Mexico has begun a process of refinancing state-owned PEMEX’s debt after the nation received a transfer of about $12 billion from the International Monetary Fund.
President Andres Manuel Lopez Obrador said Monday that refinancing had begun, and restated that he wants to use newly issued IMF reserves to pay the debt, but that he couldn’t provide further details. His spokesman Jesus Ramirez confirmed to Bloomberg News that Pemex’s debt is being refinanced.
The government is considering whether the $12 billion in IMF reserves could be fully or partially used to pay off Pemex’s debt, according to a person with knowledge of the matter who wasn’t authorized to speak publicly about the topic.
AMLO, as the president is known, has prioritized aid to Pemex, seeking to reduce the company’s borrowing costs and free up cash to invest in exploration and production following a decade and a half of output declines. The company currently has $115 billion in debt.
“I can’t say much, but a process of refinancing debt has begun,” the president said at his daily morning press conference. “But let me just say that Pemex is not being left adrift. It’s a company of the nation, of the Mexican people.”
Lopez Obrador has been pledging for weeks to repay debt with the IMF’s so-called special drawing rights, or SDRs, which are allocated to member countries based on their share in the Fund. The nation’s central bank says Mexico can only use those funds, which were issued last month as part of efforts to help countries amid the pandemic, if it purchases them from the bank, which received the IMF transfer as international reserves.
“The most expensive debt is Pemex, it’s the way you could reduce financing costs the most,” said Claudia Ceja, a strategist at BBVA in Mexico City. “First we have to see if they can use it for debt payment by law, and then there would probably be some swap, government buyback, or some intermediate operation.”
Ceja says that the most likely target would be the medium and long end of the Pemex curve, as there’s still strong demand for the short end. Pemex’s 2025 and 2047 bonds yield about 8%, the most of any government or quasi-government bond, according to data compiled by Bloomberg.
Industry experts are skeptical about whether the financing will be enough to move the needle on Pemex’s debt. “I don’t believe it’s a game-changer, what it does is it allows Pemex to keep operating, to keep surviving,” said Alejandra Leon, Latin America upstream director at IHS Markit, speaking over the phone. “You are just keeping the boat afloat.”
Bolstering state energy companies Pemex and the Federal Electricity Commission has been a central part of Lopez Obrador’s platform. He seeks to have Mexico produce enough oil to meet domestic demand and has petitioned for a constitutional reform to give priority to the state electricity company over private firms.
“The interest rates that Pemex pays are higher than what the government pays for its sovereign debt,” AMLO said. “That cannot be the case. How can they categorize us as better than Pemex, if Pemex belongs to the people of Mexico, just like the government? That is what we are attending to and resolving.”
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