Cash Injection Underlines Mexican Government's Support For Pemex

• On December 6, Mexican state-owned oil company Petróleos Mexicanos (Pemex) announced that it would use a USD3.5Bn cash injection from the Mexican Government to pay down some of its outstanding debt. Pemex will offer cash and new notes in an exchange with holders of 12 bonds maturing between 2024 and 2030, while paying in cash for six bonds maturing between 2046 and 2060. The Mexican Government has already pledged to cover bonds maturing in 2022 or 2023.
• This aligns with Fitch’s view that Mexican President Andrés Manuel López Obrador (AMLO)’s Government will continue to provide Pemex with financial support as part of his broader goal of effectively re-nationalising Mexico’s oil sector. The cash injection continues the Government’s robust support for Pemex, which has included reductions in Pemex’s profit-sharing duty (DUC) as well as capital injections to help the company manage its USD113.0Bn in outstanding debt. 
• Markets reacted positively to the news, as the spread of Pemex’s 5-year credit default swap (CDS) over the Mexican Government’s narrowed to 211.3 basis points as of early on December 7, from 272.6 on December 3. While the Mexican Government has never explicitly guaranteed Pemex’s debts, the narrowing spread suggests that markets are pricing in robust sovereign support given the company’s essential role in the Mexican economy and AMLO’s supportive stance.

(Source: Fitch Solutions)