Fixed Income Analysis /

Pemex: Q2 weakness is clear, despite management spin; reiterate Hold

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    30 July 2019
    Published by

    Pemex’s management has tried to put a positive spin on the Q2 results, but the numbers speak for themselves: they show continued deterioration, operationally and financially.

    On the positive side, the company managed to stabilise crude oil production – at c1.661mn barrels per day (b/d) – and reduce non-operational losses (which includes fuel theft, an accounting line items that we believe should be reflected in sales and not in costs).

    However, it also reported lower sales, EBITDA and cash levels, and higher debt and leverage. In addition, natural gas production decreased, resulting in record-low total hydrocarbons production.

    Total sales in Q2 19 were US$19.713bn, lower than the US$22.465bn of Q2 18 and slightly higher than the US$18.554bn reported the previous quarter. EBITDA was US$5.756bn, lower on a sequential and a yoy basis. EBITDA was US$7.713bn in Q2 18 and US$6.026bn in Q1 19.

    Cash and equivalents stood at US$2.311bn at end-Q2 19, compared with US$4.216bn at end-18 and US$5.501bn a year ago. Debt reached US$109.26bn (incl. financial leases) or US$104.091bn (excl. financial leases), from US$107.18bn at end-18 (when financial leases were still not segregated as per IFRS rules) and US$103.996bn at end-Q2 18.

    The net loss was US$2.763bn in Q2 19, apparently lower than the net loss of US$8.404bn in Q2 18. However, including “other comprehensive results”, which management omitted in its presentation, the Q2 19 comprehensive net loss was US$10.649bn from US$7.789bn a year ago.

    We believe Pemex’s bonds are trading tight given the company’s challenges and a looming risk that Moody’s and S&P might take action, but, for purely technical factors, we maintain our Hold rating.