Flash Fixed Income Report /
Mexico

The US$8bn Pemex loan: Deafening silence cannot be a good sign

  • There is a worrying lack of information about the details of the US$8bn syndicated Pemex loan.

  • The loan shows that Pemex does not have access to the international capital markets at an affordable level.

  • It is a drop in the ocean in the context of Pemex's US$106bn of debt.

The US$8bn Pemex loan: Deafening silence cannot be a good sign
Rafael Elias
Rafael Elias

Director, Latin America Credit

Tellimer Research
20 May 2019
Published by

There is a worrying lack of information about the details of the US$8bn syndicated Pemex loan announced on 13 May and, in turn, about whether the deal is good or bad for Pemex bondholders.

The key questions: 

1) Will the loan be secured by collateral and, if so, by what collateral specifically? 

2) Will the credit lines that will be paid from the proceeds of the loan also be collateralised, and by which assets?

If the credit lines that will be paid back with the new syndicated loan are not secured by collateral but the syndicated loan is, this would effectively subordinate bondholders at least in this amount (related to this, we would also like to know how much secured debt Pemex has in total).

There are at least three other factors for bondholders to consider:

1) The loan shows that Pemex does not have access to the international capital markets at an affordable level and, therefore, the company is tapping the Mexican financial system to cover its liquidity needs; 

2) It is a drop in the ocean in the context of Pemex's US$106bn of debt, and does not solve the company's fundamental structural and financial challenges; and, 

3) The funding will mainly be used to refinance maturing debt. Pemex still needs deep fundamental and managerial changes to invest in exploration and production in order to increase its production volumes. This is what will really determine its creditworthiness.

In addition, Pemex and the Ministry of Finance have said that, this week, the latter will make public another fiscal package to allow Pemex to keep more of what it earns rather than give away resources to the federal government, and that this relief should free up funds to be used to reinvest in the company. The size, the scope and the time that the package will take to be fully implemented should shed more light on the company's improvement and if this improvement will really be meaningful.

Finally, initial comments from analysts, rating agencies, and industry specialists suggest they appear to have reached consensus that the loan is not nearly enough to solve Pemex's financial issues, and that much more is needed to make the company self-sustainable and viable.

We continue to wait for answers to our queries. We have placed calls and sent emails to the Ministry of Finance (to Deputy Secretary Arturo Herrera and Deputy Undersecretary of Public Credit and International Affairs Gabriel Yorio) and to Pemex's investor relations team (Vanessa Julia Ramirez, Lucero Angelica Medina and Mariana Lopez). We have copied in our communications members of Congress from the Morena Party.

Our view is that Pemex and the Mexican authorities appear not to understand that markets and investors do not like uncertainty and information vacuums, and that they must improve communication with the markets in terms of the depth, detail and timeliness of information. This is crucial if the company wants to earn back some of the confidence that has been lost in the six months under the current administration.