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Pemex to receive government stimulus

Moody's says Pemex may receive as much as $14.7bn in government support this year
Moody's says Pemex may receive as much as $14.7bn in government support this year

Mexico’s government has announced plans to offer additional fiscal support to Pemex, the national oil company (NOC), in the form of a stimulus package worth around $3.5bn.

The government unveiled its plans in a statement published in the official gazette on February 19. In that statement, it said that it was making available a fiscal stimulus of MXP73.28bn ($3.52bn). Pemex will use the funds to shore up oil production levels and stabilise its finances, the statement said.

Mexican authorities made this announcement around the same time that a senior government official told Reuters last week that Pemex was slated to receive around $5bn worth of relief, including a tax break worth about MXP75bn ($3.6bn) and a capital boost of $1.3-1.6bn. Then on February 22, the same official told the news agency on condition of anonymity that the stimulus plan published in the official gazette represented the tax break. The government intends to apply this support in stages, beginning in February and continuing throughout the year, he said.

As of press time, Pemex had not commented publicly on the matter. However, Mexican President Andres Manuel Lopez Obrador confirmed on February 25 that the government was planning a capital injection for the company. The NOC needs these funds in order to sustain its upstream operations, he declared.

“It will get help so it doesn’t lack funds for work on exploration and production at oilfields,” he said.

As of press time, no details were available on the capital injection plan. If the injection is as large as Reuters’ source predicted, it will bring the total value of the stimulus package up to about $5bn.

The government’s plan will complement a set of concessions designed to help Pemex – namely, adjustments in the tax regime that lightened the company’s profit-sharing duties from 65% in 2019 to 58% in 2020 and 54% in 2021. These measures are expected to lighten the financial burdens of the NOC, which has a high tax burden of around $27bn per year, making it one of the most highly taxed oil companies in the world.

News of the stimulus helped the company’s euro- and dollar-denominated bonds gain momentum last week. This was in line with what market experts were telling Bloomberg at the time – namely, that they expected the Mexican government to continue supporting Pemex despite its massive debt load. (Indeed, Finance Minister Arturo Herrera told Bloomberg last week that the government would take some sort of action soon with respect to the company’s debts.)

Meanwhile, one of the largest international ratings agencies, Moody’s Investor’s Service, has pointed out that the stimulus package will contribute to the widening of Mexico’s fiscal deficit, which is set to reach the equivalent of 4.1% of GDP in 2021. In a statement, Moody’s said it expected Pemex to receive $14.7bn worth of state support this year.