MEXICO CITY: Mexico will inject $3.9 billion into ailing state oil company Pemex, officials said, promising to strengthen its finances and prevent a further credit downgrade, although investors saw the plan as only a short-term fix. Falling oil output, corruption and high labour costs have contributed to the decline of the company that was once a symbol of national pride. It now holds roughly $106 billion in financial debt, the highest of any national oil company in Latin America. Fitch and Moody’s rate its credit one notch above junk.
Fitch said that the plan, which includes additional tax cuts, more government spending on the company and debt refinancing, would likely not be enough to prevent “continued deterioration” in Pemex’s credit quality. The agency cited an ongoing “significant level of under-investment” for Pemex. Pemex will receive $1.8 billion in pension liability monetisation as part of the new plan and finances will be helped by a corruption clampdown, officials said in a presentation that was short on details. They vowed the Mexican government will not take on new debt in 2019. Pemex must make more than $27 billion in debt payments over the next three years.
Investors said they had expected stronger measures, and while encouraged by government vows of support, they said the plan offered only short-term relief. “The measures are not a long term fix and won’t be enough to stabilise oil output,” said Edward Glossop, Latin America economist at Capital Economics. If oil prices and output decline further, he estimated yields on Pemex bonds could rise by around 1 per cent this year. The price fell after the announcement for Pemex’s most heavily traded bond on Friday, maturing in 2047, as its yield rose 14 basis points, according to MarketAxess data. The price on a Pemex bond, which is maturing in 2024 also dropped, with its yield up 32 basis points, reflecting bondholder skepticism of the plan. — Reuters
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