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Mexican government unveils USD 3.9 billion stimulus plan for Pemex

Gasoil News - Published on Tue, 19 Feb 2019

Image Source: sputniknews.com
Sputnik reported that the Mexican government announced a plan to support the oil company Pemex as it faces investor scepticism over its falling production, rising throughput costs, and rife corruption, which are pushing both the company and the entire country to the edge of non-investment ratings. Kristian Rouz - Mexican officials have announced a massive cash injection for state-run oil company Pemex after international credit rating agencies Fitch and Moody's cut its credit rating to just one grade above junk. Investors have been concerned by the company's low throughput efficiency, rising labour costs, as well as corruption, but the Mexican government believes Pemex remains sustainable.

In a statement, the Mexican government said it will spend USD 3.9 bln to improve Pemex' finances and prevent another credit rating cut. The administration of President Andres Manuel Lopez Obrador said the plan would boost Pemex' investment to USD 14.9 billion, which is 5.5 percent above the previous estimate, while a new round of tax breaks for the company will reduce its taxes by some USD 4.68 bln. The plan "will allow Pemex to avoid adding net debt, only to refinance existing debt throughout the year", Mexican Finance Minister Carlos Urzua said.

As part of the plan, Pemex will receive $1.8 bln in pension monetisation. Additionally, the Mexican government has pledged to crack down on corruption at one of its biggest state-run enterprises. Officials also promised Pemex will not increase its leverage this year.

The company's total debt stands at USD 107 bln, one of the largest among major international oil producers. The UK's BP, Russia's Rosneft, and China's PetroChina all have the debt of roughly USD 60 bln each, while Brazil's Petrobras, as well as Royal Dutch Shell, owe roughly USD 80 bln each.

However, economists said Mexico's plan to support Pemex might be insufficient to save the company from "junk" bond ratings.

Edward Glossop of Capital Economics said that "The measures are not a long term fix and won't be enough to stabilise oil output."

Meanwhile, Pemex is facing more than USD 27 bln in debt payments over the coming three years, and experts at Fitch and Moody's pointed to the ongoing deterioration in the company finances and credit quality. Analysts also pointed out that Pemex is facing a threat of continued underinvestment if current trends continue, particularly so, if global oil prices go down.

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Posted By : Rabi Wangkhem on Tue, 19 Feb 2019
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