Background on Pemex and its Financial Situation
Petróleos Mexicanos (Pemex), Mexico’s state-owned petroleum company, faces a significant financial challenge with a debt load nearing $100 billion. This includes approximately $22 billion owed to suppliers and contractors. To address short-term liabilities and improve its financial balance, the Mexican federal government recently issued $13.8 billion in debt and repurchased Pemex bonds worth $12 billion, according to the Secretaría de Hacienda y Crédito Público (SHCP).
Debt Repurchase and New Emissions
On September 2, Pemex announced the offer to repurchase a series of bonds. The repurchase closed on September 15, with investors participating for $12 billion, including $9.9 billion for obligations maturing between 2026 and 2029. Additionally, Hacienda mentioned amortizations for 2025 and other short-term liabilities.
To optimize the public sector’s balance, SHCP announced on September 15-16 a bond issuance totaling $13.8 billion in euros and dollars. These transactions aim to reduce Pemex’s foreign currency obligations, stabilize its debt level, enhance its credit profile and liquidity, and lower its financing costs.
Capital Contribution and Bond Emission Details
The Mexican government plans to make a capital contribution equivalent to the amount raised in international markets. This measure will soften Pemex’s debt profile over this period, with three new euro references issued for 4, 8, and 12 years at coupon rates of 3.5%, 4.5%, and 5.125%, respectively, totaling €5 billion. In dollars, bonds were issued for 5, 7, and 10 years with coupon rates of 4.75%, 5.375%, and 5.625%, respectively, totaling $8 billion.
Favorable Market Conditions and High Investor Demand
Favorable market conditions, investor monitoring by SHCP, and a positive international perception of Mexico’s fiscal and financial policy supported by eight credit rating agencies led to highly favorable conditions. This resulted in significant compression of initial price differentials: 30 basis points (bps) for each euro reference and an average of 25 bps for dollar references.
Key Questions and Answers
- What is the main purpose of this debt issuance? The primary goal is to address Pemex’s short-term liabilities and improve its financial balance by reducing foreign currency obligations.
- How much debt was issued, and what were the terms? The Mexican federal government issued $13.8 billion in debt, with three new euro references for 4, 8, and 12 years at coupon rates of 3.5%, 4.5%, and 5.125%, respectively, totaling €5 billion. In dollars, bonds were issued for 5, 7, and 10 years with coupon rates of 4.75%, 5.375%, and 5.625%, respectively, totaling $8 billion.
- What was the investor response to these issuances? There was high demand from 573 investors across various geographies, supported by favorable market conditions and a positive international perception of Mexico’s fiscal and financial policy.
- What impact will these actions have on Pemex? These measures aim to stabilize Pemex’s debt, enhance its credit profile and liquidity, and lower financing costs.
