Tag Archives: Mexico

Debt Spiral Grips Both, Pemex and Mexico, by Don Quijones

Posted on April 6, 2016 | 1 comment

From Don Quijones at wolfstreet.com:

Nightmare is coming true.

It was just a matter of time before Pemex, Mexico’s chronically indebted state-owned oil giant, began dragging down the national economy it had almost single handedly sustained for over 75 years.

The company has been bleeding losses for 13 straight quarters. As of December 31, it had $114.3 billion in assets and $180.6 billion in liabilities, a good chunk of it denominated in dollars, leaving a gaping hole of $66.3 billion (negative equity), after having been strip-mined over the decades by its owner, the government. And given these losses and the equity hole, new credit is becoming harder to come by.

Now it seems that Mexico’s worst nightmare is beginning to come true, thanks in no small part to Moody’s Investors Service. The credit rating agency last week downgraded Pemex’s credit rating from Baa1 to Baa3. In November Pemex had a perfectly respectable credit rating of Aa3; now, just six months later, it’s perilously perched just one notch above junk.

“Moody’s believes that Pemex’s credit metrics will worsen as oil prices remain low, production continues to drop, taxes remain high, and the company must adjust down capital spending to meet its budgetary targets,” the report said.

That was for Pemex. Now Moody’s also changed the outlook for Mexico’s sovereign rating from stable to negative.

This, coupled with the mounting risk of a credit downgrade, heaps further pressure on a government already struggling to shore up its balance sheet. Hardly helping matters is the fact that oil prices, a key source of government revenues, continue to languish at low levels, while the prospect of a massive bailout of Pemex looms ever larger. As if that were not enough, Mexico’s manufacturing industry is beginning to feel a very sharp pinch from weakening U.S. consumer demand.

To continue reading: Debt Spiral Grips Both, Pemex and Mexico

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Big-Oil Bailout Begins as Debt Spirals Down, by Don Quijones

Posted on March 16, 2016 | Leave a comment

From Don Quijones at wolfstreet.com:

Mexico’s proud sugar daddy becomes giant financial sinkhole.

Pemex, Mexico’s state-owned oil giant, cannot seem to get a break these days. It notched up 13 straight quarters of rising losses. It now owes over $80 billion to international investors and banks. It needs to raise $23 billion this year to stay afloat. The cost of servicing that gargantuan debt mountain continues to rise. So it tries desperately to rein in its spending, without tackling — or even discussing — its endemic culture of corruption.

In recent days, Pemex received a 15 billion peso ($840 million) lifeline from three of Mexico’s homegrown development banks, Banobras, Bancomext and Nafinsa, to help the firm pay back some of its smallest providers, consisting mainly of domestic SMEs.

The loan was part of an arrangement cobbled together between the banks and the Mexican government. By today’s standards the amount involved is pretty meager, but the operation was about more than just raising funds: it was meant to restore confidence among both investors and suppliers in the firm’s ability to repay its debts.

“This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, explained Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers. “Members of the industry now have the confidence and certainty that the payments will be honored.”

Not everyone agrees. Last week the U.S. credit rating agency Moody’s flagged concerns that the loan will significantly increase the three banks’ combined exposure to Pemex’s debt, calculated to grow from 44% to 62%. “The three lenders now have high concentration risks with their 20 biggest creditors,” cautioned Moody’s, which already downgraded Pemex’s debt in November to Baa1, with a negative outlook. In its report last week, the agency piled on the pressure by warning that there’s “a high likelihood” that it will downgrade Pemex’s rating another notch in the coming weeks.

What this all means is that rather than restoring investor confidence in Pemex, the loan operation has merely served to reinforce investors’ fears that lending to the debt-laden oil giant is fast becoming a very dangerous risk. It has also raised serious concerns about the ability of Pemex to honor its new managing director’s pledge to promptly pay back the over 100 billion pesos ($5.6 billion) of outstanding debt to its larger suppliers.

To continue reading: Big-Oil Bailout Begins as Debt Spirals Down

 

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Desperate Oil Giant Pemex Makes a Deal with KKR, by Don Quijones

Posted on February 21, 2016 | Leave a comment

From Don Quijones at wolfstreet.com:

On the bright side, it’s not bankrupt – according to the new CEO

For the last 77 years, Mexico’s state oil company, Pemex, has almost single-handedly funded the economic development of the world’s 15th largest economy. But now the national treasure is drowning in debt. In 2016, over $11 billion of the company’s corporate bonds will mature and need to be refinanced. In total, the company will need to raise about $23 billion in 2016, in a market that has grown wary of over-indebted, over-leveraged oil giants. If it succeeds, its debts will reach $100 billion.

“At the current prices, the quality of Pemex’s credit will deteriorate significantly in 2016 if it does not make drastic cutbacks,” warned Moody’s, which maintained the company’s outlook as negative.

Given that in the first nine months of 2015, the company lost 352 billion pesos ($19.4 billion), and that for this year’s budget, it had assumed an average Brent crude price of $50, the company will have a daunting enough challenge just making it to the end of the year intact. But Brent is now at $33 a barrel, and Mayan crude is about $10 less.

On the bright side, it’s not bankrupt – according to its new director (and former World Bank official), José Antonio González Anaya. “Pemex faces liquidity problems, but it does not have a solvency problem,” he said. But to remain viable it must “make adjustments.”

Those adjustments will include laying off thousands, if not tens of thousands, of workers. According to El Financiero columnist Enrique Quintana, Pemex will also need to divest its biggest loss-leading operations, including its refineries (the company imports 48% of the petroleum products it sells in Mexico), and petrochemical and gas divisions. Meanwhile, it should focus its attention on production and exploration, its two most lucrative areas of operation, which provided combined profits of $11 billion during the first nine months of 2015.

By all indications, Pemex’s new management and the government are in full agreement. In other words, the world’s second largest publicly owned company is about to be broken up into pieces and privatized, a word that Mexico’s public representatives still dare not use in public. Throughout the negotiation phase of Mexico’s oil reforms, signed in 2014, the Peña Nieto government refused to use the “P” word, recalls Laura Carlsen, director of the Americas Program for the Center for International Policy in Mexico City.

Mexican government officials reject the term “privatization” for the proposed scheme. When oil and gas is in the ground (and has no monetary value), they say, it belongs to the Mexican people; when it is extracted and worth millions, then it belongs to transnational corporations. They also note that Pemex, the state energy company, is not being sold outright, although they admit that many of its assets could be sold in the future.

Which is what is happening now. After decades of mismanagement, malinvestment and corruption, Pemex is about to be fractured into pieces, to be sold to foreign investors, possibly at rock bottom prices at the worst possible time.

To continue reading: Desperate Oil Giant Pem ex Makes a Deal with KKR

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Let’s Not Kid Ourselves: The Capture of the World’s Most Wanted Businessman Changes Nothing, by Don Quijones

Posted on January 11, 2016 | Leave a comment

From Don Quijones at wolfstreet.com:

Who’s benefiting from the war on drugs?

To the immense relief of Mexico’s embattled President Enrique Peña Nieto, Joaquín “El Chapo” Guzmán, the world’s most wanted businessman, has been caught. The last time Guzmán was detained, in February 2014, Peña Nieto decided to keep him in the custody of Mexico’s penitentiary system. Within 16 months, El Chapo had escaped – a big blow to Nieto’s already deeply tarnished reputation.

This time around, the pressure to extradite Guzmán to the U.S., where he faces trial on a plethora of charges, could be too much to bear. But how much difference will Guzmán’s arrest and extradition to the U.S. actually make to the massive — and growing — trade in illegal drugs between Mexico and the United States? According to El Chapo himself, very little.

If Guzmán is extradited, he will no longer be able to pull the strings of his global business like before. But someone else will, most likely his second in command, Ismael Zambada. Meanwhile, El Chapo’s capture and extradition is likely to unleash even more violence in Mexico as the cartels engage in new turf wars while using whatever means necessary to resist capture and extradition to the U.S.

The last time Guzmán was arrested, his business empire barely skipped a beat. In fact, as El País reports, it grew, expanding its market both at home and abroad. According to the U.S. Treasury Department, a quarter of all drugs consumed in the U.S. are now distributed by Guzmán’s Sinaloa cartel. The vast revenues generated by the cartel’s sales of cocaine, marijuana, and meta-amphetamine, both in the U.S. and around the world, are laundered through a complex network of 280 businesses in 10 countries.

At the beginning of the global financial crisis, Antonio María Costa, the former Under-Secretary of the United Nations Office on Drugs and Crime, warned that the European banking system had lowered its security barriers, opening the financial floodgates to drugs money. To this day not a single European government or politician has responded to Costa’s accusation that the European financial system was as good as saved by the global drugs trade — none more so than everybody’s favorite offshore tax haven, the City of London.

Describing the international drug trade, organized crime expert Roberto Saviano recently told the Independent on Sunday that “Mexico is its heart and London is its head.” According to the British government’s own National Crime Agency, “hundreds of billions of US dollars” are laundered through banks in the United Kingdom every year – banks that have flagrantly ignored “know your customer rules,” which are designed to prevent criminals from laundering the profits of their illegal activities.

To continue reading: Let’s Not Kid Ourselves

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Dollar-Debt Blows up in Mexico, Pushes Biggest Construction Firm toward Abyss, by Don Quijones

Posted on December 21, 2015 | Leave a comment

Here’s another in the ever lengthening list of stress points in the global debt and economic contraction. From Don Quijones at wolfstreet.com:

After weeks of false promises, rampant speculation, and furious denials, Mexico’s biggest construction company, ICA, finally admitted that it will not pay the $31 million in interest outstanding on $700 million worth of bonds. The company’s shares plunged 24% to 3.93 pesos on the news, its biggest one-day rout since 1999.

“ICA has made this decision in order [to] preserve liquidity, prioritize ongoing operations, and fund projects currently under development,” the firm said in a press release. “Over the next 30 to 60 days, with the help of its financial advisors, Rothschild and FTI Consulting, ICA will work on a cost-cutting and restructuring plan.”

If ICA fails to make payments on all of its $1.35 billion in overseas notes, it will become the biggest corporate bond defaulter in Mexico since Moody’s Investors Service began tracking the data in 1995, just after the eruption of Mexico’s Tequila Crisis.

Acute Vulnerability

The company’s travails began long ago but were recently magnified by political problems at home and economic forces overseas. Its revenues have sharply declined this year amidst infrastructure spending cutbacks by a fiscally challenged government, while the weaker peso has exacerbated the company’s leverage ratios.

ICA is among a number of Mexican corporations that are acutely vulnerable to a strengthening dollar and rising U.S. interest rates. The sudden rise in central bank-engendered liquidity after the outbreak of the Global Financial Crisis enabled Mexico’s biggest companies to borrow from the international markets in much larger amounts and for much longer periods than at any other time in history. And the slide of the peso against the dollar has significantly increased the amount of leverage at some companies.

Almost all of ICA’s contracts are denominated in pesos, while $1.35 billion of its debt is denominated in dollars. That’s the debt it’s now unable to pay. According to Bloomberg, the company’s total debt is 57 billion pesos, 10.75 times its earnings before interest, taxes, depreciation and amortization.

For many Mexicans, the collapse of this emblematic company will be a sad day in what has become a sore year for the nation’s economy. Since the 1950s ICA has been at the leading edge of Mexico’s industrial and urban transformation, building motorways, hydroelectric dams, drainage systems, waste treatment plants, railways, subway systems, stadiums, port facilities and a number of airports, including Mexico City’s Benito Juarez, which will soon be replaced by a new multibillion dollar airport being built on the city’s outskirts by a consortium led by ICA!

To continue reading: Dollar-Debt Blows up in Mexico, Pushes Biggest Construction Firm toward Abyss

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vDare, HBD, and Me: A Great Weariness, by Fred Reed

Posted on November 27, 2015 | 2 comments

From a guest post by Fred Reed on theburningplatform.com:

Sometimes it seems to me that I am the only gringo on this whole sorry planet who does not think Mexicans are scum–filthy, perverted, and witless. They are not, dammit. If you want to criticize Mexico, stick to facts, such as that it is corrupt to the roots of its teeth and terribly governed, that the narcos are out of control, the police criminals, and that it qualifies as a failed state by some (reasonable) definitions. And they play loud music at three a.m. during fiestas. All of this is true.

But spare me the twaddle. In fact, spare everybody the twaddle. No matter who does what, there are going to be a lots of Mexicans in the US, or more correctly American citizens of Mexican descent. Maybe the public ought to have an accurate idea of them. But no. We get twaddle, chiefly from sites like vDare, from groups calling themselves the Human Bio-diversity (hbd) movement, and from Ann (“Legs”) Coulter. Example::

Juarez Monument, Mexico City, from the site Those Who Can See, a typical Roaring Right hbd site.

Well, I concede that the photo is pretty shocking. What sort of people would leave mounds of garbage on the grounds of their national monuments?
Since this pile of trash bore no resemblance to anything I had seen in Mexico (where I have lived for thirteen years), I spent fifteen seconds with Google Images and found dozens of photos of the monument with no trash. How was this, I wondered? Photoshop? Political HBDers are capable of it.

Juarez Monument, from Google Images.

One photo however did show trash. Since the garbage photo by-line said NPR, it took another fifteen seconds on Google to turn up an NPR story on how a snafu in the closing of a landfill in the city had led to a brief pile-up of trash. (Wrote NPR, “Closure Of Massive Landfill Leaves Trash Piling Up In Mexico City … The trash buildup reminds us of what happened in New York City, when it suspended trash collection in January after a massive winter storm dumped more than two feet of snow on the city.”)

Deliberate misrepresentation. A better word is “lying.” There is much of this in such venues.

In this year alone I have been in Chapala (where I live), Ajijic (next door, take a peek at these), Guadalajara, Arandas, Jamay, Durango, Aguas Calientes, Zacatecas, La Paz, Merida, Guanajuato,Mazatlan, Puerto Vallarta, and literally a couple of dozen other towns and cities. There was nothing resembling the photo.

An equally typical American city (Detroit)

In similar sites, I read of Mexican school-children in places like Los Angeles as being violent, incapable of learning, and dirty. Maybe so. I haven’t been there. But in town after town here I see well-behaved kids in school uniforms carrying book bags. In hbd sites I read of Mexican children in the US being left in dirty diapers and generally neglected. Could be. I haven’t been there. But the Mexican norm is great fondness for kids. You can find some of anything in a big country, but I have never seen a dirty diaper here. On the street or on a kid.

To continue reading: vDare, HBD, and Me: A Great Weariness

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Corporate Dollar Debt Explodes in Mexico as Peso Dives, by Don Quijones

Posted on August 9, 2015 | Leave a comment

A rising dollar exchange rate, too much dollar-denominated debt, and increasing fiscal stress among the indebted are all manifestations of the debt deflation and depression crisis slowly strangling the world. Mexico’s has problems.  From Don Quijones at wolfstreet.com:

Recipe for a debt crisis.

In the emerging markets, private-sector debt has become a doozie: In 2014, EM non-financial corporate debt reached a record high of 83% of GDP, up from 67% in 2009. The problem is that part of this debt is denominated in a foreign currency.

Between 2015 and 2017, some $645 billion of non-financial corporate debt will mature in emerging markets, with USD-denominated bonds accounting for around $108 billion, warns the Institute of International Finance. And with non-performing loans already rising while the dollar strengthens, some EM banks, particularly those that have increased their foreign-currency lending, could face serious challenges.

The countries that have seen the largest increases in non-financial corporate indebtedness are China, Brazil, and Turkey. But Mexico is not far behind. According to a new report in El Financiero, in the first half of 2015 the total debt of a sample of 50 publicly listed companies had risen 22% year-over-year.

The main reason? The peso’s decline against the dollar. In the last year alone, the Mexican peso has lost 21% of its value against the dollar. Corporations can borrow more cheaply in dollars. But as the peso falls against the dollar, the dollar-denominated debt held by Mexican corporations with peso-denominated operating income becomes increasingly difficult to service. A recipe for a debt crisis.

A Debt Binge

The Mexican companies most affected include América Móvil (AMóvil), Axtel, Alfa, TV Azteca and ICA, all of which have a large portion of their debt denominated in dollars. According to financial analyst Carlos Ponce, this debt can be expected to continue growing – and not just as a result of the strengthening dollar:

We are still in a context of exceptionally low interest rates and it’s likely that many companies have decided to take advantage of this by applying for more debt with favorable conditions.

In the second quarter of 2015, the debt in dollar terms of América Móvil and Axtel exploded by 37% and 48% respectively. In the case of Alfa, TV Azteca and ICA it grew by 29%, 32%, and 20% respectively. Other companies also increased their debt.

Over the last five years, the external debt held by Mexico’s private businesses (in pesos) has increased by 86%. In nominal terms, the total amount has reached 1.69 trillion pesos (roughly $105 billion), 117% more than at the beginning of 2010. And if anything, the pace is quickening as fears rise that the Federal Reserve may raise rates in September.

It’s an ironic twist: out of fear that the Fed may be about to take away the ZIRP punch bowl, some of Mexico’s biggest corporations are embarking on one last dollar borrowing binge.

To continue reading: Corporate Dollar Debt Explodes in Mexico as Peso Divess

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Can You Say “Blowback” in Spanish? The Failed War on Drugs in Mexico (and the United States), Rebecca Gordon

Posted on March 23, 2015 | Leave a comment

What do the wars on terror, drugs, and poverty have in common? They’ve created more of what they were supposedly intended to eradicate. From Rebecca Gordon at tom dispatch.com:

They behead people by the hundreds. They heap headless, handless bodies along roadsides as warnings to those who would resist their power. They have penetrated the local, state, and national governments and control entire sections of the country. They provide employment and services to an impoverished public, which distrusts their actual government with its bitter record of corruption, repression, and torture. They seduce young people from several countries, including the United States, into their murderous activities.

Is this a description of the heinous practices of the Islamic State (IS) in Iraq and Syria? It could be, but as a matter of fact it’s not. These particular thugs exist a lot closer to home. They are part of the multi-billion-dollar industry known as the drug cartels of Mexico. Like the Islamic State, the cartels’ power has increased as the result of disastrous policies born in the U.S.A.

There are other parallels between IS and groups like Mexico’s Zetas and its Sinaloa cartel. Just as the U.S. wars in Afghanistan, Iraq, and Libya fertilized the field for IS, another U.S. war, the so-called War on Drugs, opened new horizons for the drug cartels. Just as Washington has worked hand-in-hand with and also behind the backs of corrupt rulers in Central Asia, the Middle East, and North Africa, so it has done with the Mexican government. Both kinds of war have resulted in blowback — violent consequences felt in our own cities, whether at the finish line of the Boston Marathon or in communities of color across the country.

In Mexico, the U.S. military is directly involved in the War on Drugs. In this country, that “war” has provided the pretext for the militarization of local police forces and increased routine surveillance of ordinary people going about their ordinary lives.

And just as both the national security state and the right wing have used the specter of IS to create an atmosphere of panic and hysteria in this country, so both have used the drug cartels’ grotesque theater of violence to justify their demonization of immigrants from Latin America and the massive militarization of America’s borderlands.

http://www.tomdispatch.com/post/175971/tomgram%3A_rebecca_gordon%2C_it_didn%27t_work_in_afghanistan%2C_so_let%27s_do_it_in_mexico/

To continue reading: Can You Say “Blowback” in Spanish?

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