Mexico’s plan to refinance Pemex debt includes state aid

(Bloomberg) — Mexico’s government will continue to provide financial support to its indebted oil company while it refinances its debt, the top official in charge of Mexico’s public finances said.

Recent support for Petróleos Mexicanos has shown that the State must continue to play a direct role in helping it reduce its debt, said Finance Minister Rogelio Ramírez de la O, and the company needs to make better investment decisions and adhere to the measures of austerity. The government providing money to Pemex from the federal budget was the start of a broader process, he said Tuesday.

“The balance sheet of the federal government will be more dedicated to addressing the needs of Pemex,” Ramírez de la O said at a Banco Bilbao Vizcaya Argentaria event in Mexico City. “The next step includes the need to focus more on the refinancing of Pemex debt, and more directly involve the sovereign debtor. That is what we are starting to do in 2024.”

The front-runner for June’s presidential election, Claudia Sheinbaum, previously said Pemex would have to refinance its debt before payments come due in 2025. The company, which has faced declining production over the past two decades, has received help financial under the leadership of President Andrés Manuel López Obrador. It is unclear whether the next president would do the same.

Read more: New ventures are part of Sheinbaum’s plan to refinance Pemex debt

Analysts and investors agree that Pemex represents one of the biggest challenges that Mexico’s next president will inherit, given the size of the company’s debt load, which amounted to almost $102 billion at the end of March. Pemex has lately relied on tax breaks as well as government cash injections to meet those obligations, which have weighed on public finances.

Ramírez de la O said the government would be more involved in addressing the company’s debt problems, building on actions it has taken in recent years that have given the federal government a more explicit role in supporting the company. He said including transfers to Pemex for debt amortization payments in Mexico’s budget was the start of an “optimization” effort for the company.

“It is an agenda that will take a more concrete form in the next phase of restructuring, but it is a restructuring that will take years,” Ramírez de la O said of the changes underway at Pemex. “The sovereign debtor together with Pemex will see what will happen.” “These are opportunities to reduce costs.”

Sheinbaum, from López Obrador’s ruling Morena party, has also outlined a plan for the company to get involved in other lines of business, such as lithium extraction. Given her PhD in energy engineering and experience in climate research, some analysts have wondered whether the candidate would take a tougher approach to improving the company’s environmental and financial record, while others doubt she will break free from López’s key policies. Obrador.

Read more: Pemex makes small profits as oil production decline resumes

The Morena candidate invited Ramírez de la O, who has served as Minister of Finance since 2021, to remain in office if she wins the presidency. On Tuesday she declined to say whether she would accept the position, but she added that it has been “an honor” to serve in the ministry under López Obrador and she would do so under any circumstances.

–With help from Scott Squires.

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