that Pemex pays are higher than what the government pays for its sovereign debt,” AMLO said. “It cannot be. How can they call us better than Pemex, if Pemex is owned by the Mexican people, just like the government? This is what we deal with and solve.
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