Tag Archives: Pemex

Time’s Running Out for World’s Most Indebted Oil Company, by Don Quijones

Posted on March 11, 2019 | Leave a comment

Venezuela is not the only country with “problems” in its oil company. Mexico’s appears to be going down the drain, too. From Don Quijones at wolfstreet.com:

US rating agencies pressure Pemex and the new Mexican government. But Pemex is too big to fail. 

The financial pains and strains continue to grow for the world’s most indebted oil company, Petroleos de Mexico (Pemex). Standard & Poor’s became the latest in a succession of rating agencies to downgrade the company. Pemex is state-owned. So S&P has two credit ratings for the company: One, as if it were a stand-alone company; and one for the company as part of the Mexican state.

S&P slashed its stand-alone rating of Pemex three notches to ‘B-‘ from ‘BB-‘ on growing worries that financial support pledged by the government might not be enough to prop up the company and might not be enough revive declining production. Anything below ‘BBB-‘ is non-investment grade, or “junk.” ‘B-‘ is six notches into junk (see our corporate credit rating scales by Moody’s, S&P, and Fitch).

S&P left unchanged its rating of Pemex-as-part-of-the-Mexican-state, at ‘BBB+’, the same as its rating of Mexican government debt, but lowered its outlook for both to negative from stable, and warned that Mexico faces a one-in-three chance of being downgraded in the coming year. This, in turn, triggered a cascade of outlook downgrades for many of Mexico’s biggest corporations and 72 financial institutions, including the country’s biggest banks and insurance companies.

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Is Mexico Facing “Liquidity Problems?” by Don Quinines

Posted on March 5, 2017 | Leave a comment

Mexico isn’t in a deep debt hole yet, but it’s certainly digging. From Don Quijones at wolfstreet.com:

When it comes to debt, everything is relative, especially if you don’t have a reserve-currency-denominated printing press.

At 49% of GDP, Mexico’s public debt may seem pretty low by today’s inflated standards. It’s a mere fraction of the debt loads amassed by bigger, richer economies such as Japan (229% of GDP), Italy (133%) and the United States (104%). But when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press.

In Mexico’s case it’s not so much the size of the debt that matters; it’s the rate of its growth. In the year 2000 the country had a perfectly manageable debt load of roughly 20% of GDP. Today, it is two and a half times that size.

Last year alone the Mexican state issued a grand total of $20.31 billion in new debt, the largest amount since 1995, the year immediately after the Tequila Crisis when the country needed an international bailout to rescue its entire banking system from collapse. The money it received also helped repay a number of giant Wall Street investment banks that had gone all in on Mexican assets.

There are plenty of reasons behind Mexico’s current debt issues. Top of the list is the dramatic reversal of fortunes of the country’s shrinking oil giant Petróleos Mexicanos, A.K.A. Pemex, which until a few years ago provided as much as one-third of the Mexican government’s national budget. After decades of “bad management, lack of vision, negligence, abuse and in many cases, corruption,” in the words of Mexico’s Business Coordinating Council, Pemex is now bleeding losses and buckling under €100 billion of debt.

If Pemex is unable to service its debts, Mexico’s government will have to step in, again. The problem here is that Mexico’s government is also struggling to rein in its own debt addiction, with some states already on the verge of bankruptcy. One state governor, Javier Duarte of Veracruz, did so much fiduciary damage during his mandate that he’s now on the run after allegedly misappropriating vast sums of public funds.

To continue reading: Is Mexico Facing “Liquidity Problems?”

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Shrinking Oil Giant Pemex Starts 2017 on Wrong Foot, by Don Quijones

Posted on January 2, 2017 | Leave a comment

Here’s an interesting parlor game: try to figure out which debt crisis will morph into the global debt crisis. Extra points if you correctly guess the quarter in which it happens. Certainly China and Europe are strong contenders, but we cannot forget our neighbor to the south, and especially not its red-ink gushing oil company. From Don Quijones at wolfstreet.com:

Mexico’s ATM is stewing in a toxic mix.

Despite the partial recovery of oil prices, 2016 was not a kind year to Mexico’s fast-shrinking state-owned (but soon to be privatized) oil giant, Pemex. For over 70 years the company served as a huge funding asset, at times providing as much as one-third of total government revenues. But in 2016 it became a national liability, requiring a $4.2 billion bailout from the government. It’s unlikely to be the last.

During the first 11 months of 2016, the company registered average production of 2.16 million barrels per day, its lowest in more than three decades. Pemex forecasts that production will fall to around 1.94 million barrels a day by 2017, marking the first time that the figure has fallen below the 2 million barrel point since 1980. Given the gathering deterioration in the company’s accounts — including a total debt overhang of around $100 billion — daily production could fall by as much as $1.6 million per day by 2020, Morgan Stanley warns.

As goeth Pemex’s production, so goeth Mexico’s oil revenues, which have shrunk from 6% of GDP three years ago to 2.5% today. The export figures are just as ugly. In 2011, when the price of Brent crude averaged over $100 a barrel, Pemex’s export revenues hit a historic peak of $49 billion, a monthly average of $4.11 billion. In the first quarter of 2016 the monthly average was just $893 million. That’s a plunge of 78%.

To continue reading: Shrinking Oil Giant Pemex Starts 2017 on Wrong Foot

 

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Big-Oil Sinkhole of Debt & Corruption Gets Taxpayer Bailout. Wall Street Thrilled, by Don Quijones

Posted on April 16, 2016 | Leave a comment

In the modern world, wherever there is a big, unsustainable pile of debt, there will be a bailout. It’s happening in Mexico, now. From Don Quijones at wolfstreet.com:

Taxpayers in Mexico Brace for a New Round of Plunder

How the mighty are fallen. Pemex, Mexico’s state-owned oil giant, once a goliath on the global energy scene, is now dependent on state aid to meet its day-to-day needs. Mexico’s Finance Ministry announced a series of measures aimed at loosening Pemex’s financial strains, giving the state-owned giant a decidedly short-term $4.2 billion liquidity boost.

That includes a capital injection of $1.5 billion, as well as a credit facility for a further €2.7 billion to pay down pension costs this year. The company will also receive tax breaks that will allow it to deduct more of its exploration and production costs.

But it’s a mere drop in the barrel compared to the $30.3 billion in losses the company racked up last year, its $90.5 billion in pension liabilities, and its debt which is expected to surpass $100 billion later this year.

The Markets were thrilled by the announcement.

“This is good, because it is comprehensive and it deals with the main issues,” said Alexis Milo, an economist at Deutsche Bank in Mexico City. “The reaction of markets will be positive because this is the beginning of the structural changes that markets were expecting.” As soon as the news broke, Pemex’s CEO and Mexico’s Finance Minister were on a plane to Wall Street to try and drum up investor support for the ailing oil company. Now they know that Mexico’s taxpayers have Pemex’s back — at least for now — investors are likely to view the company more favorably.

Mexico’s taxpayers are unlikely to be quite so enthused by the news, especially given the prospect of this being just the beginning of a growing trend. According to Mexico’s Business Coordinating Council, Pemex doesn’t just have temporary short-term liquidity problems, as the Finance Ministry contends, but is suffering from a structural deterioration that poses a serious threat to its long-term viability.

This deterioration is the result of “decades of bad management, lack of vision, negligence, abuse and in many cases, corruption.” The Mexican daily La Jornada went further, arguing that the company has been systematically “plundered” during successive administrations, including, of course, the current one.

To continue reading: Big-Oil Sinkhole of Debt & Corruption Gets Taxpayer Bailout. Wall Street Thrilled

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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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