PEMEX to Allocate US$6.3 Billion to Pay Interest on Debt

PEMEX will allocate MX$109.1 billion (US$6.3 billion) solely to pay the interest on its long-term financial debt this year. According to PEMEX's Agreement CA-090/2023, this represents 5.9% of the company's financial debt under the direction of Octavio Romero Oropeza.

The company specified in its semi-annual report on the NOC’s debt that 79% of it is contracted at a fixed rate, mitigating scenarios of volatility in financial markets. Additionally, 80% of the debt is denominated in dollars or instruments used for exchange, allowing for coverage of currency risks. By the end of 1H23, there was a reduction in the total balance of financial debt, aided by the federal government's support for the payment of previously contracted debts.

According to César Augusto Rivera, Researcher in Energy and Environment, Center for Economic and Budgetary Research (CIEP), oil reserves held by PEMEX will generate revenues of US$36 billion by 2047. This amount is insufficient to cover the long-term financial debt of the company, which stood at US$105.8 billion at the close of 3Q23. He mentioned that the country urgently needs a tax reform to compensate for the revenues that PEMEX is no longer contributing to public finances.

According to a study by the organization, in 2008, oil revenues represented 44.3% of total revenues, while this year, they will only contribute 18.4% of the total. Given the reduction in contributions, the CIEP specialist considers it necessary to seek a new source of fiscal income to compensate for PEMEX’s deficit in contributions. Rivera mentioned that one option is to increase the DUC (Unleveraged Contracted Units) back to 40% to alleviate pressure for the next public administration.

PEMEX, the most indebted state energy company in the world, has US$25 billion in short-term debt and US$4 billion in bonds that are still due in 2023, Fitch stated in a report published yesterday. As most issuers refinance debt with shorter maturities between 2024 and 2026, there is a risk of creating significant competition for the NOC.

In July, Carlos Cortez, Finance Director, PEMEX, informed investors that despite government support, management is evaluating whether to return to the markets this year or the next. Earlier this year, the Mexican oil company issued US$2 billion in 10-year debt bonds at a rate of 10.375%, nearly double the yield of a Mexican sovereign bond of the same term, which was trading at 5.64% at the time and much higher than the yield the company offered in a bond in October 2020, when the yield was around 7%.?

In an environment of still-restrictive conditions with high market interest rates, it is expected that the financing PEMEX secures in the coming months will be at a very high cost. The financing formula with banks, combined with government capitalization, follows the nearly US$4 billion capital injection that was finalized on July 28 to cover PEMEX's 2023 maturities.