NY.- The fall in the Mexican financial markets has been almost general this month. Stocks, bonds, the peso — all have collapsed in the wake of a landslide election that investors worry will give too much power to the leftist ruling party, according to data released by the financial advisory company Bloomberg.
And then there is the debt of the state oil giant Petróleos Mexicanos.
Not only are the prices of the roughly $69 billion in bonds not falling, but some are actually rising. The logic, as expressed by a handful of Pemex bond bulls, is this: President-elect Claudia Sheinbaum will have a mandate so broad that she will be able to pass legislation that transfers some of the debt to the government, shoring up the country’s fragile finances. the company.
To some veteran Mexico watchers, it all seems a bit far-fetched. Sheinbaum, they point out, is not as obsessed with the company (and its role in society) as her predecessor, Andrés Manuel López Obrador. What’s more, the government would have to assume a large portion of Pemex’s debt (up to $50 billion, according to one estimate) for it to have a significant impact on the company’s finances.
His administration will be busy fulfilling its commitment to reduce the budget deficit, said Jesús Carrillo, director of economic research at the Mexican Institute for Competitiveness.
“Right now would not be the right time for the Mexican State to make this exchange and assume the debt,” Carrillo said. “I don’t think this is going to happen anytime soon.”
The irony, of course, is that Sheinbaum’s majority in Congress is fueling the sell-off in the rest of the Mexican markets. Investors are concerned that the Morena Party will use its advantage to pass policies that AMLO has long called for, such as changing the way judges are selected.
The peso has lost about 9 percent of its value against the dollar since the election, the worst performance among all currencies tracked by Bloomberg. Shares are down 4 percent.
A Pemex representative did not respond to messages seeking comment.
Pemex, one of the most traded emerging market corporate credits, has been an outlier amid the selloff. As prices rose, yields on similarly dated government bonds fell to their lowest level in at least two years.
“There is more room for Pemex spreads to continue to narrow,” said Christine Reed, portfolio manager at Ninety One. Having a majority “may lead the government to be able to achieve more material change at Pemex.”
It’s an investment case also driven by money managers Van Eck Associates and Ashmore. Investors will now turn their attention to the Sheinbaum administration’s picks for top jobs at the state-controlled drilling company.
“Pemex became more interesting, not less interesting,” said Gustavo Medeiros, head of research at Ashmore in London. If Sheinbaum “really succeeds in bringing in serious technocrats to run Pemex, that could be a game-changer and reduce much of the risk.”
Even if the government does not take immediate action to address Pemex’s debt problems, money managers see value because a capital allocation to the company is already included in the 2024 budget. Strategists at Goldman Sachs & Co cited this in the reiterate its recommendation to buy short-term bonds.
Sheinbaum, who remained secretive about her plans for Pemex during the election campaign, has since made statements reaffirming her promise to prioritize the state-owned company. Her Finance Minister, Rogelio Ramírez de la O, told investors this week that they would take advantage of congressional support to “optimize the good use of public resources.”
Pemex is the most indebted oil company in the world, with more than 100 billion dollars in obligations. Reducing its interest burden – which includes $6.3 billion in maturities this year alone – would require the government to absorb about half of the company’s debt, according to Citigroup strategists, including Donato Guarino.
Although the current administration has repeatedly pumped money into the company and significantly reduced its profit-sharing tax, bond investors view those solutions as temporary for a company that is plagued by other problems, such as shrinking the production of crude oil, the aging of facilities and a series of fatal accidents.
Repeated crashes, including one that set the ocean on fire, made the bonds uninvestable for some funds with ESG mandates. Since Pemex was reduced to junk by rating firms, investors who are only allowed to have higher quality credits had to dump the credit.
Carlos Carranza, a portfolio manager at Allianz Global Investors in London, sees no short-term solution for a company the size of Pemex.
“It’s almost like fixing a country’s macroeconomic imbalances,” he said. “I don’t think this is going to happen overnight.”
With information from Bloomberg.
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