Pemex launches plan to pay with bonds owed to large suppliers

This debt affects not only the suppliers due to this lack of resources, but also the company itself, which complicates its projects, such as achieving production goals, which is largely explained by the debt to suppliers”

Arturo Carranza, energy sector analyst

Pemex’s debt to suppliers, according to its report to the Mexican Stock Exchange in the first quarter of the year, amounted to 270,538 million pesos (about 13,500 million dollars), which increased by 2.5% or 6,482 million pesos in a year and which represents 29% of the company’s short-term liabilities.

Due to this burden, and thanks to the fact that Pemex has resources due to the situation of high oil prices, the government prepared a refinancing program that starts this Tuesday, designed for its large suppliers, that is, those in the exploration and hydrocarbon production, who would have accounts receivable for about 2,000 million dollars (15% of their debts with suppliers), according to the Reuters agency.

According to the company’s audited annual reports, 10 years ago, this debt to suppliers amounted to 61,513 million pesos, representing 26% of the current liabilities of the state company. This means that, in a decade, this debt has increased 4.3 times.

Arturo Carranza, an expert in the energy sector, told El Economista that the debt with suppliers continues to represent a significant amount for Pemex, which means that it is a problem of enormous weight for the company that, regardless of the efforts it has been making, has not resolved.

“This debt hits not only the suppliers due to this lack of resources, but also the company itself, which complicates its projects, such as reaching production goals, which is largely explained by the debt to suppliers,” said the expert.

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Therefore, this refinancing scheme consists in that suppliers with amounts greater than 5 million dollars with which Pemex has debts will be able to join as of this Tuesday a program of recognition of obligations and payment of eligible invoices by the state-owned, which consists of a pair-for-pair exchange of commercial invoices for Pemex global notes with a coupon of 8.75% and a maturity of 2029.

Thus, explained Pemex, the eligible invoices to be considered for the exchange are those pending payment denominated in dollars and due until May 31, 2022, with which they are granted a change of both currency and payment term. .

“This financial mechanism seeks to offer these suppliers and contractors an alternative to speed up the obtaining of liquidity”, explained Pemex, “the financial mechanism is implemented today through the signing of an Agreement for Recognition and Repayment of Obligations between Pemex and suppliers and contractors”.

Thus, the holders who decide to do so may obtain liquidity through a global notes remarketing process operated by a financial institution, which will be executed through an offer in the secondary market under rules 144A/Reg S of the law of United States securities, on a date agreed between Pemex, the holders and said financial institution, subject to market conditions.

market rate

The coupon rate of the global notes was set based on the Pemex market rate, taking as a reference the current bonds with a term similar to that of the global notes plus a premium for new market issuance.

“Through this financial mechanism, which was widely accepted by suppliers and contractors, Pemex achieves great progress in reducing its liabilities, endorsing its commitment to work closely with the companies that provide it with goods and services, contributing to the use of oil resources and the growth of Mexico”, the State oil company finally published.

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Those suppliers and contractors who choose not to participate in the remarketing process will be able to keep their notes.

Finally, said Arturo Carranza, it is possible that Pemex proposes this solution so that suppliers have a better cash flow thanks to the situation of the price of a barrel of more than 100 dollars, which benefits both the companies that work for Pemex and can start a reactivation, like the oil company itself, which has projects stuck due to lack of supplies.

How to enter the Pemex plan?

  • Suppliers with which Pemex has debts exceeding 5 million dollars may join the refinancing scheme, that is, large companies that, due to the magnitude of their activities, are practically in the hydrocarbon exploration and production sector.
  • The program consists of an acknowledgment of obligations and payment of eligible Pemex invoices for these service providers or sellers of goods.
  • There will be a one-to-one exchange of ordinary commercial invoices for Pemex’s global debt notes, with an interest rate of 8.75%, which is what Pemex has for its debt commitments.
  • Participants must have their debt in dollars and when they exchange for debt bonds, they will convert it to pesos, ensuring payment without volatility generating any uncertainty in the commitment.
  • Eligible suppliers are those with the most immediate debt maturity, until May 31, 2022, and their maturity is extended until 2029, assuring them interest and consolidated payment as debt of the Mexican State.

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