The government of López Obrador announced on Monday an equity contribution of up to 3.5 billion dollars and a financial support package for Petróleos Mexicanos (Pemex), the most indebted oil company in the world.
Pemex will carry out a repurchase and liability management operation to reduce the refinancing risk and the amount of debt, detailed the Ministry of Finance and Public Credit (SHCP) in a press release.
With this operation, bondholders will have the option to exchange bonds maturing between 2024 and 2030 for a combination of a new 10-year bond and cash, and the repurchase of bonds maturing between 2044 and 2060, the agency added.
“In line with the above, the federal government would be carrying out an equity contribution of up to 3.5 billion dollars,” said the SHCP.
Pemex’s total financial debt amounted to 113,045 million dollars, according to the third quarter results report, an increase of 1.6% compared to the end of last year.
The oil company lost 4.936 billion dollars in the first nine months of the year.
In this context, the government announced “permanent structural changes in the state-owned company.”
The main measures will be to reduce the company’s tax burden with a reduction from 52% to 40% of the shared profit right (DUC).
The company’s debt will also be alleviated with equity contributions from the Federal Government, “using liquidity surpluses.”
Likewise, the company’s refinancing risk will be reduced with equity contributions from the Government for liability management operations.
The SHCP stated that “Pemex is a public and profitable asset, besides being the largest taxpayer in the country,” but with “a high tax burden, much higher than that of any other oil company in the world.”
“It is important to highlight that this transaction that is being announced has no impact on public spending or the Expenditure Budget. Pemex maintains its position as a production company of the State,” said the Ministry of Finance.
In addition to the Government’s contribution, the agency revealed that “the business plan will be reformulated” with actions to strengthen Pemex’s financial position in the medium and long term, as well as to prepare the Company for the challenges of the coming years.
On the other hand, there will be new mechanisms “that allow the public sector to co-invest in exploration and extraction projects to ensure the availability of a robust production platform and to improve the Company’s debt structure.”
“Mexico has a solid fiscal position and strong macroeconomic fundamentals, so support for Pemex does not compromise the sustainability of public finances, nor the resources for the strategic and social programs of the current administration,” said Treasury.
The state-owned company has become a burden for the Mexican State due to the inefficiency of its public management, something similar to what happened with PDVSA (Petroleos de Venezuela) under Chavism, which became the third-largest oil company in the world, and has currently seen its production reduced from 3 million barrels per day to less than 700,000.