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Mexico State Oil Company Pemex Bonds Rise
Vinicius Andrade, Maria Elena Vizcaino, Michael O'Boyle
5-6 minuti
The rout in Mexican financial markets has been nearly all-encompassing this month. Stocks, bonds, the peso — they’ve all cratered in the wake of landslide elections that investors fret will hand the leftist ruling party too much power.
And then there’s the debt of state-run oil giant
Petroleos Mexicanos.
Not only are prices on the roughly $69 billion of bonds not plunging, some are actually
ticking higher. The logic, as articulated by a handful of Pemex bond bulls, goes like this: President-elect Claudia Sheinbaum will have such a large mandate that she’ll be able to ram through legislation that transfers some of the debt to the government, shoring up the company’s fragile finances.
To some long-time
Mexico watchers, it all seems like a bit of a stretch. Sheinbaum, they note, is not as obsessed with the company — and its role in society — as her predecessor, Andres Manuel Lopez Obrador. What’s more, the government would have to assume a big chunk of Pemex debt — as much as $50 billion, according to one estimate — for it to have a meaningful impact on the company’s finances.
Her administration will be busy dealing with its commitment to cut the budget deficit, said Jesus Carrillo, director of economic research at the Mexican Institute for Competitiveness.
“Right now would not be the right time for the Mexican state to do this swap and take over debt,” Carrillo said. “I don’t think this is going to happen soon.”
The irony, of course, is that Sheinbaum’s majority in Congress is fueling the selloff in the rest of Mexican markets. Investors worry that the Morena Party will use its advantage to pass policies that AMLO has long clamored for, such as changing the way judges are selected.
The peso has lost roughly 9% of its value against the dollar since the election, in the worst performance among any currency tracked by Bloomberg. Stocks are off 4%.
Read more:
What Are the Mexico Reforms Spooking Markets?: QuickTake
A Pemex representative didn’t reply to messages seeking comment.
Pemex Has $39 Billion Coming Due in Upcoming Administration
Government has already earmarked payments for 2024 payments
Source: Pemex 1Q24 Company Presentation
Note: Data does not include revolving credits or other liabilities
Pemex, one of the most heavily traded emerging-market corporate credits, has been an outlier amid the selloff. As the prices inch up, the yield over similarly dated government notes fell to its lowest level in at least two years.
“There’s more room for Pemex spreads to keep tightening,” said Christine Reed, a portfolio manager at Ninety One. Having a majority “can lead the government to be able to achieve a more material change in Pemex.”
It’s an investment case being pushed by money managers at Van Eck Associates and Ashmore as well. Investors will now shift their focus to the Sheinbaum administration’s picks for the main jobs at the state-controlled driller.
“Pemex became more interesting rather than less interesting,” said Gustavo Medeiros, head of research at Ashmore in London. If Sheinbaum “actually manages to bring serious technocrats to manage Pemex, that could be a game changer and reduce a lot of the risk.”
Even if the government doesn’t immediately move to address Pemex’s debt woes, money managers see value because a capital allocation to the company is already included in the 2024 budget. Strategists at Goldman Sachs & Co. cited that when reiterating their
recommendation
to buy short-dated bonds.
Sheinbaum, who was tight-lipped about her plans for Pemex on the campaign trail, has since made statements in which she reaffirmed her vow to prioritize the state-run firm. Her finance minister — Rogelio Ramirez de la O — told investors this week they would take advantage of the congressional support to “optimize the good use of public resources.”
Pemex is the world’s most-indebted oil company with more than $100 billion in obligations. Reducing its interest burden — which includes $6.3 billion in maturities this year alone — would require the government to absorb about half the company’s debt, according to Citigroup strategists including Donato Guarino.
Though the current administration has repeatedly injected money into the company and significantly reduced its profit-sharing tax, bond investors view those fixes as temporary for a company that’s plagued with other problems, such as shrinking crude output, aging facilities and a string of deadly accidents.
Read more:
As Deadly Accidents Piled Up, Bond Investors Got Tough on Pemex
The repeated accidents — including one that set the ocean on fire — made the bonds uninvestable for some funds with ESG mandates. Since Pemex was cut to junk by rating firms, investors who are only allowed to hold higher-quality credits had to ditch the credit.
Carlos Carranza, a portfolio manager at Allianz Global Investors in London, sees no short-term fix for a company of Pemex’s size.
“It’s almost like fixing the macro imbalances of a country,” he said. “I don’t think this is going to happen overnight.”
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