• It’s cheaper for Pemex to refinance than tap markets: Romero
• State-owned company’s 2033 debt rose most since issuance

Maria Elena Vizcaino, and Michael O’Boyle, Bloomberg News

MEXICO CITY
EnergiesNet.com 07 27 2023

Petroleos Mexicanos bonds soared, leading gains in emerging markets, as the company and the government signal sovereign support to the driller’s massive debt load.

Debt due in 2033 jumped by as much as 4.4 cents on Thursday, the largest gain since the bonds were issued in January, to trade at 94 cents on the dollar, according to Trace data. Notes maturing in 2048, meanwhile, rose as much as 3.7 cents to 62.9 cents on the dollar.

“Pemex isn’t a private company,” President Andres Manuel Lopez Obrador told journalists on Thursday morning. “It’s connected to the nation.”

The driller shouldn’t have to pay more than Mexico to issue debt, the president said, adding they are “the same” and that the government “always” helps Pemex.

The comments echo those of Pemex Chief Executive Officer Octavio Romero, who on Wednesday said the government would issue new debt and carry out refinancings on the company’s behalf, providing relief for investors.

Magic Words

“They said the magic words,” George Ordonez, a strategist at BBVA in New York, said of Romero’s comments. “All the government had to do was come out and say ‘we’re taking care of near-term maturities.’”

Romero said that, because the company’s debt already belongs to the government, it’s cheaper for the Finance Ministry to refinance it.

The government will continue to support Pemex “responsibly” but is not planning to make any legal changes, Deputy Finance Minister Gabriel Yorio said at a press conference Thursday.

He touted two previous liability management operations carried out jointly by the company and the government. In May, he ruled out a capital injection for the driller this year.

Mexico already has several tools to support Pemex, including reducing the profit-sharing rate and implementing joint liability management, Yorio said.

“We can handle this like we have been,” he said. “The capitalizations are used to lower the burden or the pressure on liquidity that an upcoming maturity can generate.”

Pemex is the world’s most indebted oil driller, with $107.4 billion in financial debt at the end of March, and its production has declined for the better part of two decades.

Analysts at JPMorgan Chase and Co. and Bank of America reiterated their overweight recommendations on the oil driller’s debt as they expect support from the government.

Still, Pemex bonds have fallen in recent weeks as accidents pile up and investors weigh the risk of credit-rating downgrades.

Even after Thursday’s rally, money managers still demand roughly 5.5 percentage points in extra yield to hold Pemex’s 2028 bonds over similar Mexican government notes, according to data compiled by Bloomberg.

The wide spread over the sovereign signals lingering uncertainty over whether current energy policies will prevail in the long run, according to Banco Bradesco BBI strategist Rodolfo Ramos.

“We believe current policies might prove unsustainable,” Ramos wrote in a report.

— With Vinicius Andrade, Maya Averbuch, and Philip Sanders

bloomberg.com 07 27 2023