By raiding its coffers and making a bold bid to sweep away upcoming debt payments, Mexico’s government has bought precious time for its struggling state oil company, Pemex.
But analysts warn that a new bailout — using a $5bn payment from federal treasury funds — is not enough to fix the enormous cash flow and production problems that Pemex faces as it fights to avoid a catastrophic second downgrade to junk status, and will just end up eroding state accounts.
“I fear they shot a silver bullet into the ground, maybe into their foot,” said one former senior official, who called the move “too little, too late” and said it should have been accompanied by a shift to market friendly energy sector policies.
“It doesn’t strengthen Pemex’s capacity to do stuff, it unburdens it of the need to refinance itself. It just shifts the debt load back to federal government,” he added.
The government found a way to do that without increasing government debt — something leftist president Andrés Manuel López Obrador has banned.
“It’s a step in the right direction and we are overall pleasantly surprised,” said Jens Nystedt, a senior portfolio manager at Emso Asset Management. Pemex is seeking to avert a repayment crunch on about $44bn due in the next four years by swapping some $15bn in bonds into longer maturities.
But investors widely believe the government will still need to stump up more cash for Pemex. With state accounts already stretched by its commitment to run a primary surplus to demonstrate its fiscal prudence, and the economy teetering on the brink of recession, the government’s options are shrinking.
“They’re going to run out of [available] funds,” cautioned another senior official, who feared that tapping buffers in state coffers could leave Mexico exposed as the world economy slows. “This is weakening the fundamentals of the economy, and it’s not free.”
One of the biggest risks is of a sovereign ratings downgrade, something that would signal a lack of confidence as Mexico struggles to spur investment and growth.
Rating agencies, which Mr López Obrador has castigated for souring on Pemex just as the government is trying to turn it round, already have Mexico’s investment-grade sovereign debt on negative outlook, with the risk of a downgrade next year. Pemex is a big factor in that.
